Indian Government’s Re-election Budget

Rajesh Trichur Venkiteswaran

Before the upcoming 17th Lok Sabha elections, the present government has already tabled the interim budget. According to the budget conventions, only the newly elected government has the prerogative to present a full budget. The Interim budget supports the present government to function without any financial crunch after March 31, which is also the end of the financial year in India.


Usually, successive governments presenting interim budgets shy away from new proposals or drastic policy changes. But this time the present government went beyond the conventions to provide maximum benefits to middle-class individuals, small and marginal agricultural farmers and unorganized workers, the triumvirate of India’s vote bank politics.

Anil Goswamy is working in a private company and earns around Rs.4.50 lakh per annum. He is the sole earning member of the family having six members including his three children, parents, and wife. Despite frugal spending, he hardly saves any money, as he has to cough up a sizeable chunk of money as income tax.  But this time the government’s Interim Budget exempted millions of middle-class citizens like Goswamy from paying tax by raising the minimum tax slab to Rs. 5 lakh per annum. In addition, if an individual is willing to invest in the provident fund, insurance or specified deposits, the gross tax exemption comes to Rs. 6.5 lakh per annum.

According to the government, this tax exemption is likely to increase the disposable income (Income remaining with the individual after Income tax and social welfare charges).This extra income will lead to higher sales and profits. The growth in businesses will lead to more employment opportunities thereby having a multiplier effect in the economy. And the government argues that the loss in income tax can be compensated by an increase in indirect tax.

Some critics say that the tax exemption will lead to:

  • A huge loss for the government which can never be recompensed.
  • The indirect tax has glaring loopholes, so an increase in spending may never translate as revenue for the government.

The government has also proposed Pradhan Mantri Kisan Samman Nidhi, a direct income support scheme of Rs.6000 for farmers having cultivable land less than two hectares (small and marginal farmers). It is in continuation to the programs initiated by the present government for farmers like insurance scheme in 2016, 1.5 times the cost of production as minimum support price, institutional credit through Kisan credit card, etc.

According to the Agriculture Census 2015-16 published in 2018, “the small and marginal holdings taken together (between 0 and 2 hectares) constituted 86.21% in 2015-16 against 84.97% in 2010-11. There were 125.6 million small and marginal holdings in India in 2015-16.” The small and marginal holdings are increasing year after year due to the fragmentation of land holdings. Due to this reason, the shares of medium and large land holdings are coming down.

The income transfer scheme will help the small and marginal farmers to tide over at least a small chunk of emergent expenses. So by allocating Rs. 75,000 crore for the scheme the government’s proposal will benefit 12.50 crore small and marginal farmers.

Some of the criticisms for this scheme are:

  • As the income is too low, it may not support the farmers as intended. The need of the hour is to: upgrade existing irrigation facilities, reducing costs using technology, providing effective supply chain for transportation of agricultural products to the market, etc.
  • Those farmers who don’t own a piece of land but are cultivating in a small or marginal land will not be able to avail this scheme.

Another proposal called Pradhan Mantri Shram Yogi Mandhan, a scheme for the young workers in the unorganized sector to contribute a tiny amount of money every month to receive assured monthly pension of Rs.3000 from the age of 60.

According to a Report [i]of the Committee on Unorganized Sector Statistics published in 2012, “More than 90 per cent of the workforce and about 50 percent of the national product are accounted for by the informal economy.”

The unorganized sector is the cog in the wheel of India’s growth engine. This section is a boon for different sectors: be it manufacturing or services or even agriculture. The unique character of this sector-majority of the individuals receive wages, there is no retirement planning or savings or even health insurance. Most of the individuals well past their retirement age works and if they are unable to work has to depend on their kin and kith for their daily needs. This savings scheme where 50 per cent is contributed by the government will go a long way in ensuring that the individuals at least get the same standard of living after their retirement age.

But some doubts linker:

  • If an individual could not contribute for one month or a couple of months how can he get back to the scheme, will he be dropped, and then what will happen to the investment?
  • What is the purchasing power of Rs.3000 after two decades or three decades, which only God can predict? The individuals will get benefitted only if the pension amount beats future inflation.

Reserve Bank in sync with the government

Reserve Bank of India (RBI) recently hiked the collateral free farm loan limit from Rs.1lakh to Rs.1.6 lakh, which will induce the small and marginal farmers in accessing loans from formal credit institutions.

In addition, the repo rate was also cut by 25 basis points to 6.25, thereby easing the credit flow in the economy. Some measures which were hitherto opposed by the former RBI governor, Urjit Patel, have now find space in policies of the present governor, Shaktikanta Das, which shows that both RBI and the present government are in the same page.

When prudent macro-economic and the populist policies intertwine, it works seamlessly across the spectrum benefitting the targeted population. But in the long-run, it may not benefit the economy. Who is going to bother about the long-run, to use the quote of John Maynard Keynes, the great economist?

“In the long run, we are all dead.”

Reconciling the Triumvirate

The middle class, the small and marginal farmers, and the unorganized sector were affected by the double whammy of Demonetization and Goods and Services Tax. In the event of neglecting the triumvirate, it would have spelled doom for the government. But now the tax exemption is directed towards the ‘middle class’ of India who will get some respite, the income transfer is for the cohort of farmers who form the majority in the agricultural sector, and the pension scheme is for the unorganized sector, which is often neglected by the successive governments.

Considering that the triumvirate contains the majority of India’s population and if at least a small percentage votes in favour of the present government during the upcoming elections, it will prove to be too costly for the opposition. Then, the interim budget has done the job of a reelection budget.


Rajesh Trichur Venkiteswaran is a freelance journalist. He can be reached at