In Indian politics today, like any other political party in power, BJP is eying to hold power for the next term as well. Their plan is to woo rural and urban middle-class voters with farm relief measures and tax cuts in the final budget before India’s general election.
Tensions have arisen in the BJP camp after opposition parties’ victories in three state polls last month. With the national election coming up by May, Prime Minister Narendra Modi is facing upheaval over depressed farm incomes and doubts over whether his policies are creating enough jobs.
These electoral compulsions indicate that major economic reforms as promised by the BJP Govt. since three years, such as tax cuts for bigger companies (bringing down the corporate tax rate from 30% to 25%) and plans to bring down the budget deficit, could be put on the back burner until after the election.
In the absence of Finance Minister Arun Jaitley, who is currently in the United States for medical treatment, Piyush Goyal, the interim finance minister, will present the budget on February 1.
The BJP government has also urged the RBI to part with more of its reserves for pre-election spending in its desperation, causing a rift that culminated in the resignation of Governor Urjit Patel last month.
This pre-election budget is interim and is likely to be followed by a full one in July. The full budget is expected to project economic growth of around 7.5% for the financial year 2019-2020 while aiming to expand capital spending on railways, roads, ports by 7-8%, and promising an increase in revenue of about 15%.
The modus operandi will be to elevate the rural sector and the urban middle-class.
The government has planned benefits for unemployed youth, higher tax exemptions for the middle class and small businesses, and relief measures for farmers. The farm relief package itself could run a bill of at least one trillion rupees ($14 billion) if the government is to have a profound impact on influencing the voters in rural areas, where 66% of Indians still live.
The pre-election benefits to lure voters could give the economy short term momentum, but result in an increase in future fiscal deficits after the election.
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