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Blockbuster Initiatives

The attempt to increase farm incomes ... will enable farmers to service loans

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There was a general consensus in commentaries before the Budget that in the light of the agrarian distress, and it being the last full Budget before the next election, there will be a big focus on rural India. But the sheer scale and magnitude of the focus on rural India has blown minds away.

In 2018-19, eight crore more poor women will get new LPG connections, four crore more poor people will get power connections, two crore more toilets will be constructed under the Swachh Bharat Mission, one crore houses will be built as part of the Pradhan Mantri Awas Yojana in rural areas, a health insurance of Rs 5 lakh will be rolled out for 100 million families, and Rs 1 lakh crore will be spent for education. In terms of direct investments, the government plans to spend Rs 14.34 lakh crore for creation of  livelihood in rural areas, make capital investment in the Railways of Rs 1,47,000 crore, invest Rs 6 lakh crore in infrastructure for building roads and airports, Rs 2 lakh crore for Smart Cities and spend Rs 10,000 crore to roll out five lakh Wi-Fi hotspots to boost broadband connectivity and so, help bridge the digital divide in rural India.

My first thoughts when the FM was reading out the Budget, and had not yet come to the tax proposals was, “But how’s he going to fund this? What are the new taxes coming up?” As it turned out there were no big stings. The one that caught the attention was the 10 per cent tax on long term capital gains (LTCG) on equities, but this too will be digested and forgotten over time. Among all other asset classes, only equities had been spared the LTCG tax.

The markets reacted the next day by shedding 800 points, but markets react to many factors. It’s more probable that markets are worried about the fiscal deficit and government borrowing turning out higher than budgeted. It is important to note that the credit rating agency Moodys, commented after the Budget that India’s fiscal consolidation is on track. What the markets are probably not factoring in is that such investments and government spends will lead to a huge kick-off of consumption and demand, power up a long list of supplementary industries, and build an India with modern infrastructure.

I had not expected corporate tax cuts this year, considering the agrarian stress and this being an election year. The increase of threshold for SMEs to Rs 250 crore for availing of the reduced tax rate, was a positive surprise. It is quite obvious by now that the FM is delivering on the promise of a corporate tax of 25 per cent, but in phases, starting with the most deserving.

The way the government has gone about increasing farm income instead of simply waiving farm loans is the best example of  “empowerment instead of entitlement”. Waiving loans would have been a one-time relief with moral hazards. The attempt to increase farm incomes instead, will   enable farmers to service loans, and keep out moral hazards.

There is a saying that there are decades when nothing happens, but then there are weeks when decades happen. If we successfully implement all these initiatives for rural India, the first week of February 2018 will turn out to be one such week.

Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this publishing house. Unless otherwise noted, the author is writing in his/her personal capacity. They are not intended and should not be thought to represent official ideas, attitudes, or policies of any agency or institution.

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V Vaidyanathan

V Vaidyanathan is Executive Chairman at Capital First. He is an alumnus of Birla Institute of Technology and Harvard Business School and is a regular contributor on financial and banking matters in India and international forums

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