Budget 2018 is highly likely to be populist: Here's why

An aide to PM Modi said every attempt is being made to make it a populist budget

The government will likely increase funding for the farm and rural sectors in the budget for the coming financial year, finance ministry officials said, to shore up political support in the countryside ahead of a raft of elections.

"The next budget will focus on farmers, rural jobs and infrastructure while making all attempts to follow a fiscal prudence path," a senior finance ministry official told Reuters.

Prime Minister Narendra Modi's government won an election in his home state of Gujarat this week, but only just as it faced discontent fuelled by falling farm incomes and a lack of jobs.

In 2018 and early 2019, there will be eight state elections in the heartland, leading up to a national election in 2019.

 

On Feb. 1, Finance Minister Arun Jaitley is expected to present his last full-year budget, for the 2018/19 year that begins April 1.

Annual farm growth dipped to 1.7 per cent in the three months ending September, mainly on lower prices and output, while economic growth accelerated to 6.3 per cent after growing at a three-year low of 5.7 per cent in the previous quarter.

"The government can't afford farmers' anger anymore, and will try to boost the economic growth and pump in more funds in the farm sector," the official said. "It will not be a populist but a pragmatic budget." Jaitley has signalled that his priority will be allocating more funds for rural and infrastructure sectors.

'Populist' Budget Eyed
 
Modi has indicated that he would like to achieve 7.5 per cent to 8 per cent annual economic growth before entering the election campaign, said another official.

An aide to Modi said, "Every attempt is being made to make it a populist budget."

Higher procurement prices for different crops could be offered to farmers following lower output this year. There will be tax reforms, the aide said, referring to corporate demand to lower tax rates.

The government, which faced a severe revenue shortfall after the chaotic launch of a new goods and services tax in July, plans to increase this financial year's target of receipts from the privatisation of state firms by one-fourth to a record 1 trillion rupees ($15.60 billion).

"The target (share-sale) will be revised soon as we expect to receive about 400 billion rupees from Oil and Natural Gas Corp by March for the sale of the government stake in Hindustan Petroleum Corp," another senior finance ministry official said.

Both ministry officials spoke on condition of anonymity.

By Dec. 15, the government had raised near $8 billion from the sale of shares in companies, more than 70 per cent of the full-year target.

Fiscal Constraints

Modi, who has pushed reforms like the GST, cuts in state subsidies and allowing more foreign investment in new sectors, faces a challenge to create jobs for millions of youths.

Officials said allocations for farm and rural development ministries could be hiked by at least 20 per cent in the next financial year.

The coming budget is likely to enhance allocations for the transport and railways ministries by one-fourth to near 1.5 trillion rupees, one of the ministry officials said.

Officials said the finance ministry could defer some spending to the next financial year to maintain the current year's financial deficit at 3.2 per cent of the gross domestic product.

"The government could easily save about 300 billion rupees from different ministries as all will not able to spend the allocated money," said the official.

It is not clear whether the deficit target for the current year would be met, but a "pragmatic" view would be taken on next year's target of 3 per cent of GDP, the officials said.

Final decisions on the coming budget will be taken by Modi, they said.