INTERIM BUDGET – ONLY EXPECTATION OF POPULISM

The Union Budget, albeit interim is two days away but there is no palpable excitement in the air; that usual sense of expectation and hope is missing. What we all currently feel is actually the weight of the Budget, where politics alone will overrule all economic sense.

Farmer distress is high on the agenda – obviously the largest vote bank. If the farmers are not appeased, it will be certain that 2019 fight could be tough. To ensure that the BJP gets a thumping victory, maybe a clear mandate like five years ago, this will be its opportunity to pull all stops, empty the coffers; fiscal deficit be damned!

This is exactly what any party at the helm would have done, be it the UPA or even the non-existent Mahagatabandhan. For any ruling party, with elections just a couple of months away, there will be no bigger canvas than what this interim budget gives.

The market knows all this and which is why we see the indices down in the red, looking almost hopeless and despondent.

Increasing allocation to MGNREGA, Ayushman Bharat and even direct transfer of money to farmers as a “support” could get announced. Increasing Institutional Farm Credit, increasing corpus of Agri-Market Infrastructure Fund, more funds for PM’s Krishi Sinchai Yojna-Har Khet ko Pani scheme and many more such farmer oriented schemes will be the central theme.  

This will mean money which would have been used for making the much needed infrastructure will now get diverted to these schemes. But how will all this happen without toppling over the fragile cart of fiscal deficit would be keenly watched.

Talking about infra build, we could see Bharatmala and Sagarmala getting more allocations; majority of the capital outlay for infra will be for building roads and railways. Of course, there is the big promise of Housing for all by 2022. Keeping that goalpost in mind, the Govt might allocate spending more on rural housing and roads.

For the banking sector, the news today is that before end of Feb itself, PSU banks will get the final infusion of Rs.54,000 crore. This is part of the Rs.1.06 lakh crore recapitalization announced for FY19 v/s Rs.88,139 crore in FY18. Before end of Dec’18, the Govt had already provided for Rs.51,533 crore to some PSU banks.

What about the taxation? The indirect taxes is anyway now ruled by GST which is turn is ruled by the GST Council – the main decision maker for GST rates. Reversal of excise duty on fuel will not happen and maybe we will see some tinkering on the customs duty front. On the personal income tax front, maybe small changes in rates or slabs could happen – after all the middle class earning group also needs to be appeased!

So all in all, this Budget will be all about appeasement and less about logical income and expenditure statement. The fiscal deficit and the percentage of slippage is what the FIIs will watch keenly.

To put in bluntly, this is a no-interest Budget, more like an extended election campaign.