Prime Minister Narendra Modi in New Delhi. (Virendra Singh Gosain/Hindustan Times via GettyImages) 
  • Narendra Modi’s election promise reflected in the first five budgets, now that the election is upon us, the government has taken a pause on fiscal consolidation and has delivered a please-all budget.

Charles Edison, businessman and American politician had once remarked: “Economics, politics, and personalities are often inseparable”. This is a good summary for Prime Minister (PM) Narendra Modi’s term. From the times of his Gujarat term as chief minister, Modi has been known for keeping a laser-sharp view on governance in the first four years of the term, while addressing political issues in the last. In Delhi, he has used only the last quarter of his term for the latter. Nonetheless, the economics and the politics of the 2019-20 budget were true to his personality and style.

The Modi government stuck to the path of fiscal consolidation, undoubtedly aided by the benign oil prices for a few years, much as the government focused on undoing the ills of the previous Congress government. Through the last five years, the government ensured better systems and processes, created a favourable macro environment dealing with the externalities as they arose.

Implementing reforms like the goods and services tax (GST) and the Insolvency and Bankruptcy Code (IBC) modernised and formalised the economy, taking it on a rules-based path. The government recapitalised the public sector banks and tided over the bad loan crisis. India’s tax to gross domestic product (GDP) ratio touched an all-time high.


Candidate Modi had promised all this – better economic management, removing discretion from decisions concerning business, and better rule and order implementation. His personality and his election promise reflected in the first five budgets, ably led by Finance Minister Arun Jaitley. The dogmatic approach, which served the country’s finances well, in fact got routine and widespread criticism from party and PM’s own supporters. They were looking for concessions, the PM was delivering prudence.

These two charts from Press Information Bureau (PIB) give an apt summary of how the Modi government steadied the foundations of Indian economy.

Now that the election is upon us, the government has taken a pause on fiscal consolidation and has delivered a please-all budget. The government still expects to manage the fiscal deficit in 2019-20 at the current level of 3.4 per cent - a 10 basis point slippage from the stated target, but not an overwhelming negative. How the next government manages the fiscal position amidst soft revenue growth and slow movement on big ticket earnings from divestment remains to be seen. Yet, the Modi government has not followed a scorched earth policy – a legacy from the previous Congress government term.

Whether or not Modi forms the next government, the next finance minister will have only a modest challenge at hand to achieve the 2019-20 targets, a far cry from the weak economy with hollowed foundations Modi himself inherited in 2014. Even in his political populism, Modi has been prudent not to wreck the country’s finances.

An important part of the budget speech made by Finance Minister Piyush Goyal was the acknowledgment for the salaried tax-paying class. This rather vocal class has been waiting for explicit fiscal benefits from the government, though a low-inflation, low-interest rate, improved infrastructure regime has already delivered significant indirect benefits.

Goyal clearly outlined the contribution of this class, usually Bharatiya Janata Party (BJP) voters, but also politically fickle-minded. The tax break given to those with taxable income up to Rs 5 lakh will benefit almost 80 per cent of all income tax filers. The messaging for the salaried voters could not be clearer – as the economy improves and systems and processes become more compliance-oriented, the benefits will accrue to the honest tax-payer.

If the Modi government comes back, this could well be the template for future tax structure rationalisation. The Direct Tax Code review is currently on. It will be one of the key items for the 2020-21 budget to be presented in a year’s time. Tax slab rationalisation alongside simplified exemption structure focusing only on productive investments can be the next big idea assuming the economic foundations stay strong and rules-driven discipline instilled by the Modi government does not get derailed.

An important political objective which the Modi government achieved was on the rural front. By putting money in the hands of the small and marginal farmers, starting immediately before the model code of conduct comes into play, the government has taken wind out of the Congress sails, which had promised a complex minimum income guarantee. With 12 crore farmers set to benefit, the issue of blanket loan waivers should now become less relevant.


Indian rural economy typically has three profiles – farmers with large and small land holdings, marginal farmers unable to produce subsistence income, and the landless labour. The first set is usually not a BJP voter and almost always the biggest beneficiary of loan waivers. The second and the third set is where the BJP drew support from in 2014, raking in its highest ever tally of 31 per cent vote share. The budget announcement made by Goyal will squarely benefit the second set, with some trickle down for the third. It is not inconceivable that some BJP governed states announce their own supplementary cash transfers to these farmers, increasing the benefit.

Some economic questions remain. The divestment plan has taken a backseat. The outlay on capital expenditure needs more detailing and it is quite likely various government agencies will have to search for extra-budgetary resources to meet their immediate requirements. The government borrowing will no doubt increase – the 10-year Government of India benchmark bond saw a spike as the Finance Minister delivered the budget.

The biggest achievement of this budget has been that the opposition is back to square one searching for issues to attack the Modi government. The Congress has been pushing the Rafale case, with support from its media assets, which prop up incoherent allegations every now and then. The allegations haven’t stuck. The mahagathbandhan is in tatters with individual egos and interests preventing a Congress-centric electoral arrangement. With roughly 30 days to go for the model code of conduct to come into place, the government may still have a few new things to talk about, but the opposition seems constrained in their imagination and messaging delivery.

How did the Modi government turn the tables suddenly using what was meant to be an interim budget? This can be answered going back to 2015. PM Modi, under pressure in the Delhi campaign and all-round negative commentary, had brought forward the date of budget presentation. The ostensible reason was that the Lok Sabha should approve the Finance Bill in the month of March, so that the implementation of the government plans starts in April.

While that was, of course, achieved in 2015 through 2018, it also created the room for the 1 February 2019 narrative-capture. A small measure by PM Modi shows that the governance reforms and political gains can go hand in hand.

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