The Interim Budget is normally not really exciting because while nothing stops a government from going all out, the practice is that nothing much is said and it is left to the new government which comes to power to take a call. This has been the observation so far and there is no reason why this time should be different. However, against the backdrop of the state elections which have gone by and the concerns that have been flagged, there is some expectation that the Budget would have some affirmative moves within the contours of what would be permitted in the prudential sense.
The Budget normally has two parts — one covering the performance during the year and the other for what lies ahead. It may be expected that the first part will be the focus as the speech would go into details of all that has been done by the government not just in 2018-19 but from the time it came to power. Therefore, in terms of where all government expenditure has gone in the last 5 years, the budget would give a comprehensive view. Also the corresponding achievement in terms of actual numbers would be presented such as road length created, schools set up, farmers covered under insurance, jobs created and so on. Therefore, in a way, this can be an extension of the Economic Survey that is presented.
This section would go along with the revised numbers presented for various components of the Budget. It should be understood that the revised numbers are based on certain assumptions made in January as only 19 days of the month have passed, and information would be available till December while there would be some guesses on January. Therefore, the revised numbers are also amenable to changes when the final accounted numbers are released in January 2020. Of specific interest, this time would be the attainment of the fiscal ratios of fiscal deficit and revenue deficit. There is speculation on whether or not the fiscal target of 3.3% will be achieved this year given the slippages in GST and limited progress in disinvestment.
The non-tax revenue side would also be important since an interim dividend from the RBI has been spoken of in the last couple of months. On the expenditure side, there will be interest on whether the government has spent more on subsidies this year as fuel prices have been high for a large part of the year which would have pushed up the subsidy bill on both fuel and fertilisers. And finally the quantum of capex would be important as often the government is forced to cut back on such expenditure to ensure that the fiscal deficit target is attained. Therefore, an exposition of the numbers will be something to watch out for.
The second part which is normally on specific budgetary proposals will be truncated and may be expected to be in two parts. The first would be more on ideology where the thrust may be expected to be on the social sector. The distress on the agriculture front this year will definitely be at the forefront and some schemes may be spoken of either to be implemented now or when the government comes back to power. Therefore, there could be futuristic outline drawn up while some handouts on waivers could be announced within the space available in the budget.
An issue which has been spoken of late is Universal Basic Income, where every individual is entitled to a ‘basic income’ in the form of a transfer of money from the government. The options on UBI can vary from setting up a Committee to look into the possibilities to actually making allocations from within the existing schemes which will be in accordance with the practice of not spending more than what is in the budget. This could mean combining some schemes like subsidies, NREGA, mid-day meal etc into this new package.
The second part of the proposals would be some definite sops which may not amount to much revenue loss but could cover a large section of people. An increase in the income tax exemption limit by Rs 50,000 looks likely which could be combined with an increase in the standard deduction by Rs 10,000 and enhanced limits under Section 80C to attract savings. Last year benefits were given to senior citizens but the basic exemption limit was not touched. This could change as it will be very popular with the masses. The imposition of a disastercess on higher income levels cannot be ruled out as this will be an effective way of earning revenue without upsetting the middle class.
At the macro level, the SME sector would be at the centre, though most of the measures in terms of credit, restructuring of loans, incentives for growth and exports have already been announced in the last 3 months. Instead, targets for loans to the SMEs under MUDRA could be set just as this is done for agricultural loans.
Therefore, on the whole, we can expect more a report card on the achievements of the government and a roadmap of what could be in store for the country in case it is voted back to power. While there would be limited sops along the way, there are unlikely to be any pain points injected this time. The revised budgetary numbers would be the ones to watch out for as they would serve as the touch points for any fiscal issues as they will remain the latest numbers till the full budget is announced in June or July 2019.
Madan Sabnavis is chief economist, CARE Ratings. The views are personal.