Modi government's last attempt at wooing voters | The Daily Star
12:00 AM, February 07, 2019 / LAST MODIFIED: 01:25 PM, February 07, 2019

Modi government's last attempt at wooing voters

The implications of India's interim budget ahead of the polls

The impending parliamentary elections was written large on the final budget of the government of Prime Minister Narendra Modi in its current five-year tenure. With about two months left to the polls, it was meant to be an interim budget, but when acting Finance Minister Piyush Goyal presented it in parliament on February 1, it turned out to be almost a full-fledged budgetary exercise. The reason was obvious: the ruling Bharatiya Janata Party-led coalition did not want to let go a last chance to woo key segments of the electorate—farmers, workers in the unorganised sector and the youth—by rolling out key social security schemes that have implications for the government's revenue and expenditures.

Goyal, deputising for an ailing Arun Jaitley, made three main deviations from the conventions of interim or vote-on-account budget in the last year of any government: (i) the interim budget is a stop-gap mechanism for a few months and does not take any major spending or taxation proposal in order to give a free hand to the new government after the election; (ii) Goyal's budget speech of more than 100 minutes was too long for an interim budgetary exercise; and (iii) the government chose to go against the convention of implementing the new budgetary provisions—social security schemes for farmers and unorganised sector workers—with immediate effect instead of waiting for the new financial year to start on April 1.

The urgency imposed by the coming elections and the anxiety of anti-incumbency were palpable behind all the three departures from convention. Goyal has said that people's welfare cannot wait till April 1. But the question raised is why the government waited till the last few months of its five-year term to introduce the welfare.

A debate is already raging about whether the incentives in the interim budget of the BJP-led federal government may tie the hands of the new government after the polls. The new dispensation may be under pressure to roll back the incentives after taking a fresh look at the revenue-expenditure ratio and the need for fiscal tightening whose target has been missed by successive governments for the last many years. But then ethics and convention may be secondary when it comes to winning the electoral battle. 

A main reason for the interim budget's sops was apparently spurred by opposition Congress party President Rahul Gandhi's announcement of farm loan waiver that is thought to have contributed greatly to his party's victory in assembly polls in three heartland states of Rajasthan, Madhya Pradesh and Chhattisgarh last year and more recently the promise of a nation-wide minimum income guarantee scheme. Rahul's proposal for a minimum income guarantee is seen to be in response to reports about the Modi government's toying with the idea of a universal basic income scheme. One thing is clear: no party wants to be seen lagging behind in competitive populism especially when elections are round the corner. Modi termed the interim budget as a “trailer”, clearly hinting to the voters that more could be on the cards if he is voted back to power. Such is the power of electoral democracy that a government's conservative fiscal policy has to be compromised for social welfare measures for winning polls under a first-past-the-post system.

The main thrust of the budget was expectedly on an estimated 12 crore small and marginal farmers owning less than two hectares of land who would get Rs 6,000 per year as income support, ten crore unorganised sector workers who would receive pension of Rs 3,000 a month and the low-income middle class who have been given income tax breaks. A strong message emerges from the flurry of the sops about the economic vision of the Modi government: a consumption-led and demand-driven model of development rather than investment-powered.

Most economists agree that sustained high economic growth can be promoted only by increased investment a part of which will no doubt be determined by higher demand. But the interim budget is largely silent on infrastructure development investment. The budgetary sops were badly needed to counter the perception about the government's alleged failure to address the root causes of the long-festering agriculture sector distress and lack of job creation. The abolition of income tax for those earning Rs five lakh annually is aimed at helping a majority of the 30 million working population, a key part of the electorate. The budgetary goodies for farmers and salaried employees are expected to add to their disposable income and thus create room for boosting consumption and generating urban and rural demand. According to one estimate, the two schemes are expected to put in Rs 93,000 crore in the system. But this is too meagre an amount to be of much consequence to spur investment. The fiscal incentive envisage in the interim budget for the house construction has the power to revive the sector provided the interest rate on home loan is not raised further.

There is recognition in the BJP that its campaign template for the next general election needs to expand beyond communally divisive issues like National Register of Citizens, citizenship for non-Muslims from Bangladesh, Afghanistan and Pakistan and construction of the Ram temple in Ayodhya and covers the development agenda which is needed to rope in a sizable section of non-committed voters who are not enamoured about the party's Hindutva plank alone. A large chunk of those voters had backed Modi after falling for his developmental plank in 2014. Whether the interim budget can do that remains to be seen.

Pallab Bhattacharya is a special correspondent at The Daily Star.

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