Budget 2018: Modi knows biz-friendly image doesn't pay in election year

Finance Minister Arun Jaitley's entire emphasis has been on the poor, with a few tweaks to the salaried, income-tax paying classes almost as an afterthought

With eight state elections scheduled to be held this year, and the general elections due soon after, it would have been surprising if the Narendra Modi government had not presented a Budget that was aimed at the bottom of the economic pyramid, as it were.

Finance Minister Arun Jaitley has not disappointed – his entire emphasis has been on the rural sector and the poor, with a few tweaks to the salaried, income-tax paying classes almost as an afterthought. As for the corporate sector, it cannot possibly be delighted at Jaitley’s proposals, simply because there was nothing in them to particularly enthuse them or spur investment. Not surprisingly, many of the bosses sitting in television channels looked a bit underwhelmed.

The big idea in Jaitley’s Budget is, of course, a healthcare scheme for 100 million vulnerable families, which he said could translate to 500 million Indians – almost 40% of the country’s population. Each family will get free insurance of up to Rs 500,000 (Rs 5 lakh) fully paid for by the government, on the lines of Obamacare. In a country where an illness can wipe out a family’s net worth, this scheme, if properly implemented, can provide much succour and undoubtedly the Modi government hopes and believes that it will please the masses.

This hope may not be fully realised. In the last Budget, the government had announced the National Health Protection Scheme, allotting Rs 100,000 (Rs 1 lakh) to each family for healthcare. The scheme has remained a non-starter.

Two critical questions about the new scheme remain unaddressed – first is the creation of sufficient infrastructure in rural and small town India, where even district level hospitals are poorly equipped and incapable of serving the local populace. So will this scheme be a mega opportunity for the private sector and big corporate hospitals?

The bigger question is, where will the money to fund this scheme come from?

The same concern applies to the plan of giving free electricity to 40 million (4 crore) rural homes, an election sop if ever there was one. The Budget outlay is Rs 160 billion (Rs 16,000 crore), which will add to the government’s burgeoning deficit.

The fiscal deficit in the last year stubbornly refused to remain within the pegged target of 3.2%, rising to 3.5%. The introduction of the Goods and Services Tax is said to be the reason for this. In the coming year, the government plans to achieve a target of 3.3%, surely a case of misplaced optimism.

Not surprisingly, barring a few adjustments to individual income tax, such as a higher slab for medical and transport reimbursements for salary payers and concessions to senior citizens, the finance minister has left the tax structure untouched. The much-expected introduction of the long-term capital gains tax, which stock market players were dreading, dampened spirits at the bourses, but the finance minister has no option but to mop up every rupee he can get.

While the minutae of the Budget will be analysed in the days to come, it is now clear that the government is in pre-election mode and will do everything in its power to reach out to the masses, or, in other words, the voters. In the last two years or so, it has done all it can to shed the perception of being a ‘suit boot ki sarkar’, conscious that while big business may fret about the economy, it is the vote of the common citizen that counts. 

The corporate sector, which had lost no opportunity to criticise the UPA for its ‘wasteful expenditure’ by way of schemes such as MNREGA, must surely wonder if, at least where populist schemes are concerned, the NDA is not another avatar of the previous government. But Modi is politically savvy enough to know that in an election year, it does not pay to be seen as too business-friendly. 

Published by arrangement with TheWire