Jaitley's tightrope walk between demonetization and elections

The Budget speech was expected to contain more populist measures, coming just three days ahead of the first phase of the assembly polls. Jaitley, however, refused to be adventurist.

Union finance minister Arun Jaitley had to do a tightrope walk while presenting a budget between the demonetization announcement and the elections to five states including the key Uttar Pradesh.

Predictably, Jailey was all praise for the scrapping of Rs 500 and Rs 1,000 notes but he did not deny the burden of the regulation. He could only promise that the hardships created by the demonetization drive would not last more than a year.

The Budget speech was expected to contain more populist measures, coming just three days ahead of the first phase of the assembly polls. Jaitley, however, refused to be adventurist. Perhaps he did not want to put an extra load on the economy already suffocated by the liquidity crisis.

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The grant of Rs 10,00,000 crore to the agricultural sector is the largest promise with an eye on the polls. In fact, the budget had just incorporated a previously announced waiver of interests on agricultural loans. Prime minister Narendra Modi had earlier announced an interest waiver for two months.

Still the allocation for irrigation has been doubled to Rs 40,000 crore.

The demonetization drive has sucked out money from the system and put brakes on the agricultural and construction sectors. The easy way to put back money in circulation is huge investments in infrastructure. The government has allotted Rs 3,96,135 crore for infrastructure development.

When work on roads and bridges start, it would generate employment. When laborers get paid they go to the market. Such a scenario could revive the economy bogged down by the sudden disappearance of a lion’s share of currency notes.

The plan to lay 3,500 kilometers of rail track is also expected to revive the economy.

The finance minister has earmarked Rs 48,000 crore for the National Rural Employment Guarantee Scheme, an increase of Rs 10,000 from last year.

Agricultural and rural areas get Rs 1,87,223 crore, a 24 percent increase from last year. Jaitley had elections and development in mind while announcing these measures. Agriculture is the mainstay in Uttar Pradesh and Punjab, the key states that are going to poll this month and next. The central government has to appease farmers if the NDA were to see any positive results from the assembly elections.

The same pressures were evident in the relaxations announced in the income tax regime. Those with annual income not exceeding Rs 5 lakh will see their tax rate coming down to 5 percent from 10 percent. At the same time, a surcharge has been imposed on the higher-income group.

The finance minster has done his part to repair the damage done by the demonetization drive.

The demonetization was an ambitious program but it put the government in a difficult spot. Oil prices are on the mend, forcing the government to shore up its finance.

If the government loosens its purse strings in view of the upcoming elections, it may be painting itself into a corner in the long run.

May be Jaitley is reserving the great populist trick for the next budget, in time for the general election of 2019.