Budget 2018 needn’t be populist

Budget 2018 needn’t be populist

The finance minister will have more opportunities later in the year to woo voters by doling out freebies

A view, currently shared by a large number of people, is that the Union government’s Budget for 2018-19 will be populist. The argument is that this will be the last full Budget of the Modi government in its current tenure. Hence, it will make sense for Finance Minister Arun Jaitley to dole out free bies and concessions in his final Budget in an attempt to woo voters

Such assumptions are flawed, based as they are on an incomplete and outdated understanding of the factors that influence the making of the Budget. In fact, the dates of general elections in 2019 and the presentation of the final Budget of the Modi government are so far removed from each other that Jaitley should not be under any pressure to present a populist Budget next month. Instead, he could well unveil an array of schemes and proposals that he believes are necessary for the economy, even if a few of them could be unpopular.

The next general elections are scheduled in May 2019. An advancement is unlikely. The economy is yet to recover from the disruptions caused first by demonetisation and then by the Goods and Services Tax (GST) rolled out in July 2017. Economic growth is still to gather fresh momentum. With international crude oil prices rising, inflationary pressures in the domestic economy may also increase. It could be argued that farther the dates of the general elections, the better are the chances of the government managing to show a better economy by then.

If the government decides to use the 2018 Budget to offer freebies and concessions for possible electoral gains, such a long gap between their announcement and the date of polling can negate all theoretical electoral gains that the government may hope to make. No voter will remember on the polling day what concessions she was showered with 15 months ago.

The roll-out of the GST has also put paid to hopes of the government to secure voters’ sympathy through Budget concessions. The Union government’s powers to decide on indirect taxes are now substantially curtailed. The GST Council, a body composed of the Union finance minister and other state finance ministers, will now decide on all major indirect tax rates, barring the customs duty. No longer does Jaitley enjoy the exclusive power of using excise and service tax rates to offer concessions.

Decisions of the GST Council are announced outside the Budget and the Union government cannot take credit for such decisions for electoral benefits. Even the rates of direct taxes have by and large stabilised at levels set a few years ago and the finance minister has little leeway in making big changes in the direct tax rates, barring tweaks by way of procedural relaxation or expansion of the scope of exemptions.

The finance minister can still use his budgets to announce decisions on expenditure for various schemes, projects and policies. The fact is Union budgets have increasingly become less important for tax changes and more relevant for the kind of expenditure the government incurs in different sectors of the economy. From that perspective, the 2018 Budget will focus a lot more on the various schemes that the government needs to launch to address, for instance, farmers’ distress or the poor health of the financial sector.

Indeed, such an exercise will not be limited by the Budget. Even after the Budget, the government will be engaged with the needs of the economy to address the existing as well as new concerns. In any case, the finance minister will be free to use the interim Budget that he presents in 2019 to announce schemes and programmes that he could use for possible electoral gains. Such announcements, closer to the general elections, will have a far more measurable impact on voters’ sentiment.

If the convention of the interim Budget bars him from announcing any new schemes with fiscal implications, Jaitley could fall back on another instrument. Like what one of his predecessors, Jaswant Singh, did in January 2004, Jaitley too could come out with a list of attractive schemes, concessions and freebies, a few weeks before he presents the interim Budget in February 2019. That way he would ensure a greater chance of his freebies making a favourable impact on voters’ behaviour in the polling booth.

Finally, if Jaitley does present a populist Budget in February 2018, it may point towards two possible scenarios. One, the Modi government is hoping that its Central Budget schemes could have some positive impact on the crucial assembly elections to be held later this year in Karnataka, Rajasthan, Madhya Pradesh and Chhattisgarh, among others. Two, a plan may be afoot to advance the general elections on the basis of a fresh assessment of the political developments on the ground.


The Business Standard, New Delhi, 8th January 2018