It’s all about optics, not the facts

As with any Budget that is announced a couple of months before a general election, the interim Budget was always expected to be political. Yet few have used the very temporariness of the exercise to political ends the way Piyush Goyal has done.

Far from staying out of policy interventions, he has made full use of the exercise to set out initiatives that are so populist that whoever comes to power in May this year will not be able to reverse it.

The most striking of these steps is that of the direct cash transfer of ₹6,000 per year to small farmers. As these payments to those owning less than two hectares of land would have to be made by the next government, it would strictly speaking be in a position to reverse the move. But it is virtually certain that any new government will consider it political hara-kiri to do so.

Negative impact

The next government may well recognise that the measure could have a negative impact on agriculture. Since all farmers with less than two hectares would be entitled to this direct cash transfer it would be in the interest of family farms to be further divided so that each member of the family can claim ₹6,000.

Small farmers who face high levels of uncertainty may even consider keeping their land fallow while they collect the cash transfers.

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 Finance Minister’s move on income tax is even more interesting. In his speech he spoke of a full ‘rebate’ for all those earning up to ₹5 lakh. The media, missing the technical nuance, took this to mean the doubling of the exemption limit from the current ₹2.5 lakh to ₹5 lakh. But in the Finance Bill it is quite clear that the slab between ₹2.5 lakh and ₹5 lakh remains and the rate of taxation for that slab would continue to be 5 per cent.

It is thus not entirely clear how the Finance Minister would bring about his rebate to those in this slab.

But what matters politically is that the Finance Minister has announced that those in this slab will not pay income tax.

The current political dispensation has no dearth of leaders who believe a catch phrase is worth much more than a detailed argument.

In the political discourse, especially at election time, a campaign that those earning less than ₹5 lakh will not pay tax is bound to overcome any detailed analysis of the Finance Bill. All the more so since the tax that is actually to be paid will be known to each taxpayer only after the voting.

The political consequences of the direct cash transfer to small farmers too would depend on the rhetoric overcoming the fact that no payment would actually be made to small farmers before the elections.

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. It would be interesting to see if it continues to work.

The writer is a professor at the School of Social Science, National Institute of Advanced Studies, Bengaluru.

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