Focus on farmers and rural infra, healthcare for poor in India Budget 2018
NEW DELHI, Feb 1: The Narendra Modi-led National Democratic Alliance presented a populist farm- and poor-friendly budget, as it prepares for key state elections this year and parliamentary polls in 2019. The highlights of the Union Budget presented by finance minister Arun Jaitley in an hour-and-45 minute speech that alternated between Hindi and English were undoubtedly: the promise that the government would acquire key crops at a guaranteed 150% (or 1.5 times) the cost of production; a spend of Rs 14.3 lakh crore on rural infrastructure; health insurance for around 100 million poor families up to a maximum of Rs 5 lakh a family; and a slew of incentives (and sops) for Micro, Small and Medium Enterprises (MSMEs).
“While making the proposals in this year’s budget, we have been guided by our mission to especially strengthen agriculture, rural development, health, education, employment, MSMEs, and infrastructure,” Jaitley said in his speech.
Eight states go to the polls this year, and the Lok Sabha polls are scheduled for next year, although there has been buzz that the Bharatiya Janata Party (BJP)-led NDA may be considering bringing them forward – buzz that grew louder after Thursday’s budget which struck all the right political notes. The Indian economy is reviving, although there are risks to this, but the bigger concern for the government is an ongoing agrarian crisis in several states, a slowing rural economy, unemployment, pain in the MSME sector (on account of 2016’s demonetisation exercise and the 2017 introduction of the Goods and Services Tax), and the growing political mobilisation of Dalits. The budget had something for each of the affected constituencies.
Increased spending in 2017-18, and just 11 months of revenue from the unified GST meant the government missed its fiscal deficit target of 3.2% of GDP and touched a deficit of 3.5%. The deficit is expected to reduce to 3.3% next year, when most of the government’s populist schemes will kick in; the original deficit targeted for 2018-19 was 3%. The government also appears to have made aggressive assumptions for tax receipts next year, although there has been an increase in the number of both individual and corporate tax payers in the past year.
The increase in the fiscal deficit, and fears that the guaranteed 50% return on crops would result in inflation, made bond markets nervous. “Under normal circumstances, a modest slippage in the fiscal deficit this year and the deviation from the earlier target of 3% next year would seem fair and sensible, but given the nervousness in the bond markets, perhaps a more aggressive fiscal consolidation was required,” said Abheek Barua, chief economist at HDFC Bank.
The stock markets, meanwhile, were spooked by the introduction of the long-term capital gains tax on gains on shares held for over a year, although this was widely anticipated. The Sensex, the benchmark stock index of the BSE, closed .16% down at 35,906.66. The index had gained 5.6% in the run-up to the budget.
Still, it was clear that the focus of the budget was not business, although the government did signal its commitment to structural reforms that have made it easier to do business in India. Nor was it the salaried middle class, which will likely pay more income tax (because of a 1 percentage point increase in the cess) and also have to pay more on imported products including mobile phones and cosmetics
“This budget is farmer-friendly, common citizen-friendly, business environment-friendly, and development-friendly. It will add to ease of living,” said Prime Minister Modi who added that the budget would strengthen the vision of New India.
Opposition leaders disagreed. “It is a defeatist budget. It is the budget of a government which has conceded that it has failed to address key issues in the economy... The budget proposals are a big let down,” said former finance minister and Congress leader P Chidambaram. CPM general secretary Sitaram Yechury described the budget as “unconnected to ground realities”, while Congress president Rahul Gandhi took to Twitter to attack the government: “4 years gone; still promising farmers a fair price; 4 years gone; fancy schemes with no matching budgets. 4 years gone; no jobs for our youth. Thankfully, only 1 more year to go.”
The focus of Budget 2018 is clear proof that the NDA is all too aware that there is only one more year to go.
‘Modicare’ to provide health insurance to 500 million Indians
NEW DELHI, Feb 1: The Narendra Modi government has announced a transformative public health programme offering health insurance cover of up to Rs5 lakh to 100 million poor and vulnerable families, with the benefits expected to reach 500 million individuals, 40% of India’s population.
“It is taking health care to a new aspirational level as it is going to be the world’s largest government-funded programme,” said Arun Jaitley, finance minister, in his budget speech about the National Health Protection Scheme (NHPS), which is being referred to as ‘Modicare’.
It’s the world’s biggest health protection scheme by size, not budget, and will raise health cover by up to 17 times from the existing Rashtriya Swasthya Bima Yojana (RSBY) that caps it at Rs30,000 per year. The outlay for RSBY went up from Rs1,000 crore in 2017 to Rs2,000 crore this year.
