Socialism for the Rich, Capitalism for the Poor in Budget 2017

The PM has reached out to the raising agricultural credit to Rs. 10 lakh crore. The highest-ever allocation for MGNREGA, the promise to pull one crore people out of poverty, and the boost for rural housing will all erase Modi’s anti-poor image. Providing more than 1.5 lakh gram panchayats with the high-speed broadband internet is in line with the government’s thrust on going digital. Thus, it is clear that increase in rural spending has been carefully thought out against the backdrop of the Assembly elections. On the other hand, fiscal deficit has been kept to 3.2%. Measures to boost infrastructure may encourage local industrialists. The decision of doing away with the Foreign Investment Promotion Board (FIPB) will ease foreign direct investment (FDI). More such measures to liberalise FDI policy are likely. The government seems apathetic to growing non-performing assets (NPAs) and debts in banks. The initiative to create employment has been neglected severely in the Budget. Surprisingly, there is little boost for the government’s ‘Make in India’ initiative. Here’s an analysis of the Union Budget by Navodita, exclusively for Different Truths.

First things first. A colonial practice prevalent since 1924 discontinued when the Union Budget (henceforth Budget) was announced on February 1, unlike the month-end. This beginning of a new tradition was to enable the Parliament to avoid a Vote on Account and pass a single Appropriation Bill for 2017-18, before the close of the current financial year. All in all, this Budget seems to be the BJP’s move to heal the wounds of the poor, farmers and the lower middle class hit by the demonetisation move ahead of the Assembly elections in five states. There were few sops for the corporates and none for the urban middle class. The government has been careful to woo the rural sector, simultaneously driving digitisation all across the country. As Chief Economic Advisor Arvind Subramanian stated, “To deify or demonise demonetisation that is the difficult question that the world is asking, to which the Survey tries to respond.”

Calling the November 8 decision to withdraw high-value currency notes as a ‘radical governance-cum- social engineering measure,’ Subramanian and his team acknowledged the complexities in assessing its potential impact. The Survey emphatically asserts that while there have been short-term costs to the economy, there will be long-term benefits. Devoting a whole chapter to demonetisation, the Survey recommends fast, demand-driven remonetisation, further tax reforms, including bringing land real estate under the gambit of the Goods and Services Tax, and reducing tax rates and stamp duties. It flags the risks that Brexit and the US election result pose to the world economic scenario and to India’s economy. The prospect of ‘shifts in the direction of isolationism and nativism’ could threaten the global market for goods, services and labour. The Survey conservatively projects growth for the coming fiscal at 6.75%-7.5%, with a caveat that lingering effects from demonetisation, oil prices and the possible rise of trade protectionism could jeopardise the glowing forecast.

Politics dominates Economics

Prime Minister Modi has tried to stick to his theme of ‘Sabka Saath Sabka Vikaas’ it seems as he said, “The Budget is associated with our aspirations, our dreams and in a way depicts our future. In FUTURE, the letter ‘F’ stands for the farmer, ‘U’ stands for underprivileged, which includes Dalit, oppressed, women, etc., ‘T’ stands for transparency, technology up gradation, ‘U’ stands for urban rejuvenation-urban development, ‘R’ stands for rural development and ‘E’ stands for employment for youth, entrepreneurship, enhancement to give a push to new employment and boost to young entrepreneurs.” Quite rightly so, the PM has reached out to the raising agricultural credit to Rs. 10 lakh crore. The highest-ever allocation for MGNREGA, the promise to pull one crore people out of poverty, and the boost for rural housing will all erase Modi’s anti-poor image. Providing more than 1.5 lakh gram panchayats with the high-speed broadband internet is in line with the government’s thrust on going digital. Thus, it is clear that increase in rural spending has been carefully thought out against the backdrop of the Assembly elections. On the other hand, fiscal deficit has been kept to 3.2%. Measures to boost infrastructure may encourage local industrialists. The decision of doing away with the Foreign Investment Promotion Board (FIPB) will ease foreign direct investment (FDI). More such measures to liberalise FDI policy are likely. The government seems apathetic to growing non-performing assets (NPAs) and debts in banks. The initiative to create employment has been neglected severely in the Budget. Surprisingly, there is little boost for the government’s ‘Make in India’ initiative.

That the Budget led to a frenzied 485-point gain in the Sensex might have left one feeling it had a lot to offer but in reality Finance Minister Arun Jaitley has refrained from much action. Moreover, a GDP forecast of 7-7.5% is nothing short of being optimistic despite industrial production, exports, corporate sales (Morgan Stanley Investment Managements’ records), stock markets and credit growth rates (Morgan Stanley Investment Managements’ records) all plummeting. Steering its way into the new age economy, the Budget has scooped out dollops from the ‘super rich’ to benefit the salaried class – a 10% surcharge is being imposed on tax on incomes between Rs. 50 lakh and Rs. 1 crore while the tax is halved on incomes of those earning Rs. 2.5-5 lakh to 5%. There has been a crackdown on black money once again with cash transactions above Rs. 3 lakh being banned. However, this may prove to have minimal impact as PAN (Permanent Account Number) is anyway mandatory for purchases above Rs. 2 lakh and there is lack of clarity if the PAN rule will still apply. It is interesting to note that according to the Economic Survey, the rich in India avail of huge government subsidies, which have been tabulated below:

Source: Economic Survey

Hence the total subsidy to the rich amounts to about Rs. 103, 000 crore. According to Sutirtha Roy (as told to NDTV), an economist with the office of the Chief Economic Advisor, “As per the National Sample Survey Organisation Data of 2011-12, we found out how much people consume and in what income segments and realized that a poor man’s fuel like kerosene 49% of that is used up by the rich.” Here the government could easily reduce such subsidies without hurting the poor man’s pocket. Also as an attempt to curb corruption, the government capped the maximum cash donation any political party can get from one source to Rs. 2000- such measures can easily be evaded as political managers can simply raise the number of bogus donors tenfold.

While the FM seems to have cracked a whip on the rich in some ways, there has been an effort to spur rural consumption in the hinterland- the farm credit target has been increased by Rs. 1 lakh crore to Rs. 10 lakh crore to increase credit flow to the agriculture sector. With agriculture not faring too well at the moment, this comes as a welcome step ahead of the elections. This Budget is a sure shot way to win over the rural voters, people badly hit by demonetisation.

©Navodita Pande

Photos from the internet.

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