2018 Union Budget – Focus on the Agriculture sector and an eye on 2019 elections

It was the fourth budget for the NDA led government and on February 1, 2018, when the finance minister Arun jaitley started his speech, it was clear that the budget was made with a focus on the 2019 General election.

The finance minister did not have much room to maneuver and had to do a fine balancing act. The NDA is facing a strong anti-incumbency wave especially among farmers and the working class. The FM has tried to assuage the farmer’s sentiments.

Focus on agriculture sector

The FM started with a string of sops for the farming sector. He added that the NDA would keep its promise of ensuring that farmers get 50% returns on their produce.

The FM also sought to assuage the rural angst due to falling price of their products and announced that the MSP or the minimum support price for Kharif crops would be set at 1.5 times the cost of cultivation which is in lieu with the stated 50% returns criteria.

This was a key demand of the protesting farmers in Maharashtra and Madhya Pradesh. The government has adhered to pricing benchmark for the rabi crop and has now extended it to Kharif crops also.

The measure will augment the immediate income of the agricultural community who reside in rural India.

The finance minister further added that the NITI Aayog in close coordination with the state governments would formulate a foolproof mechanism which will ensure that the farmers are benefitted.

However, there is a risk of inflationary recoil due to increased MSP prices, but it could be tempered with an improved supply-side response.

Fiscal deficit continues to be a cause of worry

However, the government could be faulted for not taking bold but unpopular decisions. The Gujarat poll results, by poll results and a resurgent opposition, especially the Congress must be giving jitters to the ruling party. The budget did not take any steps for fiscal consolidation.

The actual fiscal deficit was 3.5 against the projected 3.2.

The NDA had inherited a backlog of fiscal laxity which was brought down 3.5%, and the government can be credited for this achievement. However 2018 will be a critical year with rising crude costs and falling farm produce, it will be a stiff task for the government to keep the fiscal deficit at present levels.

One good thing which the government has done was to accept the Fiscal Responsibility and Budget Management Committee’s recommendations. The committee was set up to take stock of unanticipated revenue outcomes post-GST implementation.

The linking of the agricultural produce via Agricultural Produce Market Committee with eNAM is a good move. This year’s budget was focused on the Agriculture sector, and this was long overdue.

However other measures like better irrigation, improvement of infrastructures like rural roads, augmenting shelf life of farm products, soil testing, optimum utilization of fertilizers, are also necessary to improve the conditions of the average farmer in rural India.

Coverage up to Rs 5 lakh per family

The money spent on the health sector in India is the lowest among even third world countries. A huge and illiterate populace makes it easy for the state to allot money into electorally more beneficial sectors.

This budget is a welcome change, and a fresh impetus has been given and flagship national health protection schemes which were designed to cover ten crore poor and vulnerable families and 500 million beneficiaries to provide coverage up to Rs 5 lakh per family.

Mixed Market reaction

Finally, the response from the market and industry has been mixed. A major section of the industry feels that it was suitable and timely and is a blend of political opportunism with economic requirements. Well, known economist, Arvind Panagariya felt that the plan to cover 100 million families for medical expenses up to Rs 500,000 coming under the ambit of central-funded health care is the most significant program.