#Budget2016 gives a sense of deja vu

Shyamantha Asokan/The Washington Post

#Budget2016 gives a sense of deja vu

This Budget

  • Clear effort: to shed suit-boot sarkar image
  • Reason: agri community is under stress

The assumptions

  • Real GDP growth of 7.5%
  • Retail inflation at around 4%

More in the story

  • The 'moral hazard' in this Budget
  • Will it become a success?

The big message emanating from Finance Minister Arun Jaitley's third budget is that the Narendra Modi government's heart is bleeding for the farmer and that the government is more concerned about the plight of poor women and the underprivileged, not corporate captains or rich taxpayers.

The effort clearly is to counter the suit-boot sarkar image of the government that has been sought to be assiduously propagated by Congress vice-president Rahul Gandhi and other political opponents of the Bharatiya Janata Party.

The Modi government really had no choice but to convey an impression that it is keen on the development of rural India after its much-publicised talk about the need to build smart cities and run bullet trains.

The reason simply is that a large section of the country's agricultural community is currently reeling under the impact of two successive years of poor rainfall and un-remunerative prices of a number of crops.

For the first time in the history of India, the country is witnessing a curious situation wherein wholesale prices have fallen continuously for 15 months but retail prices paid by the consumer have risen, especially the prices of food items.

First time wholesale prices have fallen for 15 month but retail prices have risen, especially prices of food items

In this context, the Finance Minister had no choice but to repeatedly emphasise in his Budget speech all that is being done to improve irrigation facilities, build roads in rural areas, initiate a health insurance scheme, providing a cooking gas connection to families living below the poverty line and to "think beyond" food security to give a "sense" of "income security" to farmers.

In short, after the electoral debacle suffered by the BJP in Bihar, the government had no choice but to follow the populist path.

The fine print

Kunal Patil/ Hindustan Times via Getty Images BUDGET embeds

Photo: Kunal Patil/ Hindustan Times/Getty Images

Even if much of the rhetoric may have sounded socialist, or well almost, the truth was quite different. A perusal of the fine print of the Budget documents indicates that the government intends raising huge amounts of money by very capitalist means, that is, through the proceeds of disinvestment of shares in public sector undertakings, including "strategic sales" of government-owned companies -- a euphemism for privatising such enterprises.

In an interview on Lok Sabha Television, Jaitley suggested that funds could be raised by "recycling assets" of government companies, in other words, selling the assets of profit-making PSUs to private companies.

Such a move is bound to be politically contentious. What he has stated in his Budget speech is that central public sector enterprises would be "encouraged" to "divest individual assets like land, manufacturing units, etc. to release their asset value for making investments in new projects".

In one respect, at least, the Finance Minister should have been less hypocritical and described the so-called "compliance window" to declare undisclosed income for what it really is -- a new tax amnesty scheme not very different in form and substance from similar schemes of the past.

The last such scheme was in 1998 when Palaniappan Chidambaram was Finance Minister in the United Front government led by HD Deve Gowda.

The new scheme is that during a four-month period, starting June, persons with "undisclosed income or income represented in the form of any asset" can declare such income and "clear up past tax transgressions" by paying a tax of 45%.

There will be no scrutiny or enquiry regarding such undisclosed income under the Income Tax Act, the Wealth Tax Act or even the Benami Transaction (Prohibition) Act, subject to certain conditions.

After electoral debacle in Bihar, the govt had no choice but to follow the populist path

That such a scheme entails a "moral hazard" goes without saying. Even if Jaitley disagrees with the description of such a scheme as an "amnesty scheme", what cannot be denied is that it will certainly not enthuse honest taxpayers who have chosen to pay their taxes diligently.

On the contrary, the scheme may encourage evasion of taxes in anticipation of another amnesty scheme in the future.

The scheme also indirectly indicates that the government's initiatives in curbing the use of black money has not been particularly successful so far, irrespective of what is being claimed.

What's in store

The Budget has implicitly assumed that the real rate of growth of gross domestic product during the coming financial year will be around 7.5% and that retail inflation will be contained at around 4%.

Only time will tell if these assumptions are realistic, given the fact that India cannot be blissfully insulated from what is happening across the world "when the global economy is in serious crisis" -- to use the opening line from the Finance Minister's Budget speech.

Budgets in India are much more than statements of financial accounts. They are important pronouncements on the political economy of the country. This one is no different.

Only time will tell if the acche din promised by the Prime Minister is round the corner or whether, as in the past, relatively rapid economic growth will not be accompanied by creation of employment opportunities.

Given the inevitability of anti-incumbency, one may realistically expect more of the same a year down the line. Deja vu, is what it's called in French, or a feeling of having already experienced the present situation.

Edited by Joyjeet Das

Paranjoy Guha Thakurta @Catchnews