Economic Highlights

New Delhi, 3 February 2018

Budget Shift

FROM INDUSTRY TO AGRICULTURE

By Shivaji Sarkar

Is it the beginning of a change in the focus of the Union Budget? The 2018-19 Budget seems to mark a departure. Since the globalisation budget of PV Narasimha Rao as Prime Minister and Manmohan Singh as Finance Minister the Budget base has been that of the corporate, industry and weaning all away from the farms. Globalisation harped on farming being expensive, does not provide much remunerative livelihood, so shift to industry. And that food grains could be imported by raising and exporting cash crops. It hit agriculture hard -- production tumbled, farm income dwindled and suicide by farmers spurted and led to massive migration to cities.

A slow change has ushered in since 2014 by Prime Minister Narendra Modi-Finance Minister Arun Jaitley duo. The NDA-BJP government in 2018-19 has chosen to focus on the long-neglected farm sector. It is designed to help distressed farmers while boosting jobs and the private sector.

Agriculture, Jaitley says, is being treated as an enterprise. The emphasis is on realising higher prices for farm products, generating on-farm and non-farm employment for the farmers and landless families.

The Budget aims at creating 70 lakh formal jobs and appears too holistic. Among other things, it promises to develop slums with Rs 20,000 crore CSR funds, electricity to four crore families, 24 new medical colleges, 18 new schools of architecture, Rs 1 lakh crore over four years to revitalise school infrastructure, 1.88 crore toilets, Rs 2 lakh crore for developing 100 smart cities.

Some can call it a political budget as this one paves the way to the 2019 General Elections. They forget that the budgetary process is politico-economic. People’s aspirations are tried to be achieved through Budget the world over.

The confidence of the government that the policy shift would stem mass departure of rural people is also seen through the proposal to build one crore houses by 2022, half of it in the rural areas. The companies with exposure to agriculture emerge as major winners. Allocation of Rs 2,000 crore for –e-market of 485 APMCs and now the plan to connect 22,000 Gramin agricultural markets or popularly known as haats may ease selling of farm produce.

The beginning of production cost plus 50 per cent price scheme for crops – called bhavantar in Madhya Pradesh – may be the harbinger for a remunerative price to make farming profitable. The formula was suggested by the MS Swaminathan committee in 2006 but it was not implemented by the Congress-led UPA-I and UPA-II.

But could any government eternally support such systems for long? Soaring soyabean price to Rs 4000 a quintal after farmers sold their produce at Rs 2700 in MP this year suggest that even benevolent approaches need fine tuning and a rethink. Doubling allocation for food processing to Rs 1400 crore and plans for food parks is a good idea. This could help if farmers and SMEs are ensured a share else large firms would monopolise the parks.

The Budget is likely to raise the issues of edible oil and promoting GM soya as human food while in Europe it is allowed only as cattle feed. The palmolein and soya oil lobbies have not allowed categorisation of coconut oil, consumed in many southern States, as edible oil. The government should consider this to widen its base.

Cultivation of horticulture crops, Rs 500-crore Operation Greens for tomato and potato, organic farming, Rs 1290 crore bamboo mission, cluster-based development of agri-commodities, Rs 200-crore medicinal and aromatic plant are aimed at changing the fortunes of farmers.

An ambitious, possibly world’s largest, flagship National Health Protection Scheme (NHPS) aiming to insure as many as five crore families-- 50 crore people, 45 per cent of the population, is projected to benefit large rural populace. Each family is projected to be covered for Rs 5 lakh insurance. But it requires clarity on how the fund would come or what would be its premium. The scheme was announced in 2016 budget too. The Prime Minister reiterated it in his last Independence Day speech. The Rashtriya Swastha Bima Yojana (RSBY) was intended to raise the coverage to Rs 1 lakh, but it has not happened. 

The NHPS may benefit the large corporate hospital chains dependent on mediclaim. The plan to create a behemoth of public sector general insurance companies (GIC) by merging the three largest GICs may be linked to NHPS. The merger will be paving the way for disinvestment of the behemoth. Jaitley pegs to raise Rs 80,000 crore through divestment of 24 PSUs. This fiscal government raised Rs 1 lakh crore. But the administrative cost of mergers has also to be assessed. The ONGC-HPCL merger cost Rs 42,240 crore in 2017-18.

Jaitley needs to have a relook at his income tax proposals. He replaces discounts on medical and transport expenses with standard deduction (SD). Instead, he should have raised the minimum limit to Rs 3 lakh a year to keep in tune with inflation and win popular support.

Income tax (I-T) in itself is retrograde. It deprives any salaried person of his five months’ earnings and reduces purchasing capacity. Suppressing the middle class calls for a recheck. More so as corporate tax is cut to 25 per cent plus 4 per cent education and health cess. Asking the individual income-tax assessee to pay at 30 per cent plus 4 per cent cess, an increase of one per cent is not prudent.

Exemption of interest accrual, it is not earning, on savings and fixed deposits, up to Rs 50,000, hike in health insurance premium exemption for senior citizens and removal of TDS for them is some relief. But the FM should reconsider and lower the I-T rate for giving the economy a boost.

The Modi government has done many innovations, including GST implementation. Taking a small risk and drastic cut in I-T may go a long way at boosting the industrial activity and government revenue. This apart, it would send a message that Modi government is not only keen on welfare but also wants to ensure ease of living at all levels. It can be a positive signal for pouring in of FDI.

The stock market has shown its concern on tax proposals. It has not taken kindly to the long-term capital gain tax on equities or locking in equity for a minimum of one year.

Despite that the last full budget of the Modi government appears to be on a mission mode to strengthen agriculture, rural development, health, education, employment, MSME and infrastructure for transforming India. ---INFA

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