Depending on one’s perception, Finance Minister Arun Jaitley’s 2018-19 (FY19) budget - the last general one before the national elections of 2019 - can be described as a ‘highly populist one’ pandering to virtually every section of National Democratic Alliance’s vote bank. But it is also a Budget that tries to resolve some of the most pressing issues facing the nation today.

Whether it the rural distress, rising indebtedness of the farmers resulting in higher suicides rates, growing disquiet over joblessness among the youth, the ongoing turmoil in the small and medium-sized industries roiled by demonetization and the new goods and service tax (GST), Budget FY19 had something for all these industries crying for help. It also addresses the poor quality of education and reduced export earnings of the labour-intensive textile and leather goods industry.

At the same time it is also a please-all Budget for the government's most important voters. There are sops for the farmers to alleviate their suffering by providing a safety net in case of crop failure and also putting more money in his hands, provision of good health care for the economically less advantaged, providing dignity and care to the senior citizens, job opportunities and social security for the underprivileged and especially those belonging to the Scheduled Castes and Scheduled Tribes.

As the FM points out in the Budget: “Our leadership is familiar with the problems being faced by SC, ST, backward classes and economically weaker sections of the society. People belonging to poor and middle class are not case studies for them, they themselves are a case study’’. The Budget also promises to provide training to 50 lakh youth by 2020, specialized universities for students, scholarships for engineers and research scholars and sops for the small businessmen. And it has done so by gambling with huge expenditure forcing it overshoot even the fiscal deficit.

Understanding The Budget Arithmetic:

Purists will not be happy because the Finance Minister has strayed from the fiscal consolidation path, allowed the fiscal deficit to burgeon to 3.5% of the GDP in FY 2018 and 3.3% in FY 19, instead of sticking to the target set by the N K Singh Committee on Fiscal Consolidation by keeping the Budget deficit at 3.2% in FY18 and bringing it further down to 3% of GDP in FY19. This only means that the government is leaving a Rs 5.95 lakh crore hole to be filled in the next fiscal and Rs 6.24 lakh crore in FY 20.

However, a higher deficit figure does not necessarily mean shying away from the path of fiscal consolidation because the N K Singh Committee itself allows the finance minister a leeway of 0.5% of GDP in case of “unforeseen events such as war, calamities of national proportion, collapse of agricultural activity, far-reaching structural reforms etc’’. Whether demonetisation or GST implementation are actually far-reaching structural reforms for the Indian economy, could be open to debate.

Yet, things have started to improve as the lingering effects of demonetization and the glitches in the implementation of goods and services tax fade. Services reported an 8% growth, export touched 15% growth and the manufacturing sector is picking up pace. The government, meanwhile, is already factoring in a 7.2% to 7.5% growth in the second half of FY18 after registering a growth of 6.3% in the second quarter of this fiscal. It agrees with the International Monetary Fund that India can grow at 7.4% in the next fiscal.

The good news is that direct tax collection till January 5, 2018 at 18.7 % was much higher than the 12.6% achieved a year ago. In fact, the government’s tax evasion measures have helped garner nearly Rs 90,000 crore in personal income tax in FY 17 and FY 18. Similarly, the number of effective tax payers has jumped from 6.47 crore in FY15 to Rs 8.27 crore in FY 17. The other good news comes from the disinvestment front. This government has already created history by overshooting the Rs 72,500 crore target and expects to touch Rs 1 lakh, and has set another ambitious target of Rs 80,000 crore for the next fiscal.

Helping the FM in reaching his target will be the long-delayed strategic sell-off of Air India and 23 other central public sector units, listing of a single merged insurance entity-- National Insurance, United India Assurance and Oriental India etc. It will on the lines of what happened in the FY 18 Budget, when the government announced the merger of Oil and Natural Gas Corporation and Hindustan Petroleum Corporation thereby creating an oil behemoth, which can take on other global majors. Again, after successfully raising Rs 14,000 crore from exchange traded fund (ETF) Bharat—22, the government plans to come out with more such ETFs, including debt ETF.

But there are challenges along the way, especially in terms of balancing of the budget. The shortfall in  government’s revenue receipts  for one . The revised estimates ( RE) of FY 18 at Rs 15.05 lakh crore is much lower than the budgeted  Rs 15.15 lakh crore . But, budget FY 19 has optimistically hiked the revenue receipts to Rs 17.26 lakh crore hoping to garner more income from GST and higher custom duties. Its total receipts (revenue plus capital) for next fiscal has gone up from Rs 22.17 lakh crore to Rs 24.42 lakh crore. This shorfall was because of a fall in non-tax revenue which includes lower dividend from the Reserve Bank of India and central public sector enterprises.

Vikas Vasal, partner & national tax leader, Grant Thornton LLP, says that on the tax front “the government will have a tough task at hand to meet demands of different stakeholders and to contain fiscal deficit."

