Modi pushes his pro-poor agenda further
by Krishnarjun on 06 Mar 2015 3 Comments
This year’s budget comes amidst heightened expectations for something new, but the Modi government preferred to follow the roadmap declared in the previous budget that matches the BJP agenda declared in the party manifesto. The focus of this budget remains the same as the last budget with huge increase in allocations to transportation and energy infrastructure. Walking the talk on federalism, the government has accepted higher devolution of taxes to States as recommended by 14th Finance Commission. Now States have increased flexibility and discretion to spend more money for their development needs. 


Revenue delegated to States including grants and centrally sponsored schemes increased from 54 per cent of total revenue in 2014-15 to 58 per cent in 2015-16. Constrained by a shrink in resource pool after more revenue delegation to States, the budget tried to achieve a balance between expectations and feasibility. The main focus is on job-led growth through public investment in infrastructure with energy and transportation gaining the lion’s share of central plan outlay for 2015-16.


This budget has added a new dimension to social sector with baby steps to universal social security, a new accident insurance scheme that provides Rs 2 lakh coverage for a nominal premium of Rs 12 per year and a new universal pension scheme is also proposed with subsidies to premium for 5 years for accounts opened before December 2015. These much needed steps would provide relief, particularly to poor, against unexpected events of life and old age.


These steps would also help to keep insurance costs low and affordable for those who can’t afford high premiums of mainstream insurance companies. An addition of affordable universal health insurance that can provide coverage for costly treatments would make this social security basket  complete. There is a need to keep insurance and health care costs low and these schemes if properly designed and implemented would be a benchmark for other players.


These social initiatives, if properly implemented, would help this government gain a pro-poor image and lend credibility to the Prime Minister’s repeated claims that his government is for poor. This budget has no extra thrust for agriculture compared to the last budget, except for the allocation to “Pradhan Mantri Sinchayi Yojana” which has increased from Rs 1000 cr to Rs 5000 cr with focus on drip irrigation. States with extra resources should now take more responsibility on the Agriculture front.


The main focus of this government remains “Make in India”, Swatch Bharat”, Infrastructure and low cost housing. There is continued allocation to these areas in the budget. A new specialized “MUDRA” bank for micro finance to cater to the needs of millions of micro businesses has been announced and if successfully implemented could even lead to a low interest economy. The activities of this bank would be closely watched and its success would have visible impact on society.  The budget has also proposed to link the vast network of post offices in the country to banking services.


Tax-free infrastructure bonds for rail, road and irrigation sectors have been announced. The visa-on-arrival program is now extended to 150 countries. A gold monetization scheme that allows metal depositors to earn interest is proposed; if the interest is high this could actually shoot up demand for gold. Perhaps with an idea to create paper gold market in India a sovereign gold bond and Indian Ashok chakra gold coin are proposed. It has to be seen how far these measures would help the government to satiate the Indian demand for gold and help reduce gold imports that are increasing burden on current account.


The middle class wait for budget tax sops ended in disappointment; they received concessions in the last budget and it’s hard to provide more sops when the focus is on public investment. Middle class would be the biggest beneficiaries of investment in Infrastructure and growth. As the economy gains health, there would be more room for concessions.  The middle class can invest in tax free infrastructure bonds and be part of the India growth story.


A student financial authority to monitor scholarship and educational loan schemes has been announced. More central institutes of higher learning have been announced for different States, including a second AIIMS level institution for Bihar. An autonomous bank board bureau which could eventually emerge as a holding company for public sector banks is a sound measure.


The budget declares special assistance for Andhra Pradesh as promised in the state reorganization bill, along with Bengal and Bihar, without specific details. The political situation in AP is heating up with local media deliberately spreading misinformation on the motives of the central government. After the State’s division, it seems Andhra-ites are very cynical about the central government and local politicians; media are taking advantage of this cynicism. The central government should take steps to satisfy the provisions in AP reorganization bill soon.


There are initiatives to simplify regulations for starting businesses. The government proposes to bring down corporate tax to 25 per cent in the next four years while reducing the concessions currently available to the corporate sector. Major punitive steps have been announced to control black money and benami transactions; PAN would be made mandatory for all transactions above Rs 100,000.


The budget balances growth and welfare and gives an idea of the priorities of this government. The goals are clear, but much would depend on implementation; the success of the Jan Dhan Yojana is a good sign, but much more focus is needed to deliver the promises on the ground. The people are very impatient for visible change. Without frittering energy on everything, it’s better to focus on few areas that can have wide impact and cause perceptible change.

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