By Manoj K. Sahoo and Prashanta Chandra   Panda in Gandhinagar, February 5, 2018: The Union Budget 2018-19 presented by finance minister Arun Jaitley on February 1 last is neither populist nor popular. There had been mixed response to the Budget from industry professionals, experts, tax analysts and economists.

However, the treatment given to it by the stock market on last Black Friday, i.e. a day after the Budget was unfair – about 840 points down (more than 2% down) in the BSE-Sensex in a single session led to wipe out more than Rs. 5 lakh crore of capital from the market, which was lowest in past 15 months.

The share market was burning led by sell offs from the Domestic Institutional Investors (DIIs) leaving retail investors panicked amid total confusion over the course of the market. On the second day of trading Sensex closed at 34, 757 points- down by 310 points and Nifty at 10,692 points – down by 68 points. The new burden of Long Term Capital Gains Tax (LTCG) of 10% over Rs one lakh net gains on equity investments of over one year period, including Mutual Funds is largely attributed to such a slide in the Sensex.

This was over and above the already existing Securities Transaction Tax (STT) imposed on every short term buying and selling. It may be argued, it was undesirable, as it was not imposed in last two decades and the modest amount of revenue (Rs. 11,000 crore) it will provide to the government. This unpopular tax rationalization could have been avoided, investors said; but as they do not form the significant voter base for the party in power, the government chose to impose some burden on them.

The retail investors impacted by LTCG are part of the Great Indian Middle Class, and the honest tax payers on whom another burden was imposed- the twin Education Cess for funding primary along with secondary and higher secondary education, was wound up replacing it with a Health and Education Cess of 4% on income and corporate taxes- up from the existing 3%.

The one percent additional tax burden on the salaried and other middle class was however not compensated by a much expected income tax slab revision- which could have been pacifying to the large middle class voters backbone of the current government after the inconveniences imposed by recent Demonetization and Goods and Services Tax (GST) reforms. But that didn’t happen. Possibly, the government chose to opt for a calculated risk- on ‘Selective Populism’ to pacify the most displeasured groups – the farmers and rural voter base, with an eye on upcoming assembly elections to eight states prior to the grand finale in 2019.

So, this Budget turns out to be farmer and rural focused – with two mega announcements, one, 1.5 times (i.e. 50% higher) of production cost as Minimum Support Price (MSP) extended to the Kharif crops and two, a massive Health Insurance Scheme of Rs.5 lakh cover for 10 crore poor families (for about 500 million people) to take care of their secondary and tertiary health care. The 50% guaranteed returns on weighted average cost of production, was recommended by M. S. Swaminathan (National Commission on Farmers). This was the pressure demanded by farmers in Madhya Pradesh and elsewhere for implementing Swaminathan formula in fixing MSP.

Government’s formulae for calculating cost of production are mostly A2 (actual cash & kind expenses incurred on seeds, fertilizers etc) and A2+FL (actual paid-out costs plus imputed value of family labour employed) as recommended by Commission for Agricultural Costs and Prices (CACP). The MSP of almost all of Rabi crops (wheat, chana, masur, mustard etc) and only urad, bajra and arhar among the Kharif crops are already in the range of 1.5 times the A2+FL production costs.

If government extends this formula to other Kharif crops, then it will substantially benefit the farmers- but with an equivalent displeasure among the middle class consumers on whom ultimately the subsequent rise in market prices of cereals will fall upon. For example, by this formula per quintal MSP price of paddy will rise from current level of Rs.1550 to Rs.1675; jowar from RS.1700 to Rs.2334; maize from Rs.1425 to Rs.1566; moong Rs.5575 to Rs.6429; soyabean Rs.3050 to Rs.3181 and cotton from Rs.4020 to Rs. 4914- which are in no way small and will significantly contribute to food inflation in coming months.

The newly announced National Health Protection Scheme of Rs. 5 lakh cover for 10 crore families covering about for secondary and tertiary health care is a comprehensive programme intended for benefits of the poor. Though the Budget does not mention the amount of expenditure to be incurred on it and the likely sources for it, the fiscal expansion for meeting this expenditure along with the infrastructure capital expenditure (capex) outlay is commendable despite worrying market trends.

Pregnant woman in carried to hospital on bamboo shaft in Odisha

Despite problems in primary health care services and need for creating rural primary health infrastructure, this health insurance coverage is going to be a milestone if properly implemented and adequately funded. What the government has done is quick extension of private health care to make it affordable to the poor. One worrying consequence of this however, is increased privatization of health sector services and likely increase in cost of health premiums as it is going to immensely benefit the private health sector players in expanding their market. This may further neglect the primary health care services for the poor.

The agriculture, fishery, allied sector and rural housing get Rs. 14.34 lakh crore allocation – up Rs one lakh crore from last fiscal. The core sector infrastructure gets Rs.5.9 lakh crore impetus, in particular, infrastructure inves

tments on roads, small cities airports and Rs 5 lakh Wi-Fi digital hotspots to bridge digital divide between rural and urban India. The hefty agri and rural infrastructure outlays are expected to generate significant employments in the rural India.

Moreover, railways’ plan outlay gets highest ever Rs. 1.48 lakh crore in the Budget, compared to current year’s Rs. 1.2 lakh crore, which is 22% higher than the revised Capex plan for this year. Besides, track modernization, electrification, modernization railway stations and procuring rolling stock, it plans for improving safety. 3900 km rail networks are targeted to be modernized next year against 3600 km this year with a provision for Rs. 20,000 crore Safety Fund, Wi-Fi for all stations and trains and electrification of 6000 km of rail network. With 36% (Rs. 53,000 crore) of the funds coming from the Budgetary support, rest of the plan outlay will be from Railways’ internal sources and borrowings- without much burden on the central government. This is pragmatic, measures much awaited, projects to be completed fast track- ultimately leading to job creation and better services.

Other significant thrust in the Budget was reduction of corporate tax rate from 30% to 25% for firms with turnover of upto Rs. 250 crore. Earlier, it was extended to firms with only Rs. 50 crore turnover – which is a welcome step. Majority of MSMEs are going to be benefitted from this step. The surplus generated by this can be utilized by the firms in enhancing their investment thus leading to further boost to employment. For MSMEs, more sectors are included now in fixed term contract labour employment. This will also ease employment for these firms and MNCs but how it solves problems of workers in times of retrenchment and recession is to be seen.

Another significant step taken in right direction is the rural housing scheme for one crore households with a provision for dedicated Affordable Housing Fund in National Housing Bank funded from the loan in the priority sector. This is not a short term goal and it will go a long way in providing affordable houses for the poor- but it has to be implemented on priority basis with clear completion of targets.

It can be seen, from above steps that the present government has tried to rationalize its goals of winning election with major thrust on agriculture, rural investment, infrastructure and rural health expenditure. But it will be unjustified to tell that the Budget is populist as government has taken calculative risks of earning the ire of the middle class and upper segment of the population in this drive.

To conclude, the move by the Modi Government to focus on agriculture and rural economy comes just months before assembly polls in eight states and 2019 general Lok Sabha poll notwithstanding the fact that around 12,000 farmers die every year in India. The moot question is – will the union budget succeed in arresting the suicidal trend of farmers in the country due to a host of reasons including absence of enabling support from the government?

(The Authors are Faculty Members of Economics at School of Liberal Studies, Pandit Deendayal Petroleum University, Gandhinagar.)