The Modi government is set to present the 2019 interim budget on February 1. With the agrarian distress looming large just before the elections, farm loan waivers and MSP hikes remain the primary areas of concern. This is also the first time that an interim Finance Minister will be presiding over the budget. Piyush Goyal, who is a lawyer by training, has no prior experience in drafting financial policy. In addition to the farm crisis, the middle class and salaried populace is hoping for reduced personal tax rates and the corporate sector is vying for taxes lowered to 25% from the existing 30%.
However large sections of the population remain divided on whether farm loan waivers are a viable solution to the crisis or a stopgap measure. While noted economists have raised concerns for the consequent burden on the widening fiscal deficit, others say that loan waivers should be provided as an essential one-time relief to give the farm sector a push.
"Farm loan waivers (in India) do not solve the issue permanently, whereas direct cash transfers may be beneficial for the farming community", says Gita Gopinath, chief economist at IMF.#IndiaPolEco https://t.co/GNTIoe6jKU
— Kanchan Gupta (@KanchanGupta) January 21, 2019
A survey by the Economic Times of India reveals that while less than 30% of people support farm loan waivers, over 60% consider personal tax rate cuts for the middle class and corporate tax rate cuts as the most decisive issues for the upcoming budget.
As the interim Finance Minister, Piyush Goyal faces a mammoth task with the election year demanding that the public’s expectations be balanced favorably without alienating the market and burdening the fiscal deficit.
Navigating the I-T net
Just two days before the interim budget is set to be tabled, speculations are rife that the NDA government may raise the ceiling for taxable income from the existing Rs. 2.5 lakhs to 5 lakhs per annum. This measure may be seen as a populist move to appease the salaried middle class which forms a major chunk of their electorate. According to a survey, of the 5.7 crore taxpayers, over 2.7 crore have incomes less than Rs. 3.5 lakhs.
A backlash from the salaried middle class is a major concern for the Modi government in the upcoming Lok Sabha elections. The recent volatility in fuel prices and other unpopular moves like the GST tax reform and Demonetisation has already disgruntled the middle class and alienated the MSME sector.
— EasyGST™ (@easygst) January 29, 2019
The NDA government has also fallen short of providing a fledgling ecosystem to support startups. Funding for startups is one of the lowest in India. Moreover, 80% of startups close down in the first 3 to 5 years. Several startups have raised concerns over the IT department’s Angel tax policy, which seriously undermines the efficiency of startups in raising capital.
Piyush Goyal set to meet PSU bank heads
Ahead of the budget, interim FM held a meeting with the heads of PSU banks today to discuss pressing issues like taking bad loan cases to the National Company Law Tribunal (NCLT) , credit boost for MSME’s and recovering bad loans.
After the recent slump in the banking sector, the need to review existing laws is imminent. the meet is a part of a pre-budget exercise and Goyal remains confident about reviving the sector with adequate measures. “The sum and substance of today’s meeting is we are going to see a far more vibrant, proactive, profitable banking sector in the days to come,” Goyal said. “We would like them to look at ways to improve delivery of services to farmers. We would like them to be more proactive in encouraging retail businesses.”