Union Budget Is More Politics Than Economics


The 2019-2020 ‘interim’ Union budget has obviously to do more with politics than economics, as the elections to the Lok Sabha are just a few months away. This is the most populist of the five budgets the Modi government has presented. It is a please-all budget, especially targeting farmers, unorganised workers and the lower middle class, the three sections that form the bulk of the electorate in the country. Of course, the Modi government is not the first government to distribute ‘sops’ to voters in an election-year budget. All governments before have done it. However, the Modi government is the first to make tax concessions to the middle class, giving something that an ‘interim’ budget is not expected to do. The budget has raised the income limit for tax exemption to Rs 5 lakh. This is aimed at giving relief to salaried persons, pensioners and senior citizens with an annual income of Rs 5 lakh after all deductions that are currently paying Rs 13,000 as tax including health and education cess. Those earning up to Rs 6.5 lakh would not have to pay any tax if they make tax saving investments of Rs 1.5 lakh in provident fund, mutual funds and tax saving schemes. More than 3 crore salaried persons, pensioners and senior citizens are expected to benefit from the raising of tax exemption limit.

That is not all the middle class has been given. They will have to pay TDS (tax deducted at source) on interest gained from bank accounts and fixed deposits only if the total goes beyond Rs 40,000. Currently interest beyond Rs 10,000 attracted TDS. Currently rental income from house property attracts TDS if it crosses the limit of Rs 1.8 lakh per annum. According to the new budget, the limit has been raised to Rs 2.4 lakh. In the recent months, the BJP lost three major states where it held power – Madhya Pradesh, Rajasthan and Chhattisgarh – and the defeat was partly attributed to middle class anger against the Modi government at the Centre and the BJP governments in the states. That is why the above concessions to 3-crore strong lower sections of the middle class. The fact that the budget has targeted the lower middle class is clear from the fact that it has not made any revision of the tax slabs. There is no exemption to individuals in the higher middle classes whose total income after all deductions is over Rs 5 lakh. Tax sops in the budget are not an across-the-board gift. It is targeted at the lower rungs whose numbers and votes count.

The budget has announced an income support scheme for farmers, which is a novel scheme. Under the scheme, which has been named Pradhan Mantri Kisan Samman Nidhi, every farmer with a holding of less than 2 hectares will get Rs 6,000 a year as income supplement. The amount would be paid in three instalments of Rs 2,000 each. The scheme is expected to benefit over 12 crore farmers. Although Rs 6,000 a year amounts merely to Rs 500 a month, a very insignificant amount even in the hands of the poor as it can hardly buy much of grocery or other daily needs, the scheme at least recognizes that like other sections of society, farmers too need an assured income. Their occupation is full of risks; their investments and expenditures are ruined if the weather fails or if a pest strikes their crops or if there is a market glut in the commodities they produce. However, it needs to be said that the kind of income support ‘benefit’ the government proposes to distribute to the marginal and small farmers does not suffice for their need for an adequate assured income. Farmers can have assured income only when they can have assured yields and assured markets. The marginal and small farmers could do without Rs 500 per month if the government could help them organise into production companies managed by themselves, as many of the farmers have done around Pune and many parts of the country, especially catering to the city markets, to make good earnings by themselves.

After the middle class and small and marginal farmers, the budget targets unorganised workers, that were hardest hit during demonetization, with a pension scheme. Every worker with a monthly income of Rs 15,000 would have to contribute Rs 100 a month to get a monthly pension of Rs 3,000 after 60 years of age. The scheme is expected to benefit 10 crore unorganised workers. Here again, as in the case of farmers, the real issue of creating jobs has been papered over. Unorganised workers need jobs to earn their livelihood in the present first, before bothering about pension when they grow old.