Wooing the middle class with sops and Bollywood

It is probably the first time that a Finance Minister, during the course of a Union Budget presentation, talked about films, entertainment and his going to see Uri - and sitting through the entire film.

It was quite surprising to see Piyush Goyal announce a single window clearance mechanism for Indian film makers that was earlier available only for foreigners. He also announced that anti cam-cording provision will be introduced in the Cinematography Act.

Goyal then talked about how his government has reduced GST on cinema hall tickets. And ended with talk of extra terrestrial travels and a resolve to send Indians into space.

Clearly the recent bonhomie between the PM and Bollywood was evident in the Budget speech, like never before.

However, the major point that needs to be made about this Budget is that it is aimed at the party’s core constituency, the middle class.

The exemption of TDS for rental income below Rs 2.4 lakhs a year, the exemption of Rs 40,000 on interest earned on deposits, two houses instead of one for offsetting long term capital gains and rebate to those earning less than Rs 5 lakhs, are all steps that would leave the middle class happier.

The beauty of this move is that it does not impact revenues in a big way, as the sum total is relatively meagre. Back of the envelope calculations would suggest that the total revenue loss because of these simple steps would not exceed Rs 10,000 crore.

The middle class now has a little more money to spend, and consumption that has been dormant over the last three years, should improve, even if slightly.

It also leaves the corporate sector happy. The big relief to the industry is that there is no new cess and no new tax. With the dominant civil society narrative pointing at rising inequalities like never before, there was a danger that the finance minister would succumb to the temptation if gaining points by striking against the suited booted.

However, this did not happen and the corporate sector must be delighted. In the light of the concessions given to the middle class, an automatic corollary would have been a corresponding increase in taxes for the super rich.

Now we must wait to figure out where the revenue replenishment will come from.

Some election-oriented steps are also very interesting. This includes a hefty increase in allocation to the North East, where the BJP hopes to win more seats in order to offset losses elsewhere.

One would have expected a big outlay for Ayushman Bharat. However, there was nothing except the submission that large numbers have benefited and several AIIMS are coming up.

In the last year or so, the Prime Minister himself had been stressing on the health sector and Modicare. Despite such hype, the allocation for such an ambitious project is rather poor.

The big worry remains on the fiscal front. Where is the money? GST collection should have been at least Rs 13 lakh crores by March 2019. With what has happened this financial year till now, we will fall woefully short of that target.

Instead of increases in income tax rates or slabs, what we have is a downward revision. The government is clearly signalling that it intends to relax it’s stance on direct taxes and depend more on indirect taxation for revenue mobilisation.

This regressive taxation is fraught with danger, especially for an economy that is predicating it’s growth on robust increase in consumption demand.

With a GST rate still very high at 18 percent for a bulk of goods and services, demand will not grow sharply. And with curbs on e-commerce and retail, the kind of growth expected in middle-class consumption might just not happen.

The budget did not even mention joblessness. In fact, the speech went on to praise demonetisation, a subject that should have been best left alone.

The interesting announcements were on digital villages, solar power and urban infrastructure in villages.

Though why the FM did not go whole hog in wooing a recalcitrant farmer, is a mystery. Why is the dole restricted to a mere Rs 500 a month for a farming household and why only for those who have less than 2 acres of land? What will this do to help farm distress?

The guarantee of a reasonable income for all farming households would have been a game changer given the politics around UBI.

Author is Visiting Professor at the ISB and NALSAR, Hyderbad. He is also former head of strategy at the Bill and Melinda Gates Foundation