The Narendra Modi-led government’s last budget before the upcoming Lok Sabha elections is aimed at appeasing struggling farmers and the middle class. On 1 February 2019, Piyush Goyal, the acting finance minister, presented the interim budget—conventionally, at the end of its term, a government presents a vote-on-account, or interim budget, to meet the expenditure till the conclusion of the elections. The budget’s major proposals include an assured income-support scheme for farmers, income-tax rebates for the middle class and a pension scheme for the unorganised sector.
The budget announced the Pradhan Mantri Kisan Samman Nidhi scheme, or PM-KISAN, under which owners of cultivable land of upto two hectares will receive Rs 6,000 every year through direct bank transfers. The scheme—budgeted at an annual expenditure of Rs 75,000 crore—will come into effect retrospectively from 1 December 2018 and is expected to reach twelve crore small and marginal farmers.
The budget also introduced a full tax rebate for middle-class taxpayers with an annual income of up to Rs 5 lakh. Goyal extended the National Democratic Alliance’s pitch to the middle class with an additional tax rebate on incomes of up to Rs 6.5 lakh, if the taxpayers “make investments in provident funds, specified savings, insurance etc.”
Post the budget, Tushar Dhara, a reporting fellow at The Caravan, spoke to NR Bhanumurthy, an economist at the National Institute of Public Finance and Policy in Delhi. Bhanumurthy analyses the government’s economic proposals ahead of the general elections, and its potential impact on the ballot. “The perception that this government is giving them money is itself a big thing,” Bhanumuthy said, “though many may not even know if they are eligible.”
Tushar Dhara: What are your initial reactions to the budget?
NR Bhanumurthy:I don’t think it’s a surprising budget. It’s focusing on the elections by trying to please two major segments of the economy, farmers and the middle class. The budget proposals will be received well by these segments. It is a populist, election-oriented budget.
TD: What do you make of the income-tax proposals?
NRB: If you look at the Finance Bill and the speech given by the finance minister Piyush Goyal, there is a disconnect on the income-tax exemption. It doesn’t appear in the Finance Bill. I think it’s been left for the next government. In the Finance Bill proposals, the tax slab for individuals with income between Rs 2.5 lakh to Rs 5 lakh, the tax rate is mentioned as5 percent. In the budget speech, it says individual taxpayers with a taxable annual income up to Rs 5 lakh will get a full tax rebate and therefore will not be required to pay any income tax. There is a discrepancy between the budget speech and the Finance Bill and it may be because this is an interim budget.