Economic Highlights

New Delhi, 21 January 2019

Pre-Election Budget

POPULIST & POLITICAL IT MAY BE

By Shivaji Sarkar

In the midst of an election year, this time the Union Budget though technically may be slated as “interim”, but practically it is likely to be a full budget, with if not major ones at least many populist announcements. Plus, it will be another first for the Modi government after it shifted the presentation of the Budget to February 1, instead of the last day of the month.

Even if a government returns to power in an election year, the practice has been to present the interim budget and the President’s address would be put off to the first session after the new government takes over. As per practice, a vote-on-account or approval for essential government spending for a limited period is taken before the polls.

Article 87 of the Constitution provides two occasions when the President specially addresses both Houses of Parliament. He/she addresses both the Rajya Sabha and the Lok Sabha at the beginning of the first Session after each General election when the reconstituted lower house meets for the first time. The President also addresses both the Houses at beginning of the first session of each year.

This time after many elections, the government is opting for the latter option to exude confidence and give a pregnant political message that it is coming back to power after the polls. The Opposition may protest but that would be for academic purposes. And, unlike other election years, this year the session would not be in continuation of the Winter Session, as it was prorogued mid-January to help the government re-promulgate some ordinances, including one on Triple talaq.

There is no constitutional bar on making announcements as well. The advisors of the government have suggested making the best use of this window period. The President’s speech essentially highlights the Government’s policy, priorities and provides a broad framework of the government’s agenda and direction. So the unfinished agenda could be completed to attract the people rather the voter. That is a tall order.

Undeniably, the recent State Assembly elections brought to the fore a growing discontent among the public. The core assessments within the Parivar have sent out warning signals on the Government’s performance. It is only likely that heeding to the advice, the Budget could have a more expanded section of tax proposals, including a number of direct tax announcements.

Industry organizations such as the FICCI and CII have paved the way for announcement of populist measures, particularly on direct taxes. The former has suggested raising the 30 per cent tax rates to individuals earning of over Rs 20 lakh a year, from the current Rs 10 lakh. It also suggested a cut in corporate tax to 25 per cent. The CII is for giving more benefits to the employees and retired persons. It demands Income Tax exemptions on medical reimbursements and hospitalisation expenditure for treatment in India or abroad. There are suggestions also to avoid double taxations on items like Provident Fund.

Transporters have been demanding removal of toll gates. They are prepared to pay one-time fee on each of their vehicles. The tolls have been causing congestion and adding to their travel time, mounting heavy expenses despite online tags. Besides, Rs 1.13 lakh crore is being collected through Rs 8 a-litre road cess on petrol making tolls unnecessary. As a result both the Government and NHAI are making huge profits.

Since the farmers and rural voters tilted the balance in the recent State elections, both the Agriculture Ministry and NITI Aayog are debating and discussing possibilities for announcement of a farmer income scheme -- a la Telangana pattern -- on the basis of their land holdings. There may be proposals also for helping the farming class in their marketing endeavours.

Besides, there are complaints of tax notices being served on Start-ups. This has caused annoyance. Simplification of procedures may be considered and a tax holiday may be announced.

In the previous Budgets, the middle class particularly felt ignored. It has the capacity to create political atmosphere and along with the farmers is piqued at the continuous increase of petroleum prices. Notably, the recent hike in diesel prices, have hit both the farmers and transporters hard. They may be expecting a relief. The simplest is to bring the products under GST. However, the Government may avoid doing it and instead, may announce relief to petroleum companies for investment in exploration and their marketing activities.

The proposal looks “rational” as the country needs more of oil. But it is also to benefit some large private companies, which want to invest in the sector. Besides, petrol price hikes are also said to have been done to benefit them.

Then in the midst of hue and cry on the quixotic order of the National Green Tribunal (NGT) scrapping of ten-year-old vehicles, there could be an announcement. Some government agencies have also told the Government about the impractibility of this order, wherein policing and impounding of such vehicles is more expensive. In addition, destroying the cars needs money and they have said that the junk itself would be an environmental hazard. It is also sending a negative message, which may be corrected.

On the banking side, there are demands for allowing banks to accept more cash for transfers and ease online transfer rules. Presently, businesses and traders are finding it difficult to transfer their cash earnings from remote areas even to their own accounts. As per present government orders, banks do not allow cash transfer through NEFT/RTGS. This has led to a thriving parallel banking system, which is causing great annoyance. The business class has told the Government that this generates more black money instead of preventing or checking it.

Therefore, the Government has also been told to encourage more cash transaction for ease of doing business, make bank’s KYC rules simpler, base it on the permanent account number (PAN), which is linked to Aadhaar and do away with cumbersome procedures every now and then. Then the World Economic Forum has said that India’s cyber transaction system is fraught with risk. This has also led the businesses to stress on cash transactions and they say that this would not lead to any “black” transactions.

Importantly, it is no secret that cash has been and is being used in elections. Before Assembly polls the Reserve Bank of India noted huge cash withdrawals and this only proves that the purpose has not been served. The list is indeed long. The government may not cover all of it, but it is unlikely to lose an opportunity to pander to the people’s wishes and reap benefits at the hustings.---INFA

(Copyright, India News & Feature Alliance)