The Interim Budget has shown hints of ‘minimum government and maximum governance’ through a combination of income tax cuts and higher social and rural sector spending. The fiscal consolidation glide path continues, with the fiscal deficit lower at 3.4 per cent (from 3.5 per cent last year). Although the target of 3.3 per cent was breached, it has come down from 4.5 per cent in 2014, which counts as a major success, as it has helped control public debt, interest payments and inflation.
The Budget proposals focussed on the middle class and the rural population. The removal of income tax liability for those who fall in the ₹2.5-5 lakh bracket will be of great help to the much-neglected middle class. With this move, 80 per cent of those who file income tax returns will no longer have to pay the tax and it will give a boost to consumption and growth. The farmer income support scheme (PM Kisan Samman Nidhi) of ₹6,000 per year will bring relief to distressed small farmers, particularly because this is a retrospective policy for which partial allocation is made in the current fiscal. While landless farmers will not benefit from this scheme, the increased spending on 12 crore beneficiary families will generate effects on the rest of the economy. The rural economy also got a public spending stimulus from significantly higher allocations in various schemes such as MGNREGA (spending is up by 9 per cent), irrigation scheme (by 15 per cent), rural roads scheme (by 22.5 per cent), rural drinking water scheme (by 49 per cent) and interest subsidy scheme (by 20 per cent).
In the education sector, the focus was firmly on science, engineering and innovation, in line with one of the 10 visions outlined by the Finance Minister for the next decade — building a quality, science-oriented educational system. It is disappointing to note the cut in higher education financing agency’s allocation by 23.6 per cent, as it was a good initiative to help educational institutions get soft loans for capital spending. The national education mission (encompassing literacy, primary education and teachers training) received an 18 per cent increase in allocation. This is a welcome move as our demographic dividend needs to be harnessed well at the primary schooling level. Jobs and skill development schemes have received higher allocation, by 48 per cent, which will help train our rising youth population to contribute to economic growth. Overall, the Budget is a fine balance between pre-electoral populism and fiscal arithmetic.
(The writer is a professor of Economics at Indian Institute of Management Kozhikode .)