Only 28.7% families in India have at least one person who is covered by some form of health insurance, according to the National Family Health Survey-4 (2015-16).
NHPS was first announced in the 2016 budget, but didn’t take off. In its first avatar it offered Rs1 lakh cover, with a top-up of Rs30,000 for senior citizens. “It couldn’t get implemented but that scheme is now subsumed by this current scheme,” said Manoj Jhalani, mission director, national health mission at the health ministry.
Once fully rolled out, the scheme could entail an annual premium outgo of between Rs2 lakh-crore and Rs2.5 lakh crore, but experts say money is not an immediate concern.
The sheer size of the scheme will help state governments negotiate costs of services.
Big salary hikes for President, VP, governors and MPs
NEW DELHI, Feb 1: Finance minister Arun Jaitley on Thursday announced a threefold increase in the emoluments of the President, the vice-president and the governors of states, and a nearly 100% hike for Members of Parliament.
He also rolled out a mechanism to fix salaries for parliamentarians, allowing an automatic revision every five years, indexed to inflation.
The hike for MPs, which has been a long-standing demand from lawmakers, will roll out from April 1 while the automatic revision mechanism will come into effect in 2023.
Officials said that an MP’s total emoluments are likely to go up from Rs 1.4 lakh to Rs 2.3 lakh per month. The basic salary will increase from Rs 50,000 to Rs 1 lakh, as proposed in the finance bill. In addition, constituency allowance is likely to rise from Rs 45,000 to Rs 70,000 and office expenses and secretarial assistance from Rs 45,000 to Rs 60,000, said officials. There will, however, be a cut in travel allowances for MPs.
The monthly salary of the President has been revised to Rs 5 lakh, vice president Rs 4 lakh and governors Rs 3.5 lakh, Jaitley said in the budget speech. Their previous salaries were Rs 1.5 lakh, Rs 1.25 lakh and Rs 1.1 lakh respectively. The proposal to hike the salary of the President, who was getting paid less than the top bureaucrat of the country after the implementation of the seventh pay commission, had been pending since last year.
Jaitley said that there has been public debate and criticism with regard to the emoluments to the MPs, which, according to the current practice, allows them to fix their own salaries though a bill in Parliament.
“I am, therefore, proposing necessary changes to refix the salary, constituency allowance, office expenses and meeting allowance payable to Members of Parliament with effect from April 1, 2018…I am sure the honourable members will welcome this initiative and will not suffer such criticism in future,” he said.
President Kovind advocates simultaneous elections
NEW DELHI, Jan 29: President Ram Nath Kovind backed the idea of simultaneous Lok Sabha and state elections in his speech marking the beginning of the budget session of parliament, repeating an idea that has found increasing currency in recent times and which has been advocated by Prime Minister Narendra Modi.
The President said frequent polls were a burden on human resources and hampered development work due to promulgation of the model code of conduct.
“…a sustained debate is required on the subject of simultaneous elections and all political parties need to arrive at a consensus on this issue,” Kovind said in his joint address to the two Houses of Parliament.
Modi too asked leaders of the National Democratic Alliance to works towards creating an environment in favour of simultaneous polls, the representative of a party allied with the Bharatiya Janata Party said after a meeting of the ruling alliance which was held in the evening. Modi said leaders could start a debate and help create a positive atmosphere, this person added. A continuous cycle of elections across the country harmed development works and cost a lot of money, the person reported the Prime Minister as saying.
Monday’s remarks by the President and Prime Minister added to speculation that the government could bring forward the Lok Sabha election, due in May 2019, to late 2018 and time it with elections in some key states. Four states — Chhattisgarh, Rajasthan, Madhya Pradesh and Mizoram — will go to the polls in December. And at least three state elections are due a few months after the Lok Sabha elections. Most of the states due for elections over the next one-and-a-half years are ruled by the BJP-led NDA, and changing poll schedule would not be difficult, a BJP leader said on condition of anonymity.
“Kuchh hai bhi toh main thode hi bata doonga (If there is something, will I tell you?). It doesn’t work like that,” BJP president Amit Shah said in an interview last week in response to a question to the effect.
The idea isn’t new. “One nation one election” has been discussed for many years, with the Law Commission making the suggestion for the first time in 1999.
