A lot will be written about the Interim Budget 2019 over the next couple of days- some may applaud it, some may call it a “political budget” while others may continue to criticize it just as they’ve criticized everything that the government has done over the last couple of days. But the budget is nothing beyond a simple extension of the economic policies that the government has been following since the last four and a half years and it is a simple extension of the larger vision with which the Prime Minister of India led his 2014 campaign.
In many ways, the budget is historic in the true sense of the word as it recognizes for the first time that India’s approach to the farming sector has not worked. This recognition should have come decades earlier, however, for petty political considerations, successive governments have failed to recognize policy blunders and thus, they’ve not dared to correct them. There is no doubt that India’s Minimum Support Price policy has not helped in providing “income support” to India’s farmers, yet successive governments have relied upon this policy for a prolonged period of time.
There was an urgent need to move towards providing income support to farmers and the government has rightfully recognized it and provisioned for it by providing Rs. 6000 per annum to small and marginal farmers. This is significant as it recognizes the need to uplift the small and marginal farmers who own less than 2 hectares of land from abject poverty. A proposal for Targeted Basic Income by Dr Surjit Bhalla and me had advocated covering the entire poor population irrespective of whether they were rural poor or urban poor, however, it is reassuring to recognize that at least the government is partially accepting the concept of Targeted Basic Income. This may very well be a step towards the Targeted Basic Income program in the coming years.
Most commentators will look at the increase in income tax slabs as a move that is political in nature, but such a view is extremely myopic in nature. Successive governments have highlighted the low tax base in India, but they’ve been unable to correct the situation. The disruptive reforms of the government such as GST & Demonetization have led to a significant increase in India’s tax base. During demonetization, it was argued that eventually, a higher tax base will result in the tax burden being evenly spread across people. The interim budget witnessed this become a reality as the government gave major tax breaks to the middle class of India. This came with the government recognizing the contribution of the middle-class taxpayers towards some of its flagship redistribution schemes.
Another important aspect in this budget is that it demonstrates a vision till 2030 and provides a very clear dimension for evaluation of the progress on this front. In that manner, the budget rightfully looks ahead at our vibrant future. A lot of times it has been stated that the policies of the current government cannot be looked in isolation. This budget rightfully ensures that the continuity of policies is maintained. This is very important to ensure that there is a consistent policy framework that is in place throughout the country. We’ve moved a long way from the days of policy paralysis and this consistent policy framework is ensuring that investors and citizens can take decisions without any fear of uncertain changes.
The government continues to be committed to the program of fiscal consolidation and it has decided to stick to the 40% target for India’s debt to GDP ratio. This reiterates the commitment of the government towards strong macroeconomic fundamentals. It is evident with this budget that the government wants growth, but it also wants to focus on redistribution of the benefits of the growth to ensure that India’s growth is inclusive in nature. The fine print of the budget also suggests that the government has a clear sense of purpose in terms of its expenditure towards the development of future-ready infrastructure.
With GST in, the budget is no longer a document that tells us what will be cheaper or what will be expensive going forward, but it gives us a direction for our future. In that sense, today’s budget has very well placed the foundation for higher growth in the future while it redistributed some of the benefits of the past reforms.