What to expect from the interim budget on Feb 1?

Speculation over sops and a cabinet reshuffle cloud preparations for the last budget to be tabled by the Narendra Modi government, before its five-year tenure goes up for re-election.

What’s on NDA’s agenda in this interim budget? the government any major policy announcement? Will it raise food subsidies and the income tax exemption limit? More importantly, why was Finance Minister Arun Jaitley scuttled away just days before the budget announcement, to be replaced by Piyush Goyal as acting FM?

These are the some of the questions Qrius answers in this ready reckoner on the February 1 budget.

Interim or full-fledged?

Usually, the government presents an interim budget in its last year in office when general elections are scheduled after the start of a fiscal. The final Budget for the next fiscal is presented later by the newly elected government, while this interim document seeks funds for the existing government to spend in the months before the election.

However, some reports claim that the BJP-NDA government will present a full-fledged one during the upcoming Budget Session of the Parliament.

In case of an interim budget, the government is expected to primarily outline the economic vision of the NDA government if it were to return to power for another five years. An incumbent finance minister does not usually announce major tax breaks which could burden the next government.

But with a high-stakes general election in sight, populist sentiment may get the better of BJP. Sources say an income support programme for the economically backward, especially farmers, is in the books. But direct tax relief in a poll year, should it arrive, would be quite anomalous.

Change of hands

In a shocking announcement on Wednesday, just a week before the Union Budget 2019, Arun Jaitley was replaced by Railway and Coal ministries Piyush Goyal, who stepped in as the interim Finance & Corporate Affairs minister till Jaitley is indisposed.

“The President of India, as advised by the Prime Minister, hereby directed that during the period of indisposition of Shri Arun Jaitley, Minister; the portfolios of Minister of Finance and Minister of Corporate Affairs held by him, be temporarily assigned to Shri Piyush Goyal, in addition to his existing portfolios,” the President’s Secretariat said in a statement on Wednesday.

Reports put Jaitley as undergoing medical treatment in the US and he will be designated as minister without portfolio till such time when he is able to resume his duties.

Performance survey

Judging by the last quarterly figures, the Modi government may be headed towards missing the fiscal targets, for the second year in a row. In the first eight months of the current fiscal, the government exhausted 112% of its full-year fiscal deficit target.

With GST collections below estimates, a handful of paltry disinvestments of public sector enterprises while failing to divest some others, the government may find it tough to meet the fiscal deficit target of 3.3% of GDP.

The government is likely to target about ?800 billion from divestment of state-owned companies in FY 2019-2020. Possible candidates for these include Telecommunications Consultants India, Indian Railways’ subsidiaries IRCTC, RailTel Corporation India and National Seeds Corporation (NSC), besides Air India, sources told Reuters.  

For taxpayers and the market

In view of the impending deficits, the government would be wiser not to raise income tax exemption rates in the coming budget, even if it shores up support for the ruling party.

Thanks to GST enforcement, a major part of the indirect tax is outside the remit of the interim budget. The government has already pleased the business community, which was hit by tough GST compliance, by giving a big relief recently. 

However, changes in the direct tax rates is what the public demands.

“The last five budgets of the present government have focused on each and every segment of the economy. Going ahead, we look forward to of the dynamic reforms in the forthcoming budget also,” industry body PHD Chamber told Mint, further suggesting that income up to ?3.5 lakh should be considered for tax exemption, instead of the present ?2.5 lakh.

Better growth and more disposable income is the play that one should be looking for in the budget perspective, another industry expert told ET, in view of a consistent indirect tax revenue growth along with the reduction in GST rates by the government, which he said was indicative of a widening tax base and rapidly expanding economic activity.

Demands to increase the limit for investments under 80C from the current Rs 1.5 lakh have also been placed, so as to encourage citizens to invest in financial assets and for its prospective positive impact on the markets.

For farmers and the rural sector

With opposition parties pressurising the government to alleviate agrarian distress, unemployment problems faced by small businesses, the government may announce an income support scheme for farmers and the poor.

It may raise the subsidies for the world’s biggest food welfare programme by 6.5% for the fiscal year beginning April 1, the smallest increase in three years, Reuters reported.

The farm credit target is also likely to be raised by about 10% to a record ?12 lakh crore, according to Mint, which could be critical in achieving higher farm output. Institutional credit will also help farmers reject money lenders who lend at usurious rates of interest. 

The government is also focusing on area under cultivation between Rabi and Kharif seasons so that farmers income can be increased. It is also evaluating crore scheme based on the Telangana model, wherein a fixed amount is transferred directly to farmers (instead of the subsidies), Minister of State for Agriculture Parshottam Rupala said Thursday, although he refused to divulge whether this be a part of the budget.

Once this budget is out of the way, the new government can perhaps broach other serious financial topics like universal basic income or farm loan waiver for the final Budget. In the meantime, the promises made on February 1 can still swing the middle class and the farmers in BJP’s favour. Whether it is willing to overplay its hand for it, remains to be seen.


Prarthana Mitra is a staff writer at Qrius