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Nothing Interim in the Budget

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The most notable feature of this interim budget is the income support programme for small and marginal farmers

The script was anticipated. In the run up to the 2019-20 Budget, rural distress was the talking point across India. When acting Finance Minister Piyush Goyal rose in the Lok Sabha on Friday morning, he did not disappoint these expectations.

The most notable feature of this interim budget is the income support programme for small and marginal farmers for land holding up to two hectares. These farmers will be provided Rs6,000 in the three equal installments every year under the Pradhan Mantri Kisan Samman Nidhi (PM-Kisan) scheme. The tab: a hefty Rs75,000 crore every year.

This was to be expected. The drumbeat of the rural sector in crisis and a general election just around the corner made this a political necessity for this government. The problem is the money spent on managing the rural economy has risen dramatically in the last 15-odd years. These are not one-time expenditures or those that are incurred during distress years. The fact is that rural India accounts for a disproportionate number of seats in Parliament. In virtually all states, of course, rural lobbies call the shots.

It is also true that the share of agriculture in India’s output has gone down dramatically over the decades. This has happened even as the population in the sector has seen only relatively small decreases. A falling share in the pie and a large number of people dependent on it is a recipe for a perfect political storm. Forestalling that requires increasing allocations to that sector. The 2019-20 Budget demonstrated that.

Goyal had sops for the middle class as well. But these are marginal when compared to the direct outlays dished out to the rural sector. In any case, these sops are geared toward the lower edge of the taxpaying bracket.

The real issue is one of balancing the books. It is credible that this government has kept the fiscal deficit (total expenditure minus total revenue) in check over the last five years. The question is can that performance be sustained with a rise in expenditures such as the PM-Kisan scheme? The way out, of course, is to increase direct taxes to keep the deficit in check. Doing this is essential for maintaining macroeconomic stability. The issue is that direct taxes are a politically sensitive issue that affects the middle class directly. But that bridge will be crossed when this government comes to that point. There is still some time for that.