Posted by: John Elliott | February 1, 2018

India’s Budget aims for votes with “Modicare” for the poor

Preparing for general election that might come early

Congress beating BJP in Rajasthan elections

Arun Jaitley, India’s finance minister, today presented his annual Budget which was designed to help the Bharatiya Janata Party government win the next general election that is due by April next year but might be brought forward to the end of this year.

Jaitley’s broad aims in his last annual budget before the election were to show that the government cared for the less well off, and especially the rural poor, with a special focus on health and education where the government is strongly criticised for not having done enough since it was elected in 2014.

This lack of success has been underlined today with by-election results in Rajasthan  where the BJP is in power. The Congress Party has won two parliamentary seats and one state assembly seat, defeating BJP candidates. In West Bengal, the regional Trinamool Congress has won an assembly and a parliamentary seat.


Arun Jaitley arriving at Parliament

Delivering his almost-two-hour speech for the first time partly in Hindi (the language favoured by prime minister Narendra Modi and most other of the Hindu nationalist government’s ministers), Jaitley set out five aims: to strengthen agriculture and the rural economy, improve health care for the less well off, provide help for the aged, boost infrastructure construction, and improve education in conjunction with the states.

The annual Economic Survey which was published on January 29, helped him by forecasting that the rate of economic growth will rise from 6.75% to 7.2-7.5% in the next financial year. Jaitley said the country was “firmly on course” to exceed 8%. This was because the country is emerging from a slow-down triggered by the chaotic and disruptive implementation of the demonetisation of bank notes 15 months ago and the new goods and services tax (GST) last summer.

More tax payers

The survey said that GST had triggered a “50% increase in unique indirect taxpayers” which led to “3.4 million new indirect taxpayers” and an additional 1.8m individual tax papers (adding 3% to the total). However a majority of the people’s total earnings are below the tax threshold.

The finance minister is being criticised for allowing the fiscal deficit to reach 3.5% this year against a target of 3.2%, and for aiming at 3.3% in 2018-19, which many commentators considered unlikely to be achieved. There is general concern about increased spending, but the main worry is that many of the proposals and schemes announced will not be adequately implemented,

“Modicare” health insurance

The headline announcement was a National Health Protection Scheme to provide the poor with insurance to access private sector health care without building up sizeable debts. The plan is to roll it out in the next six months and eventually to cover 100m poor and vulnerable families – an estimated 500m people, 40% of the population.

The government will provide up to Rs500,000 (US$7,800) a year per family for private sector secondary and tertiary level care. Jaitley said this would be the world’s largest government-funded healthcare programme, but critics commented that it would create a government-funded bonanza for private sector insurance and healthcare companies.

“If we manage to reach even 10 crore Indians, the world will consider Modicare more successful than Obamacare,” Jaitley said in a television interview.

budget speech

Prime minister Modi applauding during the speech

Perhaps the most unpopular budget initiative for the well off is the introduction of a 10% capital gains tax on stock market investments held for more than a year and exceeding Rs100,000 (US$1,560) – there is already a 15% tax on short-term investments of under a year.

Jaitley’s budget has been criticised for not doing enough on job creation at a time when, according to one official estimate, educated unemployment may be as high as 20%. The survey is trying to improve the jobs outlook by including occupations in what is called the informal sector.

On other points, Jaitley said the Government “take all measures to eliminate use” of crypto-currencies such as Bitcoin, which it did not consider legal tender. It would however explore use of the crypto-currencies’ block chain technology to boost the digital economy.

A billion flights a year

Among his more ambitious targets, he said that the country’s airports’ capacity would be increased five-fold with a target “to handle a billion trips a year” – though he did not say when this would be achieved. Currently, the Airports Authority of India runs 124 airports and there are a few private sector operators.

In a protectionist move aimed at boosting India-made goods and encouraging companies to manufacture in India, he announced an increase from 15% to 20% in customs duty on mobile phones and a rate of 15% for televisions.

On defence, Jaitley announced yet another initiative to increase India’s at present low level of defence manufacturing with the promise of what will be the latest in a long series of defence industrial policies. The aim would be “to promote the domestic defence sector by investment from private and public sector”. The only change here is that the public sector is being mentioned as well as the private sector, which might reduce opposition from the defence establishment.

On railways, which have been hit by a series of serious crashes and accidents, Jaitley promised that “focus will be on safety, maintenance of railway tracks, increase in use of technology and fog safety devices”, plus the installation of escalators and railway station wi-fi connectivity.

General election timing

Indications that the general election might be brought forward came earlier this week. In his annual address to parliament, India’s president, Ram Nath Kovind, echoed the views of Modi and the BJP’s 2014 manifesto that assembly elections should take place simultaneously with national polls to cut costs and reduce the negative impact that constant electioneering has on government policy making.

If Modi goes ahead with this proposal in the coming months, and organises a constitutional amendment, the next national election could be brought forward from next April to around the turn of the year along with various assembly polls including key states such as Madhya Pradesh, Rajasthan that are due by next January.

Overall, the budget has caused little excitement. Modi said during a long television statement that it would “bring new opportunities for rural India”, but that will depend on the government’s dubious ability to implement what it has announced. There is widespread scepticism about this happening, for example on education and health.

Modi and his ministers are regarded as being strong on the razzmatazz of announcements and special schemes, but weak on making them happen. That needs to change, if Modi is to avoid a difficult general election, whenever it comes.

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