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Modi Government’s Last Budget

Modi Government's Last Budget

Making a populist push for ‘New India’

Nothing has underlined the challenge facing Indian Prime Minister Narendra Modi better than the results of three key by-elections in the western state of Rajasthan. His Bharatiya Janata Party lost two seats in the lower house of parliament and one in the state assembly to the opposition Congress party by big margins. This was in a state where the BJP had won all 25 parliamentary seats in the 2014 national election after a huge 163-21 defeat of Congress in December 2013 state polls. It is in this backdrop that the newly-unveiled budget is populist in its tone.

On Thursday, February 01, Indian Finance Minister Arun Jaitley unveiled an ostentatiously pro-poor central budget for fiscal year 2018-19, starting April 1. At the top of the populist menu is an ambitious National Health Protection Scheme, promptly dubbed “Modicare” by sceptics, that aims to provide health insurance of up to 500,000 rupees ($7,800) annually to 100 million poor families. Jaitley did not spell out where the money to fund the insurance would come from. The scheme will expand an existing government health insurance programme for which the budget provided only 20 billion rupees. Modi endorsed the budget in his own 25-minute speech following Jaitley’s, stressing that the insurance programme is “by far, the world’s largest.”

India’s latest budget is as much a social road map as an economic blueprint for spending its way to growth. Battered by the aftereffects of the demonetization of high-value bank notes and the stressful introduction of a national goods and services tax, gross domestic product is officially projected to grow by 6.5% to 6.75% in 2017-18, down from 7.1% the previous year. Growth averaged 6% in April-September 2017. Rising inflation, continuing sluggishness in private investment and negligible job creation – combined with caste and religious fissures – have dented Modi’s popularity, although two recent polls said he is still favoured to be the next prime minister. Growing murmurs say Modi may cash in his political capital to call early general elections late this year, although his term extends to May 2019.

The budget proposes spending 24.4 trillion rupees, a 10% increase over 2017-18. This will include 6 trillion rupees on infrastructure and a rise of 7.8% to 3 trillion rupees on defence. Jaitley broke his pledge to hold the fiscal deficit to 3.2% of GDP, saying it would come in at 3.5% in 2017-18, but he vowed to stick to the “glide path” of fiscal consolidation and aim for a deficit of 3.3% of GDP next fiscal year.

The deficit has been contained by adroit financial window-dressing. On Jan. 20, state-owned Oil and Natural Gas Corp. announced it would acquire the government’s entire 51.11% stake in another state-controlled oil company, Hindustan Petroleum Corp., at a premium to its market valuation, yielding the government a 369 billion rupee windfall. The finance minister promised to bring the ratio of government debt to GDP to 40% from the current 70% but did not specify how he would achieve that goal.

Clearly eyeing the rural vote in the Gangetic heartland, Jaitley kept insisting that reforms had been implemented “without weighing the political costs.” He noted that 86% of India’s farmers were small or marginal, and the government would spend a total 14.34 trillion rupees on rural livelihoods and infrastructure in 2018-19.

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