04 Feb 2019 19:55 IST

A consumption-driven Interim Budget

Sops for farmers, middle-class and unorganised sector employees

From a political view, full marks to the government for the Interim Budget. However, I am not sure how an economist would score it. The current government succumbed to populist measures in preparations for the upcoming general elections. However, in today’s economic conditions, small and marginal farmers and the middle class needed support from the government. The fiscal slippage, not for one but for two years, may lead to inflationary pressure, a hike in interest rates and crowding-out of private investments, which may have a lasting impact on the economy. Here’s a post-Budget analysis.

The cash-starved rural economy has been given a much-needed stimulus in the form of cash transfer, subsidy on interest rates and minimum support prices. Also, the 10-point vision for the next decade features rural industrialisation and rural infrastructure development which, if implemented efficiently and effectively, will hugely benefit the rural economy and the country as a whole. However, the interim Finance Minister Piyush Goyal, in his speech, did not mention on building irrigation infrastructure or connecting farmers to mandis in order to bypass the middlemen.

For the first time ever, a government in India has announced a pension scheme for employees in the unorganised sector with an income of less than ₹ 15,000 per month. The scheme is similar to what is there for the organised sector. The employee contributes a certain amount every month and the government will contribute the same, and at retirement the employee gets an assured pension of ₹3,000 per month. This policy will have a lasting impact on the lives of crores of families, who previously had no financial support post retirement.

The Finance Minister paid attention to jobs and skill development schemes, which received a 48 per cent increase in allocation as compared to the previous year. This increase will help train the rising youth population and enable them to contribute to economic growth. At the same time, no reformative policy was mentioned to revamp the education system.

India’s consumption story will get a huge boost, with an increase in gross disposable income of the tax payers. A number of sops have been given through tax rebate for taxpayers with an income of up to ₹5 lakh. And people with income of up to ₹6.5 lakh will not have to pay taxes if they make the certain investments. The increase in standard deduction, increase in tax-free interest income and changes in the long-term capital gains on residential property will serve as a huge stimulus to the economy through consumption and savings. However, the key here lies in balancing consumption, inflation, interest rates and the exchange rate. Also, the government is trying to reduce the GST on residential properties through the GST Council, which will benefit lower and middle-income people. Although this is not a part of the Interim Budget, it is an important point to be noted.

(The author is a final year MBA student at Flame University.)