01/03/2015 2:51 PM IST | Updated 15/07/2016 8:25 AM IST

The Budget Has The Stamp Of Delhi Elections On It

Hindustan Times via Getty Images
NEW DELHI, INDIA - FEBRUARY 28: Union Finance Minister Arun Jaitley during a Post-Budget press conference at National Media Centre on February 28, 2015 in New Delhi, India. During a press conference Mr. Jaitley said, 'I am sure all states will take the budget in the right spirit and contribute towards nation building. If there is development, the middle class will also benefit. If you see the relief that has been given to middle class tax payers in this budget and the last one, don't think they've been given that in past 68 budgets. Our approach has been to encourage the middle-class to save. We really have to cut down a very large part of the public spending.' (Photo by Vipin Kumar/Hindustan Times via Getty Images)

This Budget makes it apparent that the BJP is not right-wing in the economic sense. If it ever was inclined that way, the humiliating loss to the AAP in the Delhi Assembly elections has led to a route correction. Mr Jaitley sounded strongly populist with reiterated commitments to the poor, and glowing references to the JAM trinity and MNREGA.

The speech started with a long manifesto of commitments to the rural poor and to the undeveloped regions of the country. It articulated laudable aims in housing, electrification, roads, employment and education, mostly with a distant target date of 2022. Unfortunately, targets are rarely remembered at such distance, let alone fulfilled.

Among more immediate and concrete measures within this fiscal, the highly subsidised medical insurance scheme should be of real help to low-income persons. Research by MIT's Poverty Lab shows that sudden medical emergencies are a very common cause of savings depletion. We'll have to see what the costs really are on this account, however.

There were large handouts to the agricultural sector in terms of Rs 8.5 lakh crore of bank credit to farmers, and generous allocations to the Rural Infra Development Fund of Nabard, and to other channels of rural credit. With the greatest of respect to kisans, experience tells us that most of this money will be written-off, without ever being productively employed.

There were also warm references to the need to develop the Eastern region. It may not be entirely coincidental that Bihar and Bengal (Eastern states with large populations) have impending assembly elections in 2015 and 2016.

The allocations for fertiliser subsidies were marginally raised. The main feedstock for fertiliser is petrochemicals, which have dramatically reduced in price. The Rs72,000 crore fertiliser subsidy could easily have been reduced substantially. For comparison, the fuel subsidy (kerosene plus LPG) was halved to Rs30,000 crore from Rs60,000 crore. Another Rs30,000 crore hacked off the fertiliser subsidy could have been better employed elsewhere, in the social sector.

There will be enhanced expenditures of Rs70,000 crore on the infrastructure front. Most of that is to be spent in building new roads and rail connections, and augmenting power capacity. Obviously, addressing deficiencies in these areas will be useful. Equally obviously, this should help reboot activity in high-employment areas like construction and lead to increased demand for steel, cement, etc.

The question is, can this government resolve two persistent issues? First, it has to find ways of accelerating green clearances without destroying the environment. Second, it has to find ways of acquiring land for infra projects without sparking huge amounts of civil society resistance. The previous UPA governments signally failed at both tasks. Let us see if the Land Acquisition Ordinance actually can be pushed through and how effective that proves to be.

On the personal finance front, for anybody who is not super-rich, the enhanced exemption should help a little. The enhanced service tax impost will hurt, however. Instead of just hiking the non-taxable slab or cutting the income tax rates, the Budget tries to direct savings into specific instruments such as the new Pension Scheme, into health insurance and into tax-fee bonds. The new provisions against black money and hawala sound impressively draconian. Again, let's see how enforceable and actionable these new penalties actually prove to be in practice.

Corporates will be happy at the thought that the tax rate will gradually reduce over the next four years. But those with profits exceeding Rs1 crore will be unhappy at being forced to pay a higher surcharge on income this year (section 2.2 of the budget speech).

However, growth seems to be undergoing steady recovery and this is a pragmatic draft, which won't hinder the continuation of that, while scoring some political points. The stock market will not be ecstatic because expectations were ridiculously high. But after the initial disappointment, investors will continue putting money into the market. The disinvestment targets are reasonably credible, and the Fiscal Deficit target will also be met with one caveat: the price of crude had better stay close to current levels.

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