‘Budget a fine balance between populism and fiscal arithmetic’

IIM-K professor says tax exemption will boost consumption

Rudra Sensarma, Professor of Economics at Indian Institute of Management Kozhikode (IIM-K), has said that the interim Union Budget, focussing on middle class and rural population, is a fine balance between pre-election populism and fiscal arithmetic.

He said that the removal of income tax liability for those who fall in the ₹2.5 lakh to ₹5 lakh bracket would be of great help to middle-class people. With this move, 80% of those who file income tax returns will no longer have to pay tax and it will give a boost to consumption and growth.

‘Relief to farmers’

The farmer income support scheme (P.M. Kisan Samman Nidhi) of ₹6,000 per year will bring relief to the distressed small farmers, particularly because this is a retrospective policy for which partial allocation is already made in the current fiscal. While landless farmers will not benefit from the scheme, the increased spending by the 12 crore beneficiary families would generate multiplier effects on the rest of the economy, he said.

Rural economy

Prof. Sensarma said that the rural economy has also got a public spending stimulus from significantly higher allocations in various schemes such as NREGA (spending is up by 9%), irrigation scheme (by 15%), rural roads scheme (by 22.5%), rural drinking water scheme (by 49%) and interest subsidy scheme (by 20%).

However, he said that it was disappointing to note the cut in Higher Education Financing Agency’s allocation by 23.6% as it was a good initiative of the government to help educational institutions get soft loans for capital spending.

“On the other hand, the allocation for national education mission (encompassing literacy, primary education and teachers training) has been increased by 18%. This was a welcome move as our demographic dividend needs to be harnessed right at the primary school level. Jobs and skill development schemes have received higher allocation by 48% which will also help in training our rising youth population for contributing to economic growth.”

He said the last budget of the NDA government had shown hints of minimum government and maximum governance through a combination of income tax cuts and higher social and rural sector spending. The fiscal consolidation glide path continues with the lower fiscal deficit (3.4%) compared to last year ((3.5%). Although the target of 3.3% was breached, considering that the deficit was 4.5% in 2014, bringing it down to 3.4% will count as a major success as it has helped control public debt, interest payments and inflation, Prof. Sensarma said.

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Printable version | Jun 3, 2020 10:09:36 AM | https://www.thehindu.com/news/cities/kozhikode/budget-a-fine-balance-between-populism-and-fiscal-arithmetic/article26156889.ece

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