A package to address farm distress in the form of a direct income support scheme is widely expected to be part of the budget, especially because farmers are a large political constituency for any political party. Union minister Arun Jaitley has also indicated as much, saying markets tend to understand any government move to address a challenging situation. “Markets will never understand if you act for the sake of populism. But if it’s in the larger interest because of a compelling situation that develops, that’s a logical thing that markets tend to understand," Jaitley said at an event earlier this month.
Whether the government opts for the Telangana model of the Rythu Bandhu scheme or Odisha's Kushak Assistance for Livelihood and Income Augmentation (KALIA) scheme will be keenly watched by analysts.
Universal basic income (UBI)
By proposing a quasi-UBI for the poor, Congress president Rahul Gandhi has sought to upstage the government. The incumbent government will be under pressure to respond with a similar scheme in the interim budget.
First proposed by former chief economic adviser in the finance ministry Arvind Subramanian in his Economic Survey for 2016-17, universal basic income is a form of social security scheme guaranteed to citizens and transferred directly to their bank accounts to ensure a minimum standard of living for all.
In October 2017, the International Monetary Fund (IMF) made a strong case for India adopting a fiscally neutral UBI by eliminating both food and fuel subsidies that could cost 3% of gross domestic product (GDP), or ₹5.6 trillion.
Apart from farmers, the other constituency that the government may target are traders and small businessmen who have been the most adversely affected by demonetisation and implementation of the Goods and Services Tax by this government. It has also assigned the rechristened Department of Industrial Policy and Procedures (DIPP) the responsibility of welfare of traders and their employees. By not extending the 1 February deadline for e-commerce players for implementing the new FDI guidelines, the government has signalled that it is on the side of small retail traders.
The package for farmers and any UBI like scheme will impose a huge financial burden on the exchequer. While the government struggles to meet the fiscal deficit target of 3.3% in the current fiscal year due to insufficient revenue collections and a tardy disinvestment process, the challenge will be to remain on the path of fiscal consolidation in the next fiscal year. The government's fiscal deficit numbers as well as the quality of fiscal consolidation will be keenly watched.
Changes in direct taxes
Convention demands the finance minister does not seek to amend the Finance Act by giving direct tax benefits in an interim budget as it will pose an additional financial burden on the next government after elections. With GST subsuming most indirect taxes except customs duties, there is little room for the government to play around with taxes. Whether finance minister Goyal sticks to convention or tinkers with income tax slabs and standard deduction to attract the votes of the salaried class is a million dollar question.