Acting finance minister Piyush Goyal had a daunting task before him for at least three reasons as he stepped in to present the interim budget.
First, he had to walk a tightrope to avoid the criticism that the government put time-tested conventions aside by presenting a sixth budget, while its tenure was for five years. Moreover, any major commitment made in the interim budget, especially by tabling a finance bill, could be seen to be dictating policies to its successor – more so, if the NDA does not return to power in May.
Goyal’s second compulsion was to placate disgruntled farmers, who had fuelled the discontentment against his government and were seen to be largely responsible for setting the tone for the defeat of the BJP and its allies.
A third compulsion was the leaked news about India registering highest level of unemployment in decades.
On the first count, Goyal would have been happy to see over his shoulder that P. Chidambaram had also presented an interim budget, and had also presented a finance bill. Thus, following the tradition set by UPA-II, the NDA government presented its so-called achievements, in what was effectively the first version of its election manifesto going into the hustings.
What’s on offer?
For a government facing the hustings, there cannot any other option but to offer largesse to the farmers, as agriculture continues to support, directly and indirectly, nearly 60% of the country’s workforce. The imperative for the NDA is even greater with rising farmer unrest against its government’s policies. Desperate situations call for unprecedented moves and Goyal did so by announcing a path-breaking scheme.
Under pressure from Congress president Rahul Gandhi who had declared his party’s intention to provide guaranteed minimum income to farmers, the acting finance minister announced the “Pradhan Mantri Kisan Samman Nidhi (PM-KISAN)” to provide direct income support to “vulnerable landholding farmer families, having cultivable land up to 2 hectares”.
Each identified family would be paid at the rate of Rs 6,000 per year, to be transferred directly into the bank accounts of beneficiary farmers, in three equal instalments of Rs 2,000 each. The programme would have an annual outlay of Rs 75,000 crore and would benefit around 12 crore small and marginal farmer families.
There are two interesting facets of this programme. One, it will be fully funded by Government of India, and two, the programme has been introduced retrospectively, from December 1, 2018. This means that the beneficiaries will be getting the first instalment before the end of the current fiscal, i.e. by March 31, 2019. Thus, for rolling out PM-KISAN, Goyal provided Rs 20,000 crore in the revised estimates of FY 2018-19.
Two sets of issues arise in the context of this new scheme. First, the government seems to have left out the most vulnerable sections of the farming community – landless labour and tenants – from the scheme. Secondly, the government does not seem to have factored-in the losses that the farmers have suffered in recent months because of steep fall in agricultural prices.
In short, the government has signalled that it still interested in taking piecemeal measures to address problems in the farm sector, instead of bringing a comprehensive policy framework that can provide a lasting solution to farm distress. This approach to farm sector problems comes out clearly from NDA government’s Vision 2030, which Goyal has presented in his budget speech.
NDA government’s flagship programme to provide jobs was the “Make in India” initiative, which, as announced by prime minister Modi in 2014, was to create 100 million new jobs by 2022 by increasing the share of the manufacturing sector in India’s gross domestic product (GDP) to 25%, from just above 16%. However, in the past four years, the performance of the manufacturing sector has not been robust enough to signal such a turnaround – the sector has grown a tad over 4%.
More importantly, the employment-intensive sector, namely, the micro, small and medium enterprises (MSMEs), have suffered the twin blows of demonetisation and the introduction of the Goods and Services Tax. This implies that the probability of manufacturing jobs being lost is quite significant.
Manufacturing sector has also been affected by the slowdown in the domestic investment rates. Before the official numbers began to be questioned, the domestic investment rate recorded was as low as those recorded in the early years of the millennium. In his speech, the acting finance minister, reported that his government had attracted the highest inflows of foreign direct investment. What he did not report was that repatriation of equity capital invested by foreign firms was also the highest in this period.
Lack of investor confidence seems to be an issue that needed immediate attention, but the Interim Budget ended up announcing only a plethora of populist measures instead.