The Modi Government’s Budget for 2018-19 carries the unmistakable sign of the BJP’s attempt to address the expectations of various sections of electorals who could decide its fate in the crucial Assembly elections later this year and next year’s general elections. In proposing several big bang social welfare schemes that could yield rich political dividends, the Government sacrificed its goal of fiscal consolidation.
In what is clearly an “election” Budget, the Government has proposed a major national health insurance scheme besides a massive hike in MSP for farm produce. The Budget also promises to provide free gas connection to 8 crore poor families and benefit to senior citizens in addition to making greater allotment for farm sectors.
The Budget has lowered women employees’ provident fund contribution, and proposed significant increase in allocation of fund for Scheduled Caste (SC) and Scheduled Tribes (ST). While there is not much by way of tax cut for the middle class, the Government has given it a sop of sorts by increasing standard deduction.
The major concession to farmers is on expected line. The agriculture sector was passing through serious distress and farmers were growing disenchanted with the Modi Government. The rural unrest found it reflections in the Gujarat Assembly polls where the BJP just managed to remain in power. Unlike several other schemes whose benefit takes time to reach to the targeted populace, the hike in MSP price will straightway improve the farmers’ income. The BJP will hope that this measure will give it a major poll plank to take on its opponents in the coming polls.
If farmers constitute a major political constituency, so do women voters. The Modi Government’s Budget has also tried to woo them in a big way by proposing to expand its free cooking gas programme to 8 crore poor families from 5 crore earlier. This should bring cheers to women who are forced to cope with smoke and soot of wood and coal stoves while preparing meals. The Ujjwala Yojana, conceived two years ago, has ensured record penetration of cleaner cooking gas among poor families, and is widely believed to have paid electoral dividends to the BJP in Assembly polls, triggering demand from the Oil Ministry to expand its scale.
However, the biggest of all proposal announced by Finance Minister Arun Jaitley is undoubtedly the flagship National Health Insurance scheme. The Government will hope that the benefit of this scheme will cut across caste and community line and give it a major talking point during poll campaigns. Health expenditure is a major issue for millions of household in the country.
It is unlikely that the scheme could be implemented in the next few months, but the BJP will expect to showcase it as the signing example of Modi’s care and concern for the less privileged strata of society.
Given its financial constrain the Government had little leeway to extent any tax soap to the salaried class. However, as symbolic gesture it proposed a standard deduction of Rs 40,000 in lieu of transport allowance and medical reimbursement entailing a revenue sacrifice of Rs 8,000 crore.
The fact that around 2.5 crore salaried employees and pensioners will benefit from this decision underlines the political significance of the decision.
Turning his attention to yet another section, Jaitley announced significant incentives for senior citizens. The Finance Minister said the exemption of interest income on deposits with banks and post offices to be increased from Rs 10,000 to Rs 50,000 and TDS shall not be required to be deducted on such income, under section 194A. This benefit shall be available also for interest from all fixed deposits schemes and recurring deposit schemes.
The Finance Minister also announced raising the limit of deduction for health insurance premium or medical expenditure from Rs 30,000 to Rs 50,000, under section 80D. All senior citizens will now be able to claim benefit of deduction up to Rs 50,000 per annum in respect of any health insurance premium and/or any general medical expenditure incurred.
The Budget has also tried to reach out to scheduled caste which largely voted against the BJP in Gujarat assembly polls. Jaitley announced the allocation of Rs 56,619 crore for scheduled caste welfare and Rs 39,135 crore for scheduled tribe welfare.
Jaitley said allocation to SCs was for 279 programmes for the community and the allocation to STs was for 305 programmes for the section.
All the welfare schemes, soaps and concessions came at the cost of fiscal slippages. The fiscal deficit target has been fixed at 3.3 per cent in 2018-19, which overshoot the goal of 3 per cent. The deficit for the current fiscal will stand at 3.5 per cent as against the government avowed target of 3.2 per cent.
In its attempt to mop up additional resources to meet its populist measures, the Government has also given a big blow to investors through the introduction of long-term capital gains tax and a tax on mutual funds. The twin measures along with fiscal slippage could have serious implications for the capital market and flow of investment in the country. But the Government has clearly set its eyes on the emerging political challenges.