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Will PM Modi play Santa Claus?

Modi could come under pressure to offer relief to the masses, especially farmers, to salvage its 2019 chances.

ET Online|
Updated: Dec 25, 2018, 04.07 PM IST
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NEW DELHI: The loss of mandate by the Bharatiya Janata Party (BJP) in the recent assembly elections may move the Narendra Modi government in the Centre to shower sops on the masses before the Lok Sabha elections next month.

Buoyed by its success in the assembly elections, the Congress has promised a loan waiver across the country if it is elected. This is likely to put pressure on the Modi government to offer relief to the masses, especially farmers, to salvage its electoral chances. However, since Modi's is seen to be against populism and freebie culture, the sops he might offer would not be without long-term positive impact for the economy such as boosting consumption demand. A loan waiver across the country is not being seen as an option for the BJP, however, it can try to assuage the masses with many other steps.

Universal basic income
UBI is not a new idea. It got full play in the Economic Survey 2016-17. Based on a survey on misallocation of resources for the six largest central-sector and centrally sponsored sub-schemes (except PDS and fertilizer subsidy) across districts, the Economic Survey pointed out that the districts where the needs were greatest were precisely the ones where state capacity was the weakest. This suggested that a more efficient way to help the poor would be to provide them resources directly, through a UBI. Then chief economic advisor Arvind Subramanian, the author of the survey, even calculated the UBI for 2016-17—Rs. 7,620. IMF’s estimate is UBI of Rs 2,600 in 2011-12 prices. This is equivalent to about 20% of median per capita consumption in that year.

UBI is being seen as Modi's best chance to win 2019 mandate. Instead of a universal loan waiver, UBI is seen as a more efficient means to help a large number of people, including small farmers, out of financial distress. Since declining rural real wages are a big factor in farm distress, UBI will be a more effective means than a one-time universal loan waiver.

Relief for retailers
Retailers or small businesses have been the core of the BJP mass base. They have been under stress due to demonetisation and later the problems during transition to the GST. Now they are being hit by big online retailers who can afford to offer deep discounts.

In the run-up to the 2019 Lok Sabha elections, PM Modi may soon announce a “special package” for the retailers and traders, which will allow them access to cheaper loans through an interest subvention scheme and insurance facilities, according to a report on The Print. The package is in the works and may be announced soon.

Tax relief for the salaried
Finance Minister Arun Jaitley is likely to opt for a vote-on-account instead of a full budget since the elections would be held just a few months later.Can a finance minister make a splash with a vote-on-account speech? In case of vote-on-account, the finance minister seeks an approval for the expenditure for up to three or four months. Any new schemes launched at this time for the following year cannot be voted on; ditto for any direct tax sops or increases.

But Jaitley can take a leaf out of the playbook of Manmohan Singh. While presenting the vote-on-account in 1996, Manmohan Singh went quite out of character and made a pitch for votes, for the "friendly hand", after outlining the work done by the Narasimha Rao government.

As an intention or promise, Jaitley can propose income tax relief for the salaried such as raising standard deduction from Rs 40,000 to Rs 75,000 or even raising the ceiling for exemption from income tax. He is even likely to review tax on mutual fund redemption. The will give consumption boost to the economy by ensuring more disposable income for the middle class.

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