11 February 2019
Prime Minister Narendra Modi’s government announced on 1st February an interim budget likely to boost his government’s popularity and woo voters in time for the 2019 General Elections. The budget, delovered by interim finance minister Piyush Goyal, includes several big announcements likely to benefit rural India and its lower middle-class populace. So let us have a look at who are clear winners in this budget announcement and who stand to lose the most through it.
India has its heart in its rural regions, with farmers forming a large chunk of the population. No surprises then, that the Modi government has come up with the Pradhan Mantri Kisan Samman Nidhi, a 750-billion-rupee farm income support program. It’s a basic income scheme for farmers under which those who own up to 2 hectares of farmland will receive ₹6,000 every year. The amount will be directly transferred to their bank accounts in three instalments. The average farm size in India is about 1 hectare, so this scheme is likely to help about 120 million land-owning farmers across the country.
After farmers, India’s informal sector workers are the clear winners in the budget. The government announced a “mega” pension program for the workers with income below ₹ 15,000; a monthly pension scheme of ₹ 3,000 to be given to these workers after they retire at the age of 60. This is a huge step because this scheme would benefit nearly 100 million Indian workers, who often have no job security or social benefits as they are employed in small enterprises. The scheme would involve a monthly contribution from the workers, of course, but the amount is minimal: ₹ 100 for those applying to the scheme at the age of 29 and just ₹ 55 for those enrolling at the age of 18.
Salaried employees earning up to ₹ 5 lakhs per annum are exempt from paying income tax, and those earning up to ₹ 6.5 lakhs will not need to pay tax if they invest in provident funds and prescribed equities. This is a major relaxation from the previous income cap of ₹ 2.5 lakhs, and it’s likely to benefit almost 30 million middle-class taxpayers.
The government is also set to provide tax relief to people owning more than one house. Currently, if you own two homes, assuming you earn rent from one of them (regardless of whether you do or not), the rent is taxed. The newest budget does away with this rule, although if you own more than two houses, the clause applies for the houses other than the first two.
Real estate sector
The real estate sector has a chance to rejoice as the government announced new measures to boost the buying of homes. During his budget announcement, Goyal promised a home for every person in the country and proposed the allowance of investments of ₹ 20 million from capital gains for buying two residential houses rather than the current allowance of only one. The administration has also increased the period of taxing unsold inventory in real estate to two years.
The budget involves increased spending on animal husbandry and fisheries, and an interest subvention plan for small and medium-scale businesses. The former would definitely benefit the people of rural India other than farmland owners, and the latter is likely to be helpful for companies with exposure to the villages, including motorcycle companies and others with interest in India’s villages, like Larsen & Toubro Ltd.
The startup community of India had high expectations from this year’s budget announcement, but they will clearly be disappointed. The hopes for a faster and easier method for license approvals as well as expectations of an increase in funding, especially for new tech like AI and blockchain, apparently proved to be futile. There was no move to help the startup community’s skills crunch or increase its funding.
Since most of the above schemes have been done at the expense of India’s fiscal deficit, Modi’s government will breach its fiscal deficit target this year, with the budget gap at 3.4 percent. This is the second year in a row that it has not met its target, and this is likely to affect bond holders if Moody’s or S&P downgrade India’s credit rating.
Most schemes for farmers focus on owners of farmland, but tend to ignore rural labourers who don’t actually own any land, and this year’s budget seems to be no different. Landless farmers are not going to benefit from the Pradhan Mantri Kisan Samman Nidhi, as they won’t be entitled to the annual support of ₹ 6,000. These farmers are usually extremely poor, and they are, unfortunately, some of the losers in this year’s interim budget.
Although the amount allocated for the Indian defence has increased in rupees (from ₹ 2.85 trillion last year to ₹ 3.05 trillion this time), the amount in dollars is less because of depreciation. The $ 44.5 billion last year has reduced to $ 40 billion this year. Most of the allocated budget is spent in recurring costs, which reduces the money available for new weaponry.
The budget announcement has made several people happy, and left some dissatisfied, as with any other budget. Overall, the schemes for farmers and the middle class seem to be a step in the right direction, but the startup community has apparently been left disappointed.