Budget 2019: If Modi govt goes populist, it'll be planting financial landmines

On the eve of the interim budget--which is expected to be Modi government's one last attempt to woo the voters before the Lok Sabha election in May--the country is waiting with bated breath to do math of populist announcements and its impact on the economy. Recently, the populist announcements like farm loan waivers had dented the state budgets of Punjab, Uttar Pradesh, Maharashtra, Karnataka, Madhya Pradesh, Rajasthan and Chhattisgarh. While economists agree that the cost of such moves will have a longer term impact on the economy, there are many unnoticed financial deferments of the central government that will also play as financial landmines for 2019 and the post election government. What are they?

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There is a Rs 1.5 lakh crore shortage in the budgeted revenue target for this financial year, primarily because of the shortcoming in GST collection--the government estimated to collect Rs 13.48 lakh crore as GST, but actual mop up averaged at Rs 97,000 crore in the first nine months. The fiscal deficit was Rs 6.48 lakh crore or 103.9 per cent of Budget Estimate (BE) during April-October. In this context, the reports say that the government may rollover certain expenditures, while cutting some others. ETNow reported that the government may rollover around Rs 50,000-60,000 crore of subsidies to next financial year. Business Standard reported earlier that the petroleum ministry's internal calculations showed that the oil subsidy for the year was estimated to cross Rs 46,000 crore by the end of September. Initially it was expected to be Rs 25,000 crore. Deferring the subsidy will be one of the financial landmines for the post-election government.

The rollover is not Modi government's invention. P Chidambaram, the finance  minister in the last Manmohan Singh government, had deferred subsidy payments of Rs 35,000 crore to the oil marketing companies in the 2015 financial year. Besides, the BJP government had to repay the Rs 2 lakh crore raised through oil bonds during the UPA 2 government.

Another landmine for the next government will be the deferred income tax refunds. Income tax department has decided not to release many high-value refunds claimed by corporates and public sector units for the financial year 2016-17, citing reasons such as discrepancies in the credit of tax deducted at source (TDS), carry forward losses, and pending tax demand for the previous years, reported Business Standard. Refund claims amounting to about Rs 20,000 crore would be held back, said the newspaper, citing sources. When the tax refund looks to be the next financial year's affair, the reports say that the government is planning to give more income tax exemptions in the interim budget for satisfying the working middle class.

Also read: Driving India's economic growth with strong measures in interim budget 2019

The central government also tried woo the micro, small and medium enterprises (MSMEs) and small traders that have suffered because of demonetisation and complicated GST. The government allowed 20 lakh GST-registered MSMEs to go out of the tax ambit, raising the aggregate turnover threshold for exemption to Rs 40 lakh from Rs 20 lakh. The annual cost of this move would be Rs 6,000 crore from the next financial year.

The overall cost of Modi government's mega health insurance scheme Ayushman Bharat is estimated to be Rs 15,000 crore in the first two years--Rs 5,000 crore for 2018 and Rs 10,000 crore for 2019. But it is not clear how much of the anticipated investments have been made by the government. The experts say that the government will have spent around Rs 7000 crore-Rs 10,000 crore in the next financial year for the roll out of the scheme.

Both the BJP and Congress had promised farm loan waivers in the recent assembly elections to win the power in states--about seven state governments had promised to write off farm loans worth Rs 1.8 lakh crore. The central government is expected to repeat the same in the interim budget to win back the large farmer community. The first Manmohan Singh government had announced farm loan waivers worth Rs 72,000 crore in 2008 and it helped them to return to power with a bigger mandate in 2009.

The financial goodies to bag votes will hamper economic prosperity of the country in the short and medium term.