Modi govt seen taking up big-bang populist measures after BJP loses big heartland states

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Updated: December 13, 2018 7:17:03 PM

The Narendra Modi government has made a deliberate attempt to not announce farm loan waiver so far, which may no longer be the case now after the elections' results.

The central government has made a deliberate attempt to not announce farm loan waiver so far, which may no longer be the case now after the elections' results. The central government has made a deliberate attempt to not announce farm loan waiver so far, which may no longer be the case now after the elections’ results.

Even as the Narendra Modi government has been promising fiscal prudence despite looming Lok Sabha elections, the latest drubbing in three key heartland states would mean big bang populist measures in coming few months and in the upcoming interim budget, experts said.

The Bharatiya Janata Party (BJP) lost Rajasthan and Chhattisgarh to the Indian National Congress (INC), with Madhya Pradesh still in a tight contest. The three states are struggling with agrarian crisis and lack of employment for the rural population.

The central government has made a deliberate attempt to not announce farm loan waiver so far, which may no longer be the case now after the elections’ results. The ambitious plan to hike the minimum support price (MSP) to one-and-a-half times of the procurement rate has failed to show significant results.

“The results of the elections will definitely lead to economic introspection on where the government went incorrect. Here the farm sector will be in focus where the MSP did not quite work out. Hence, the focus on farming, subsidies especially fertilizers, rural employment will be some thrust areas.,” Madan Sabnavis, Chief Economist, Care Ratings told FE Online.

“Loan waivers will definitely be a priority and can be a central scheme rather than a state which has been the case so far. This can be the big bang expenditure if permitted by the election code,” he added.

The Narendra Modi government has set the fiscal deficit target at 3.3% of the GDP for the financial year 2018-19. However, experts are already expecting slippage on account of shortfall in indirect tax collection. Now with the political loss, the government may relax policies further.

“A disappointing set of state election results .. suggests that the ruling national party has lost some goodwill and the risk now is that, in response, fiscal (and potentially even monetary) policy is loosened ahead of the general election when the economy is already running into capacity constraints,” London-based economic research consultancy Capital Economics said in a note.

The government recently clashed with the Reserve Bank of India (RBI) over several lending restrictions on public sector banks and high central bank reserves, which arguably resulted in the resignation of Urjit Patel. The government has been pushing for enhancing credit to Micro, Medium and Small Enterprises (MSMEs).

With new RBI governor — former Economic Affairs Secretary Shaktikanta Das — at the helm, one may expect the central bank to not follow strict regulations set under Urjit Patel.

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