Three important highlights of the Union Budget – 2019-20 [interim] presented by Piyush Goyal, minister for railways and coal and ‘temporary’ in-charge of finance portfolio are:
(i) Under PM Kisan Samman Nidhi, the centre will give Rs 6000/- per year to small and marginal farmers [land holding up to 2 hectare] to be deposited directly in their account to benefit a total of 120 million. The support will commence from December 1, 2018 with the first instalment of Rs 2000/- covering 4 months to be given immediately;
(ii) Under PM Shram Yogi Mandhan, persons working in the ‘unorganized’ sector and earning less than Rs 15,000/- per month will get pension @Rs 3000/- per month on completion of 60 years age. For this, a worker joining at the age of 29 years will contribute @Rs 100/- per month with matching contribution by the centre. A person joining at the age of 18 years will contribute @Rs 55/- per month with equal amount by centre. This will benefit over 100 million workers;
(iii) The salaried persons earning up to Rs 500,000/- per annum will get full rebate from payment of income tax. This will benefit 30 million persons [albeit from middle class].
When, seen in the backdrop of growing disenchantment among these classes with the ruling dispensation [read: BJP] – as also manifest in the results of elections in 3 Hindi heartland states viz. Madhya Pradesh, Rajasthan and Chhattisgarh – and impending general elections only a few months away, the budget proposals hold the potential of turning the tables in its favor.
The opposition parties have described the giveaways as a mere attempt to garner votes even as Modi ignored their interests during the last four-and-a-half years. They further allege that giving Rs 6000/- per annum which translates to just Rs 500/- per month or Rs 17/- a day tantamount to rubbing salt on the injury.
ALAS! they are viewing this from the perspective of a rich man. For them, this money would appear to be peanuts only. But, look at things from the radar of a farmer who owns just one acre [or 0.5 acre] and whose annual income from farming is a meager Rs 2,500/- – 3000/-. These farmers are leading a subsistence existence and forced to borrow from money lender at high interest rates for bare needs viz. fertilizers/seeds or even household consumption.
In this backdrop, when the government decides to give Rs 6000/- to a poor farmer every year, this is a huge help that will help fund his basic needs thereby avoiding dependence and resultant exploitation by moneylender. This supplements all existing support by way of subsidy on inputs viz. fertilizers, irrigation, power etc.
At present input subsidies add up to about Rs 200,000 crore annually. However, only a fraction of this goes to small/marginal farmers. According to Economic Survey [2015-16], “24% of fertilizer subsidy is spent on inefficient producers, 41% is diverted to non-agricultural uses, and 24% is consumed by larger, presumably richer farmers”. This leaves a meagre 11% for poor/small/marginal farmers.
The government also spends about Rs 110,000 crore by way of minimum price support [MSP] which is also appropriated mostly by larger/richer farmers who have marketable surplus.
Ideally, the way forward is to do away with these supports and instead give direct income support [DIS] to poor farmers only. @Rs 18,000/- per annum [this is three times the amount proposed under PM KISAN], this will entail spend of Rs 216,000 crore. The government may also consider giving DIS @Rs 12,000/- per month to landless workers [120 million] which comes to Rs 144,000 crore. This adds up to Rs 360,000 crore which can be funded with Rs 310,000 crore savings from withdrawal of input subsidies and MSP plus an additional budget support of Rs 50,000 crore.
Under this dispensation, it will be possible to cover almost all of the poor getting their livelihood from agriculture – those with land and without – giving them a fairly handsome amount and yet, at a significantly lower cost by Rs 25,000 crore. There will also be collateral gains by way of preventing misuse of subsidy, distortion in input pricing, efficiency loss and balanced/optimum use of fertilizers and other agri-inputs.
Giving pension to workers in unorganized sector is a good innovation. With contribution of mere Rs 55/100/- per month [depending on the age of joining work], a monthly pension of Rs 3000/- in old age is great. For 100 million workers, the liability on the government will be about Rs 9000 crore annually [taking an average contribution of Rs 75 per month]. The objective of covering all 500 million workers is indeed laudable.
The budget has given a bonanza to the salaried person by exempting income up to Rs 500,000/- from tax. With investment up to Rs 150,000/- under 80C [provident fund, insurance premium, bank deposit etc], a person earning up to Rs 650,000/- need not pay tax. This will increase net disposable income with the middle class and in turn, help growth by boosting both consumption and investment demand.
From the day one of taking charge, Modi – government has made relentless efforts to increase farmers’ income [irrigation, neem coating urea, soil health cards, rural roads, e-NAM (electronic national agricultural market) etc], give a boost to small businesses and even help middle class. However, these measures take time to deliver. Meanwhile, if it takes steps which have immediate appeal to voters and hence, sound populist [elections are won on perception] there is nothing wrong in it.
This has to be viewed in the backdrop of dire need to build infrastructure for a ‘New India’, sustaining the tempo of development, catapulting it to US$ 10 trillion economy [by 2030] to bring it among top three and ensure quality living for 1.3 billion people of India – as articulated by Piyush Goyal in his speech.