A standing committee of Parliament flagged the cost of conducting elections and the impact of a continuous wave of elections on development in a 2015 report while making the case for simultaneous polls. The change would save public money and end policy paralysis because of the model code of conduct that parties have to follow once an election is announced and which prevents the government from taking any decision that can potentially influence voters. The report pegged the cost of Lok Sabha and state assembly elections at Rs 4,500 crore.
In his speech, the President also listed a raft of schemes undertaken by the Modi government for the welfare of women and poor — two constituencies the ruling BJP has tried to cultivate after storming to power in 2014.
The President’s address is a policy statement of the government, which prepares the speech.
Kovind also spoke at length about the government’s commitment towards the welfare of farmers, who are battling distress over shrinking profits. “My government is committed to doubling of farmers’ income by 2022,” he added.
Kovind also pushed for the passage of the triple talaq bill, saying for decades the “dignity of Muslim women has remained captive to political cost-benefit”.
The Lok Sabha passed the bill that seeks to criminalise the Islamic practice of instant divorce during the winter session but the legislation is stuck in the Rajya Sabha, where the ruling alliance is in a minority.
Economic Survey says Indian economy expected to grow at 7-7.5% in FY19
NEW DELHI, Jan 29: The Economic Survey says the worst is over and the Indian economy is poised to rebound to grow in the range of 7-7.5% in 2018-19.
It credits this recovery to structural policy fixes, including the decision to put in place a bankruptcy code to deal with the bad debt problem--which it believes had become a binding constraint on economic growth. According to the Survey, demonetisation of high-value currencies, together with the roll-out of the Goods and Services Tax (GST), has led to more people being brought under the tax net and the formal economy is much bigger than what it is estimated at.
Optimistic while the Survey is, it makes out a case for policy vigilance to deal with downside risks stemming from rising crude oil prices and any setback to the ongoing recovery of the global economy.
“If macro-economic stability is kept under control, the ongoing reforms are stabilized, and the world economy remains buoyant as today, growth could start recovering towards its medium term economic potential of at least 8%,” the Survey said.
The Survey, authored by a team led by chief economic adviser Arvind Subramanian and presented in Parliament by finance minister Arun Jaitley on the first day of the Budget session, cites high-frequency data such as exports, factory output and non-food credit growth to up the growth estimate for 2017-18 to 6.75% from 6.5% projected by the Central Statistics Office (CSO).
Given real GDP growth of 6% in the first half (April-September) of 2017-18, this implies that growth in the second half (October-March) would rebound to 7.5% in the fourth quarter (January-March).
The statistics department will release the third quarter GDP data on 28 February.
Setting the reform agenda for the next fiscal, the Survey makes out a case for shrinking unviable public sector banks, privatising Air India, facilitating easier GST compliance and decisively resolving the bankruptcy cases.
Former finance minister and Congress leader P Chidambaram said the survey was depressing but candid. “The future course of the economy is conditional on many ifs. After listing the unfinished work (and there are many), the Survey seems to prepare the grounds for failure by praying that the world economy maintains its growth momentum and oil prices do not persist at current levels. The outlook is therefore uncertain, if not bleak,” he added.
The Survey acknowledged the electoral pressures on a government in the final year of its term, and batted for less aggressive fiscal consolidation.
It said setting overly ambitious targets for consolidation—especially in a pre-election year—based on optimistic forecasts that carry a high risk of not being realized will not garner credibility. “Pragmatically steering between these extremes would suggest the following: a modest consolidation that credibly signals a return to the path of gradual but steady fiscal deficit reductions,” it said.
Jaitley has set a fiscal deficit target of 3.2% of GDP for 2017-18 and aims to lower it to 3% in 2018-19. However, less than expected revenue collections, especially after implementation of GST, and higher expenditure could generate fiscal pressures.
The Survey foresees higher than expected inflation in the second half of the current fiscal and projects a nominal GDP growth rate of 10.5% against 9.5% estimated by CSO. This could help the finance minister to contain the fiscal slippage in 2017-18.
The Survey also cautioned against the eventuality of a sharp correction in elevated stock prices, which could provoke a “sudden stall” in capital flows. Since end-December 2015, the Sensex has surged 46% in rupee terms and 52% in dollar terms.
It, however, acknowledged the decision of the National Democratic Alliance (NDA) to rationalise subsidies by restricting it to the poor. According to it, there has been considerable progress in providing bank accounts, cooking gas, housing, power and toilets to improve the lives of the poor and marginalised.
“The pace and magnitude of this improvement (in the lives of the poor) will depend upon the extent to which increased physical availability/provision is converted into greater actual use,” the Survey observed.