he Interim Budget presented by the interim finance minister, Piyush Goyal, February 1 was rather heavy on optics and very light in substance. Optics, because the whole exercise, a populist one, was conceived and carried out with an eye on general elections. It was sought to redeem the NDA government for some of its flawed policies ahead of the polls. To be fair to the Centre, every government that prepares a budget a couple of months before a general elections is bound to present a populist budget. But the very sweep and audacity of the policies that was seen in the interim budget had not been seen before. It was light on substance because some of the signature promises such as Rs 6,000 cash handout to farmers and pension to workers in the informal sector can be realised only if the incoming government decides to carry out them. It is virtually certain that any new government will consider it a political hara-kiri to drop these proposals. Another salient feature of the interim budget is the class ingenuity displaced by the finance minster in obfuscation. The changes suggested in personal income tax are confusing, to say the least.
Even a week after the interim budget was presented, jury is still out on whether the tax sops announced by Goyal will really make a difference to taxpayers. In his speech, he spoke of a full ‘rebate’ for all those earning up to Rs 5 lakh. The media, missing the technical nuances, took this to mean the doubling of the exemption limit from the current Rs 2.5 lakh to Rs 5 lakh. But in the finance bill, it is clear that the slab between Rs 2.50 lakh and Rs 5 lakh remains the same and the rate of tax will remain at 5 per cent. While a section of people claims it is a gift for the salaried class as a whole, analysts iterate that the sops are just a rebate. It will benefit only those people whose gross salary does not exceed Rs 5 lakh per annum. Even as there is so much of confusion on this proposed change, the government is sitting tight, without bothering to clear the air on this issue.
The PM-KISAN, if implemented, will incentivise further fragmentation of land-holding in the country. Its criterion that all farmers with less than two hectares would be entitled to this direct cash transfer would result in family farms getting further divided into smaller holdings so that each member of the family can claim Rs 6,000. Fragmentation of land parcels will have a direct impact on the productivity of farm land. This may also create social tensions in rural India as multiple splits in family will weaken the family cohesion. Small farmers who face high levels of uncertainty may even consider keeping their land fallow while they collect the cash transfers. Also, they would be particularly tempted to do so if they can simultaneously find non-farm occupations. But even assuming the next government would be so far sighted, they would not be in a position to do anything about it. The budget is for the year beginning in April, by which time the election code would be in force. But this is a government that has, not without good reason, placed a great deal of faith in its rhetoric.