As was expected, the interim Budget presented by Piyush Goyal was not a traditional vote-on-account by any means. Contrary to the election-year convention, a full Budget was introduced by the government to pacify the voters. And it was undoubtedly a successful effort. Howsoever, the scales stood between the BJP and the opposition before Piyush Goyal began his Budget speech, they were tilted in favour of the former by the time he ended. The Budget has managed to appease a majority of the country through its populist leanings.
The two highlights of the Budget were the farm income support scheme doled out by the government and the announcement of the tax rebate for income earners below Rs 5 lakh. The former was targeted at the farmers across the country who had been reeling under an agricultural crisis.
The disappointing performance of the BJP in the rural areas in the recent state assembly elections had made it evident that the problem of farm distress was in urgent need of redressal. Real rural wages have hardly increased in the last few years despite the persistence of low inflation. This was in contrast to the promise of doubling farm incomes by 2022.
The Budget attempts to address this problem with an income transfer scheme for small farmers, Kisan Samman Nidhi. The scheme intends to transfer Rs 6,000 a year to farmers that have less than 2 hectares of land. To put things in perspective, about 70 per cent of agricultural households own less than one hectare of land. Over 120 million small farmers are likely to benefit from the scheme and it would cost the exchequer over Rs 750 billion per year.
In the run-up to the Budget, such ideas had increasingly gained currency. However, the government has been more conservative than most suggestions. Congress President Rahul Gandhi had made a pitch to the farmers where he promised Rs 1,500 per month per household. The ex-Chief Economic Advisor, Arvind Subramanian, had also proposed a plan that involved a higher transfer of income and was wider in coverage.
The proposed scheme is also not sufficient by any standards as NSSO data shows that farm households with even the smallest size of land holdings have an expenditure of nearly Rs 6,000 per month on an average. But, keeping fiscal constraints in mind, it seems to be a positive step forward to begin addressing the farm distress as it would partly cover the cost of inputs. The success of these schemes has been experienced in Telangana and Odisha, as discussed in this column last week.
There are, however, certain challenges that need to be highlighted. First, nearly 250 million out of a total of 850 million Indians that reside in rural areas are landless agricultural workers. The scheme leaves them out of its ambit when, in fact, they are the most vulnerable sections of the rural society. A second challenge lies in the process of identification and delivery. It will be an arduous pan-India effort to identify households that have land holdings less than two hectares and ensure that they are connected to the direct benefit transfer (DBT) network.
Finally, and most importantly, even though the scheme is a positive step to allay the agricultural crisis, it is not a long-term solution. The key would be to infuse structural changes in the sector that ensure that farmers do not remain dependent on welfare for sustenance. The productivity of Indian farmers needs to be enhanced as I’ve often argued through this column by strengthening the country’s food processing industry, for instance. Only if Indian farmers become competitive on the world stage can the perpetually ailing sector be extricated from itself.
Meanwhile, the second aspect of the Budget that generated waves was the announcement that taxpayers with annual income up to Rs 5 lakh will get a full rebate. The tax slabs were, however, left untouched. Nevertheless, over 30 million individuals will gain from the move. As a result, the purchasing power of these individuals will witness an unambiguous push upwards. Combined with the income transfer given to farmers, the demand conditions of the country will certainly improve in the process driving its competitiveness forward.
With a focus on the rural economy and middle-class Indians, the Budget has managed to be the perfect election-year Budget and has also aimed at driving consumption in the economy. However, two challenges remain. First, the government’s capital expenditure has stagnated and needs to be consistently increased to ensure long-term growth. Second, the fiscal health of the economy needs to be maintained.
The government has yet again slipped on its fiscal target this year. The fiscal deficit of the economy stands at 3.4 per cent as per revised estimates. It has been 11 years since the target of three per cent was supposed to have been met. If India aims to be fiscally responsible, kicking the can further down the road is not the way to go.
The Budget might have brought immediate cheer all around and rightly so, but the nation also needs to have the longer picture in mind. Anyhow, at this moment we can say this is a budget that is good politics and economics all rolled in one. (Amit Kapoor)
Market movement in the time of heavy news-flow
Markets opened with gains on Monday and then lost ground on three of the four trading days thereafter. They say a week is a long time and this was truly so this time around.
The market was packed with news-flow and it seemed never ending. It began with Sun Pharma clearing the air about the whistle-blower issues. Yes Bank appointed a new MD and CEO. CBI filed an FIR against ICICI Bank MD ChandaKochhar. The week ended with Subash Chandra sending a letter about the debt on his group companies’ balance sheets and apologising to stake holders.
BSE Sensex lost 361.07 points or 0.99 per cent to close at 36,025.54 points. Nifty lost 126.45 points or 1.16 per cent to close at 10,780.50 points. After a choppy week, Dow managed to close with marginal gains of 30.85 points or 0.12 per cent at 24,737.20 points.
Sun Pharma calmed the nerves of investors by addressing the issues raised by the whistle-blower and the share rallied Rs 31.45 or 8.05 per cent to close at Rs 422.20. Yes Bank announced its third quarter results and the appointment of its new MD and CEO Ravneet Gill, ex-CEO Deutsche Bank India operations.
The share was up Rs 21.40 or 10.79 per cent at Rs 219.65. During trading on Friday it had touched a high of Rs 236.30 on short covering.
Maruti Suzuki posted a poor set of numbers on account of lower sales and the share was hammered. It lost Rs 837 or 11.38 per cent to close at Rs 6,516, its lowest value in about 20 months.
Subash Chandra sent an open letter to stakeholders at the end of the day (Friday) after the parent company and group company share prices were hammered and lost Rs 120.80 or 27.45 per cent to close at Rs 319.35. Intra-day they had touched Rs 288.95. The letter asks stakeholders to be patient till the stake sale happens and Subash Chandra admits to having made wrong decisions in the course of the business, particularly in respect of the D2H acquisition and some other businesses.
In a very important ruling, the Supreme Court has held the Insolvency and Bankruptcy Code tenets to not allow promoters of stressed assets to bid for them as correct. Hopefully the spate of cases currently on would now come to an end.
The week ahead has two events coming up and the timing of the same is of great importance. On Thursday, Jan 31, futures expire for January series.
The current level of the cash value of Nifty at 10,780.50 points is as flat as a doormat as the same is up 0.70 points or 0.01 per cent for the series. With the budget up on Friday, one can expect expiry to be a volatile affair.
The union budget would be presented on Friday, February 1. This budget would be presented by acting FM PiyushGoyal in absence of the unwell ArunJaitley. The backdrop of this budget is the upcoming general elections in April and May which would be a no holds barred election.
As a precursor to the same the budget would set the tone. Expect announcements to pamper the different voter class and make it a case where the opposition says that they would not pass the proposals if they are elected to power. This challenge would be the dilemma that the opposition faces. If they agree, they are second and if they disagree, they lose votes. A classical Catch-22 situation. This would be akin to the historic reservation bill which was proposed and voted in flat 48 hours without any opposition ultimately.
Expect farmer assistance to be paid on land holding before the start of the new sowing season direct into the bank account akin to the Telangana model and the recently announced Odisha model. The exemption limit for income tax being raised from the present Rs 2.5 lakh to maybe Rs 3.5 lakh if not Rs 5 lakh.
Enhancement of limits under 80 CC of the income tax and some sops for the MSME and SME segments. It would be the mother of all budgets where the purse strings after 4-and-a-half years of financial prudence would be opened and just distributed. While puritans may not agree with what is being said or will be done there are enough precedents of this in the past as well.
Markets in the week ahead will be choppy and will react to news flow from company results and events as they unfold. Trade cautiously.