'Soak-Up-Rich Budgets Helps Build Case That Demonetisation Was A Wealth-Transfer Scheme
Budgets are as much about politics as about economics and a good finance minister blends clever politics with sound economics. By that yardstick,
Arun Jaitley has pulled off a feat of sorts.
He has presented a politically suave Budget, but without disturbing the markets or junking fiscal prudence. Jaitley has used the instrument of
Budget to send out a clear signal that the Centre does not see big industrialists, rich businessmen and the upper middle class — who loudly rooted
for Narendra Modi in 2014 — as its constituency.
The proposals make it clear that the Modi government's sights are set on the poor, the farmers, the middle class, the rural population and the
small/middle-level businessman/entrepreneur. In short, the voting classes who decide poll outcomes.
Nothing illustrates this better than the proposal to slash income tax rate by half for those earning between Rs 2.5 lakh and Rs 5 lakh. The benefit,
seen as a reward for a constituency which earned the government's gratitude for putting up with the discomfort post-demonetisation, comes at the
cost of the upper middle class in the Rs 50 lakh-Rs 1 crore income bracket — they have been slapped with a 10% surcharge.
Remarkably, the Budget, most probably as part of a political calculation, says so much, and bluntly. Taken together, the proposals constitute a
'soak-up-the-rich' message which can help better frame the argument that demonetisation was a wealth-transfer scheme, hence the inconvenience of
'notebandi' did not lead to cash riots.
Likewise, reduction of tax for medium and small enterprises, while seeking to level the field for the high employment-generating sector, is also
compensation for a section badly hit by demonetisation. Often perceived to be sympathetic to BJP, they were reported to be restive and, hence, a
potential target for political opponents. It is more than a coincidence that small and medium enterprises have a big presence in pollbound Punjab
and western UP.
However, the Budget is defiant so far as demonetisation itself is concerned. In fact, the attempt to cleanse electoral funding, banning cash
transactions above Rs 3 lakh have been pitched as a riposte to the criticism that demonetisation was a leap into the unknown. Provisions like
assured return on pension scheme for senior citizens, low-cost housing and assistance for pregnant women have been tied to demonetisation to project
it as a transfer of funds from the corrupt and the rich to the poor and needy.
Provision of Rs 10 lakh crore for farm credit constitutes a big statement about the government's biases. But the 'class warfare' has been pushed without
unsettling the markets or resorting to fiscal profligacy. The abolition of FIPB, the hint that railways has become unprofitable and the commitment to
labour reforms in disregard of protests by trade unions — all serve to emphasise the government's pro-reform intent.
By not getting off the path of fiscal consolidation, Jaitley has not just sought to minimise the risk of high inflation but also preserved ammunition,
including tax relief for the middle classes, for the battle of 2019. Better tax compliance because of scrutiny of cash that has flowed into banks post-
demonetisation will help him with the preparations.
02ND FEBRUARY, 2017, THE TIMES OF INDIA,NEW-DELHI
Budgets are as much about politics as about economics and a good finance minister blends clever politics with sound economics. By that yardstick,
Arun Jaitley has pulled off a feat of sorts.
He has presented a politically suave Budget, but without disturbing the markets or junking fiscal prudence. Jaitley has used the instrument of
Budget to send out a clear signal that the Centre does not see big industrialists, rich businessmen and the upper middle class — who loudly rooted
for Narendra Modi in 2014 — as its constituency.
The proposals make it clear that the Modi government's sights are set on the poor, the farmers, the middle class, the rural population and the
small/middle-level businessman/entrepreneur. In short, the voting classes who decide poll outcomes.
Nothing illustrates this better than the proposal to slash income tax rate by half for those earning between Rs 2.5 lakh and Rs 5 lakh. The benefit,
seen as a reward for a constituency which earned the government's gratitude for putting up with the discomfort post-demonetisation, comes at the
cost of the upper middle class in the Rs 50 lakh-Rs 1 crore income bracket — they have been slapped with a 10% surcharge.
Remarkably, the Budget, most probably as part of a political calculation, says so much, and bluntly. Taken together, the proposals constitute a
'soak-up-the-rich' message which can help better frame the argument that demonetisation was a wealth-transfer scheme, hence the inconvenience of
'notebandi' did not lead to cash riots.
Likewise, reduction of tax for medium and small enterprises, while seeking to level the field for the high employment-generating sector, is also
compensation for a section badly hit by demonetisation. Often perceived to be sympathetic to BJP, they were reported to be restive and, hence, a
potential target for political opponents. It is more than a coincidence that small and medium enterprises have a big presence in pollbound Punjab
and western UP.
However, the Budget is defiant so far as demonetisation itself is concerned. In fact, the attempt to cleanse electoral funding, banning cash
transactions above Rs 3 lakh have been pitched as a riposte to the criticism that demonetisation was a leap into the unknown. Provisions like
assured return on pension scheme for senior citizens, low-cost housing and assistance for pregnant women have been tied to demonetisation to project
it as a transfer of funds from the corrupt and the rich to the poor and needy.
Provision of Rs 10 lakh crore for farm credit constitutes a big statement about the government's biases. But the 'class warfare' has been pushed without
unsettling the markets or resorting to fiscal profligacy. The abolition of FIPB, the hint that railways has become unprofitable and the commitment to
labour reforms in disregard of protests by trade unions — all serve to emphasise the government's pro-reform intent.
By not getting off the path of fiscal consolidation, Jaitley has not just sought to minimise the risk of high inflation but also preserved ammunition,
including tax relief for the middle classes, for the battle of 2019. Better tax compliance because of scrutiny of cash that has flowed into banks post-
demonetisation will help him with the preparations.
02ND FEBRUARY, 2017, THE TIMES OF INDIA,NEW-DELHI
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