Arun Jaitley's last Union budget is clearly Narendra Modi's final message to the voter before the 2019 general elections. While there may still be scope for a mini budget later this year, especially if tax revenues show some buoyancy, the budget proposals unveiled today (1 February) seem to address all critical constituencies without busting the bank.
The three challenges facing the government are jobs, jobs and jobs. Even the farm distress is really about jobs, for the fundamental issue with agriculture is that it has three times more people living off it than its contribution to national income. While the farm anger is ostensibly about low product prices, the underlying message of various agitations by the landed castes – the Patidars, the Jats, the Gujjars, the Marathas – has been about job reservations for those who aren't normally entitled to them.
A sub-theme of the jobs focus in this budget was higher wages and incomes, with the emphasis being on the formalisation of existing jobs, extending the social security net for more people with informal jobs, and incentivisation of employers to take on new employees to expand the payroll.
Thus, there will be direct contributions by government for enabling formal job creation from this year, with three major initiatives being announced: one, the government will contribute 12 per cent of wages for all new employees enrolled into the Employees' Provident Fund Organisation (EPFO) for the next three years; two, women employees' contribution to EPFO will be lower at 8 per cent against 12 per cent now, thus increasing their take home pay; and, three, the system of fixed term employment, currently available to apparel and footwear industries, is being extended to all industries.
These incentives could be huge spurs to job creation and formalisation – and a direct response to the widespread criticism that jobs are not growing under the Modi government.
Logically, labour law reforms should have been a priority, but since no political consensus on this is possible, Jaitley has done the next next thing by subsidising job creation.
Indirectly, the government's own investment priorities are now focused on sectors that have a higher employment elasticity – from infrastructure to education, health, tourism and housing. Infrastructure spending in 2018-19 will be just under Rs 6 lakh crore, compared to Rs 4.94 lakh crore in 2017-18.
In health, the big ticket idea is to extend Rs 5 lakh cover to 10 crore poor and marginal families, covering nearly 500 million people. This is clearly a step towards universal health insurance that will bring its own job benefits as the insurance and health infrastructure is built over the coming years.
Even the corporate tax rationalisation was indirectly about jobs. After promising to cut corporate tax rates to 25 per cent in four years, Jaitley has clearly decided that the big boys can do without the tax cuts. Instead, the corporate tax rate cut this time is focused on companies with turnover in the range of Rs 50-250 crore, which encompasses the small to medium sector that creates most of the jobs – and which was badly disrupted by demonetisation and the goods and services tax (GST). Last year, smaller companies with turnover up to Rs 50 crore got the tax cuts.
The long-term capital gains tax on equity is now back at 10 per cent for shares bought after 31 January, which again undercuts the privileged tax treatment of capital compared to wage income.
But middle-class salaried employees got nothing – just standard deduction of Rs 40,000, which is outweighed by a 1 per cent increase in the education cess from 3 to 4 per cent. Modi is clearly assuming that his most vocal support base will not desert him despite his tightfistedness.
For farmers, the budget promises higher minimum support prices this kharif, but this is unlikely to be substantial. Instead, the budget has sought to steadily cut the middleman out of the farmer-consumer equation. This will be done by developing infrastructure in 22,000 existing rural haats to enable farmers to sell directly to buyers of agricultural produce even while extending the electronic linking of all Agricultural Produce Marketing Committees (APMCs) by March 2018.
Clearly, the Centre has not been able to convince the states to abandon the APMCs where middlemen dominate; it is thus trying to whittle down their importance by developing the haats for direct producer-customer interface.
In potato, tomato and onion, where farmers face volatility in prices and production, the budget promises support for the creation of farmer-producer organisations so that they can market their own produce at higher realisations. These companies will also get 100 per cent tax relief on profits for five years.
To sum up, the budget is about jobs, formalisation of jobs, and higher farm incomes over the medium term. It is not a budget that will deliver achche din before 2019.
Modi has got the voter angst. What the budget tells us, and the Bharatiya Janata Party's loss of two parliamentary and assembly seats in the Rajasthan by-elections emphasises, the rumour that Modi may call early polls is unlikely to be true. He cannot afford to risk an early election.
Jagannathan is Editorial Director, Swarajya. He tweets at @TheJaggi.
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