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Budget 2018-19: Challenges of PM Modi & Arun Jaitley in upcoming budget

The upcoming Budget poses a big challenge to Prime Minister Narendra Modi.

Budget 2018-19: On February 1, finance minister Arun Jaitley will present one of the most important budgets during the tenure of BJP government. This budget comes after the implementation of the much talked about Goods and Services Tax and comes before the 2019 Lok Sabha Elections. Hence, the budget 2018 expectations from the general public and various industry leaders will be tumultuous. Voicing their concerns are the domestic electronic manufacturers about the Union Budget 2018.

The upcoming Budget poses a big challenge to Prime Minister Narendra Modi. There are too many demands on the Budget while the government is expected to stick to its fiscal deficit targets.

Traditionally, Modi’s Bharatiya Janta Party (BJP) has been seen to rely on middle-class voters—urban workers and small traders. But Modi’s rise to power was fuelled equally by rural voters. Budget 2018-19 being the last full Budget before the next Lok Sabha elections, and coming immediately before assembly elections in eight states, electoral politics is expected to be writ large on this Budget.

The erosion of the BJP’s rural base in the Gujarat elections and the upcoming elections in a few predominantly agricultural states make rural sector the strongest candidate for a Budget largess. Nearly 70 per cent of India’s 1.3 billion population is rural, and Modi may not be able ignore it.

Budget 2018-19: Challenges of PM Modi & Arun Jaitley in upcoming budgetYet, the middle class, hassled by economic disruptions of demonetisation and the GST, expects relief in the form of wider tax brackets and exemptions. Being the BJP’s core vote bank, it cannot be ignored either. Modi has to offer some relief to the corporate sector too to boost private investment which has been lagging for the past few years.

Higher spending in Budget 2018-19 may boost growth but will also fuel inflation and make it difficult for the government to stick to its fiscal deficit targets.

Yet, the election math is likely to get preference. While Modi can deal with the fiscal deficit challenge, it cannot afford to ignore rural voters who are already showing signs of alienation from his party. Also, Modi had promised to double farmers’ income by 2022. Opposition parties may not be able to wean away Modi’s middle-class voter but rural voters can easily shift to them given the increasing farm distress and poor agricultural growth.

“He got a bit of a shock from Gujarat. He realises you can’t just rely on urban sector,” said Raghbendra Jha, an economics professor at the Australian National University, speaking to Bloomberg. Modi was expected to use the budget to push for more farm insurance, expand cold storage and improve logistics from production to marketing, he said.

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