With an eye on the forthcoming Lok Sabha elections, Finance Minister Piyush Goyal on Friday offered a bouquet of relief to farmers, taxpayers, unorganised sector workers, and real estate developers. In the process, he slipped on the fiscal deficit target, raising concerns from various rating and brokerage agencies.
The thrust of the Budget is on wooing both urban and rural voters who rejected the BJP in the recent Assembly elections of Madhya Pradesh, Chhattisgarh and Rajasthan. By making a big populist push, the Government has also tried to prepare a narrative that could be used to silence the Opposition and help the BJP in convincing the voters that the promise of “achchhe din” may become a reality if Prime Minister Narendra Modi gets a second term in office.
As expected the Government has kept its focus on large chunk of voting community — farmers, taxpayers, and housing sectors that provides employment to millions of laborers. The promise of pension to workers of unorganised sectors is also seen as major decision that could be turned into a “catchline” to woo the poor.
The Budget exempted people with an earning of up to Rs 5 lakh from payment of income tax and offered an annual cash dole-out of Rs 6,000 to small farmers while unveiling a scheme to provide a monthly pension of Rs 3,000 to workers in the unorganised sector.
While Prime Minister Narendra Modi said the Interim Budget was merely a “trailer” of what will guide India towards prosperity after the Lok Sabha polls, Congress president Rahul Gandhi said that the Government was giving Rs 17 a day to farmers after “destroying” their lives in last five years.
The sops offered by the Government will undoubtedly help it in the elections, but their implementation will be an arduous exercise.
In a country with no reliable job data in the unorganised sector, how the beneficiates will be identified is a million dollar question.
For example, whether a rickshaw-puller earns Rs 15,000 or Rs 20,000 a month is not easily verifiable. In most cases, the Government may not have any option but to either go by self claim or determine an earnings estimate in various sectors.
Similarly, the identification of farmers with up to two hectare holding is also not going to be an easy exercise. Family members may bring down the landholding to avail of the benefits, affecting the farm earning.
The stock market gave the Budget the thumbs up with consumption, agriculture, and auto stocks stealing the show, but banking stocks remained depressed with the announcement that farm income support scheme will result in the Government breaching its 3.3 per cent fiscal deficit target from the current year.
The populist measure will have far reaching impact on the Government fiscal consolidation target. For the next fiscal also, Goyal pegged the fiscal deficit at 3.4 per cent of the GDP, up from fiscal consolidation roadmap of bringing it down to 3.1 per cent in 2019-20 and 3 per cent in 2020-21.
“We would have maintained fiscal deficit at 3.3 per cent for 2018-19 and taken further steps to consolidate fiscal deficit in 2019-20. However, considering the need for income support to farmers, we have provided Rs 20,000 crore in 2018-19 RE (Revised Estimate) and Rs 75,000 crore in 2019-20. If we exclude this, the fiscal deficit would have been less than 3.3 per cent for 2018-19 and less than 3.1 per cent for 2019-20,” he said.
With farming community up in arms against the Government, Goyal announced a direct income support scheme for 12 crore small and marginal farmers by providing Rs 6,000 in their bank accounts in three equal installments in a year. This is estimated to cost Rs 75,000 crore annually to the Government.
Farmers with less than two hectares of cultivable land will be eligible to get benefit under the e scheme, called Pradhan Mantri Kisan Samman Nidhi.
The Budget proposed to implement the scheme from the current fiscal year and set aside Rs 20,000 crore for this purpose.
In a relief to lower middle class, the Budget proposed exempt from tax or those whose taxable income is less than Rs 5 lakh. But anyone earning more than Rs 5 lakh annually will continue to pay taxes at the prevailing rates: no tax on first Rs 2.5 lakh, 5 per cent on income between Rs 2.5 and Rs 5 lakh, 20 per cent on income between Rs 5 lakh and Rs 10 lakh and 30 per cent on earnings of over Rs 10 lakh. The measure will benefit nearly 3 crore taxpayers, including salaried classes, pensioners, self-employed and small businesses with total income of Rs 4 lakh. For those making investments of Rs 1.5 lakh in tax saving instruments, the tax-free income would be Rs 6.5 lakh. The rebate will cost the Government Rs 18,500 crore in revenue.
For those with taxable income in the range of Rs 7.5 lakh to Rs 30 lakh annual, the Budget proposed to raise standard deduction by Rs 10,000 to Rs 50,000. This would lead to saving of Rs 2,000 to Rs 3,000 in taxes to those falling in this income category. The Budget also exempted from deduction of tax at source for interest income earned from deposits in banks and post offices up to Rs 40,000 from current Rs 10,000. This would help all salaried taxpayers who lost out last year due to the removal of medical reimbursement and transport allowance exemptions.
In a boost to housing sector, Goyal announced no notional taxation on second house purchase, raised threshold of TDS on rent from Rs 1.8 lakh to Rs 2.4 lakh and allowed capital gains of up to Rs 2 crore made from sale of immovable property to be invested in two residential houses as against current practice of exempting such income if invested in one house within a year.