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Elections in five states and the Budget
What a number of people are speculating on is that those who have Jan Dhan accounts will find a sum of money transferred to their accounts as a gift from a grateful Prime Minister.

Saturday January 7, 2017 7:13 PM, Dr Amir Ullah Khan, ummid.com

Amir Ullah Khan

Dr Amir Ullah Khan

Ghulam Nabi Azad
[Opposition leaders after a meeting with the Election Commission seeking postponement of the Union Budget in view of the Assembly polls in five states.]

As always, state elections are going to be exciting. If the BJP wins in UP, the Presidential election will be a cake walk for the ruling party. If it loses, there will be greater pressure on the party managers to prove they are capable of winning the 2019 elections. A loss would also suggest that the ostensible approval for demonetization was an illusion that a hapless and bullied population exhibited to the press out of apprehension and fear. Winning these state elections is therefore going to be really important for the PM and his government to regain credibility after a number of policies that have faded from public memory.

Elections for the five states would be held over a forty day period starting two months and in some of the most important states. Of course Uttar Pradesh is critical as it is the state that elects the largest number of legislators, sends the largest number of members to parliament, one of whom is the Prime Minister himself. The Union budget is scheduled to be presented on the 1st of February and this is getting the opposition agitated. The fear is that the FM will announce populist measures that could influence voting patterns.

What is it that the opposition is afraid of? There is a suspicion that the government is worried about the negative fallout of the demonetization exercise. In order to win over those who have stood in long queues at banks and ATMs over the last couple of months, the government may decide to dole out some sops. What a number of people are speculating on is that those who have Jan Dhan accounts will find a sum of money transferred to their accounts as a gift from a grateful Prime Minister. This sounds rather far-fetched for at least two reasons – low tax revenue and the failure of demonetization.

The government does not have too much money to hand out. Tax revenues would have fallen in the last two months and will not pick up in the next quarter too as growth has fallen perceptibly. There is no extra money with the government that it can use to distribute across the country. There was some hope that a large sum of at least three lakh crores would not return to the banks during the demonetization exercise but all indications are that all the money has come back into the system. Even if some money hadn’t come back, it would be imprudent for the government to have laid claims to that unreturned cash.

The PM has already announced that farmers will get cheap loans. He has also announced that those who are building low cost houses will get access to low interest loans. The government now has nothing else to announce in the budget on these lines. The FM could very well decide to give a loan waiver to farmers, but this would go completely against the line that the PM has taken. He has often blamed the subsidy culture of the Congress. It will be another loss of face if he does precisely the same.

The opposition’s insistence that the budget should be postponed is not relevant as a result. There is also voter behavior that suggests the same. The electorate rarely votes or what a government has done in the past. Votes are cast based on what a party promises it would do in the future. If the government declares everything in the budget, there is nothing for the voter to look forward to and he could then choose anyone else on any other parameter like caste or ideology. If the FM announces major sops before elections, there is little for the voter to look forward to afterwards.

There is yet another point that must be noted. Paradoxical as it is, the fact is that there is widespread approval of demonetization. People standing in queues for hours say they are happy with this move and feel it would result in rooting out corruption and black money. Narendra Modi’s approval rating continues to be high, if one were to believe the various surveys and opinion polls being conducted. If that is the case, then why does he have to do anything else to win over a population that is already chanting his name?

One must also not forget that the PM has repeatedly talked about the poor tax to GDP ratio in India. There are only 24 lakh people who pay income tax, he has argued. The FM too has spoken of the need to collect more revenue through taxation and of increasing the tax net. With this in the background, it makes little sense for the budget to announce new tax sops or for increasing the tax exemption limit as is being forecast by various analysts. The Opposition parties also fear that such an announcement could lead to a consolidation of urban votes behind the BJP.

If indeed approval is so high and people do want to see an expansion in the tax net and an increase in tax revenues, it would make for poor decision making to tamper with existing tax rates or tax exemption limits. As a result, there is little for the opposition to worry about when it comes to the government insisting it wants to present the budget before the elections. The democratic tradition would have been if the treasury itself announced that it would postpone the budget presentation. But if it is adamant, there is no harm in letting it proceed with its idea.

What the government should be worried about actually is the pernicious manner in which growth rate is going down. Reduction in the growth rate not only means lesser money with the government to spend, it also means fewer jobs. High unemployment never works well in elections, even if they are polarized along religious and caste lines. The budget, instead of worrying about elections in UP and Punjab and others, should focus more on increasing consumption in the country and encouraging higher levels of investment leading to capacity expansion and job creation.


 


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