It’s that time of the year when the media goes agog as we near the date of the general Budget. Last year the government took an unprecedented measure by merging the Railway Budget with the general Budget.
At a post-Budget meeting last year, former Finance Secretary S Narayan had said that, with 40 per cent of Central funds being devolved to States under the 14th Finance Commission recommendations headed by former RBI Governor YV Reddy, the Budget has lost a bit of its salience. But the hype around it still remains.
The coming Budget will be the government’s last full Budget before the 2019 general elections, and this has fuelled more attention towards it.
So, will the Finance Minister go in for a pro-farmer Budget with sops also thrown in for the poor and middle-classes, as many people are expecting?
Farm distress
Given the distress the farm sector has been going through, one would expect Arun Jaitley to address the concerns of this vital segment of the economy. It also makes eminent political sense. The farmers, after all, made a telling point at the recently concluded Gujarat elections which left the BJP rattled.
In Gujarat, the government had expected some anger from the business and trading community on GST. But surprisingly they voted for the BJP and it was the farmers who turned their backs on the ruling party.
There is of course a precedence for the government going in for a pro-farmer Budget. The erstwhile UPA government did something similar in the 2008 Budget, where it announced a massive ₹70,000-crore farm loan waiver. Many commentators claim it was this move, coupled with the success of the MGNREGA scheme, that helped the UPA retain power in the 2009 general elections. In fact, the Congress had come up with its best show in recent times, winning 206 seats in the Lok Sabha in those polls.
Farmers’ income security
Will this government tread the same path this time is the million dollar question. More importantly, agriculture is a State subject so the role of States is also crucial.
In a pre-Budget meeting with Jaitley, farmers’ groups had called for an Income Security Act for farmers, including tenant and farm labourers. Agricultural economist Ashok Gulati urged the government to set up a buffer stock for agri-commodities whose prices were ruling below minimum support prices.
Crucially, the farmers’ group also demanded a package to boost non-farm employment, an acknowledgement of the low income potential of farm labour.
Some reports in the media expect the Budget to provide a higher outlay for farm insurance, support prices and price deficiency payment — to bridge the gap between MSP and market price. Some analysts have also called for a package for rain-fed agriculture.
Fiscal deficit
Given the fiscal concerns, where the government has committed itself to stick to fiscal deficit at 3.2 per of the GDP, how viable will a massive farm loan wavier be? This government is very sensitive to the views of ratings agencies, especially the ones based abroad, which might take a dim view of massive farm loan waivers. So, will it risk the disapproval of rating agencies and bite the bullet?
Also, a farm loan waiver will have a huge impact on the banking sector, which is already reeling from a major bad loans crisis. The government released ₹88,000 crore for PSU bank recapitalisation on Wednesday with stringent reform and performance riders attached to it. Going by the rather fancy abbreviation of EASE — Enhanced Access and Service Excellence — banks can avail themselves of funds from the government only if they commit themselves to this reform and performance package.
Now the crucial question is: how will a massive farm loan waiver package sit with ‘EASE’?
Job creation
The Finance Ministry is also likely to increase the allocation for the rural job scheme MGNREGA. This scheme has played a crucial role in providing jobs to the rural populace, especially in times of crisis, and has also created key rural assets. Though the government was initially lukewarm towards this scheme as it was seen as a legacy of the erstwhile UPA regime, it quickly understood its economic and political significance.
Another key area crying out for attention is creation of jobs. But since this a medium- and long-term issue, there’s little a Budget can do. To create more jobs investments have to revive and the Centre can, at best, play an enabling role. But there are likely to be some key announcements on skill development in this Budget.
So all eyes will be on the Finance Minister and the tightrope walk he does in crafting a credible stimulus/pro-farmer package without the fiscal arithmetic going haywire.