How this year’s Union Budget reflects a great grip on and an understanding of the poor man’s budget

Updated: February 21, 2018 4:35 AM

Budget 2018: This is perhaps a Union Budget with the widest sweep since Independence—in terms of the percentage of people whose lives it will impact: mostly positively. Our Budget pre- or post-reforms have shown excessive focus on industries, stock markets, and standard deductions and personal investment incentives for the salaried class.

Union Budget, budget 2018, MSP pricing formula,  Crop insurance, India, Healthcare in rural areas, consumption basket, health emergencies, gst, salaried classThe government has announced MSP pricing formula, which will hopefully push more incomes into rural areas more systematically. (PTI)

V Kumaraswamy

Budget 2018: This is perhaps a Union Budget with the widest sweep since Independence—in terms of the percentage of people whose lives it will impact: mostly positively. Our Budget pre- or post-reforms have shown excessive focus on industries, stock markets, and standard deductions and personal investment incentives for the salaried class. Not many of them would have had an impact on more than 20% of the people.Budgets have mostly been elitist; the economists’ macro sense stopped with fiscal deficits and growth numbers, and hardly cared of how benefits were delivered at the doorstep of the common or poorer man. The problems of the poor are (1) low incomes, (2) high variability even in that limited income, and (3) high interest rates that kill all commercial ventures by them.

Know how Arun Jaitley’s Budget 2018 will impact your tax liability with this Income Tax Calculator

The government has announced MSP pricing formula, which will hopefully push more incomes into rural areas more systematically. Gas connections and the proposal to buy surplus electricity from solar-power systems will add to their comfort and income. Healthcare in rural areas will create employment and enterprise opportunities. As Dr Devi Shetty of Narayana Health points out, there is a great opportunity for paramedics and nurses with 2-3 years of education after 10th and 12th standard, capable of creating jobs for 50 lakh of them. This Budget will create demand for such services. If only we had tackled healthcare first thing after Independence, maybe even population would have stabilised by now.

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In the last 2-3 years, the government has tried to substantially tame volatility in rural incomes. Crop insurance has already increased significantly—maybe to 40% of farm produce during the current year from negligible levels three years ago. Life insurance of Rs 2 lakh (for Rs 12) is already taking effect. The Budget laid out a blueprint for tackling the next most significant reason for debt trap of the poor—health emergencies. With these, the variability of a poor family’s cash flows will come down sharply, over time. GST is formalising the economy. A more formalised economy widens the reach of cheaper formal credit from banks. This can, in turn, bring down the interest rates facing the poor. It will come down from 750-1,000% (the interest rates facing pushcart vendors, according to RBI ex-Governor Duvvuri Subbarao; page 266, ‘Who Moved My Interest Rate?’) to a more sanguine number. Imagine what can be achieved if costs for them come down to 30-40% per annum, which is what a `3 lakh crore additional allocation and MUDRA initiative, direct delivery mechanisms, Aadhaar authenticated loans, Jan-Dhan, etc, can achieve. Entrepreneurship can bloom in rural areas.

Also read: Budget 2018: 10 new announcements and key features

The government has to work on a few more things. One is animal health, which also throws the rural poor into debt traps. Agricultural productivity has been increasing year-on-year by 2-3% on an average, but bumper crops only play spoilsport due to high price elasticity. MSP helps, but food-processing and exports are the real solutions. The government’s actions over the last 18 months are fundamentally rebalancing the economy—bringing in large sections into the formal tax net fold (both direct and indirect) by mechanisms including GST, DBT, Jan-Dhan and digitisation, and in the manner of intervening into poor households’ family budgets and welfare and, most importantly, bringing in the rural sector into mainstream economy. This is happening at a rapid pace and is bound to throw up some gainers and losers. It is but inevitable that the rich 1% who garner 73% of annual incremental wealth (according to Oxfam) will lose to the balance 99% who garner a measly 27% of the wealth as of now.

Watch video: Tax takeaways from Budget 2018 for the common man

This rebalancing will also open up great opportunities. Even if it is just a transfer of wealth and income from rich to poor, since the marginal propensity to consume of the transferee poor is 90-100%, instead of the 50-60% of the rich, it will still create conditions ideal for consumption-led growth. Those who doubt the growth potential of the Budget are missing the long-term potential. Our consumption base is far too low—it’s only the top 20% of population (income-wise) who count for anything. When the penetration level of a basic hygiene item like sanitary pads is as low as 17% and that of adult diaper in low single digits, there is a compelling need to expand the base. This budget kick-starts the cycle. Better incomes at rural and urban poor levels will enable high FMCG growth in 2-3 years. Healthcare products and services will follow suit and create significant opportunities in the ensuing 6-7 years. Without this expansion, our growth would have been slave to a minuscule percentage of population, which it has been so far during reforms.

A persistent fiscal deficit of 4-6% (see table) seemed all right to tackle the global meltdown whose effect on India proved to be marginal, but a marginal slippage while effecting fundamental structural changes seems unpardonable. How myopic! Little do those who lament lack of tax cuts appreciate that their economic efforts are rewarded by the society by higher incomes and wealth. The nation has given them access to market and consumption basket, and they need to pay for this access. Without this access, their wealth can never come about—it is a two-way transaction. It’s sad that so much noise is being made about long-term capital gains tax, when a retired pensioner cannot index his interest incomes and pay tax only on real interest rates. Of course, some of the initiatives will take about 7-8 years to clear the cobwebs of culture, habits and bureaucracy to take full effect.

This Budget reflects a great grip and understanding of the poor man’s budget and constraints on his reaching ‘escape velocity’ out of his hunger and poverty. It has constructed a national budget from the common man’s—women and men—kitchen upwards and each of his budget line items, so that inclusion of various kinds and delivery of programmes, poverty and hunger removal become integrated with budget making. The usual commentators including the economic fraternity have scarcely picked up the fundamental directional shifts. They have dusted and delivered the same old cribs. In Cricketese, they are playing hook shots to yorkers because that is the only one they know.

Author is  CFO, JK Paper, and author of ‘Making Growth Happen in India: A Road Map for Policy Success’

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