The real question now is where will the money come from? A cursory look at the Budget document shows that the FM is betting on higher custom duty collection from higher import duty on mobile phones, television sets etc, where the custom duty has been hiked to 20% and 15% respectively as also higher indirect tax from GST implementation.

Richa Gupta, senior director and senior economist at Deloitte India points out that there is a huge push on infrastructure development, push to stabilise agricultural prices, provide insurance and credit to allied agricultural activities and focus on healthcare sector. While some of the money will come from the central allocation, central and state governments, it will have to borrow. And that is going to be difficult since it has already borrowed Rs 80,000 crore in bonds for bank recapitalization.

Resolving the Farm Crisis:

The government will have to spend money in sectors that are in acute distress, like - agriculture and small and medium-sized industries. For instance, the first two years of Prime Minister Narendra Modi's government, FY 14 to FY 16, saw consecutive drought, when the agricultural sector registered anemic growth of minus 0.2 % and 0.7% growth respectively. The only growth story was in 2016-17 when it grew by 4.9%, and it is likely to decline to 2.1% in FY18, according to the advance estimates by the Central Statistical Office.  The decline in FY18 has come despite record production in foodgrains (275 million tons) and vegetables (300 million tons) because of a huge dip in global farm prices and a glut in the market.

The real challenge before the government was not just to insulate farmers from the vagaries of nature but from volatility in international prices as well. There was also a need to generate on-farm and non-farm employment for farmers and landless families. A part of the problem was solved, by the Budget, by ensuring that every farmer will get one- and- a- half time the cost of production, and not only for crops falling under the minimum support price regime, but also unannounced ones in the kharif season.

And should the market price of the produce fall below the MSP because of overproduction or imports, “in that case government should purchase either at MSP or work in a manner to provide MSP to the farmer through some other mechanism,’’ said the FM. The central and the state governments will work with the government think-tank NITI Aayog to put in place a fool-proof mechanism so that the farmers get adequate price for their produce. Also, information about domestic and international prices of foodgrains, so crucial for farmers will now be made available by developing “appropriate policies and practices for price and demand forecast, use of futures and options market, expansion of warehouse depository system etc."

To address the challenges of price volatility and perishable commodities like tomato, onions and potato, the FM announced a new Rs 500 crore scheme called “Operation Greens” on the lines of “Operation Flood” with a Budget and a Fisheries and Aqua Culture Infrastructure Development Fund (FAIDF) to take care of the fishermen.

For 86% of Indian small and marginal farmers who may not always be able to sell their produce marketing committees (APMCs), the government plans to convert the 22,000 rural hats into Gramin Agricultural Markets (GrAMs), which will then be electronically linked to e-NAM, a pan-Indian electronic trading portal, which connects the existing APMCs to create a single unified market.

Moreover a Rs 2000 crore Agri-Market Infrastructure Fund will help upgrade the agricultural marketing infrastructure of 22,000 gramin agricultural markets and 585 APMCs. To ensure that farmers are not starved of timely credit, the FM has ensured that the institutional credit to farmers continues to grow from Rs 8.5 lakh crore in FY15 to Rs10 lakh crore in FY18 to Rs 11 lakh crore in FY19. Horticulture, organic farming, bamboo cultivation and food processing have been given a major boost, with the budget allocation for the Ministry of Food Processing doubling to Rs 1,400 crore in FY 19.

However, marketing of agricultural goods calls for proper roads both in the rural and urban areas. The government has already promised to connect all “eligible” habitations with all-weather roads by March 2019, three years ahead of the target. It now plans to widen its ambit further under the Prime Minister Gram Sadak Yojna (PMGSY) to connect these habitations to agricultural and rural markets, higher secondary schools and hospitals.

Seeking Jobs:

The Modi government seems to have realised that a focus on low-cost housing helps in many ways. Not just because it provides rural and urban poor a roof over their heads and allows them to live a life of dignity, but also allows migration of landless labourers and others for employment, improving rural income and consumptions. (unclear) It also provides a huge booster dose for steel, cement, glass and other manufacturers and has the potential to start the growth cycle in a sector hard hit by the twin effects of demonetization and GST. The government has already constructed 51 lakh houses in FY 18 and plans to construct another 51 lakhs by FY 19 under the Prime Minister’s Awas Yojna Scheme.

The FM used his budget speech to emphasis that the government had created nearly 70 lakh formal jobs, citing an independent study. The government will also contribute 12% of the wages of the new employees in the employees provident fund (EPF) for the next three years, and amend the EPF and the Miscellaneous Provisions Act 1952 to incentivise women to take up more jobs in the formal sector and ensure higher take-home packages.

But then women welfare -related policies have always been at the core of PM Modi’s policy announcements over the past three years. They are after all, a very important part of his vote bank.  Below poverty line women have been provided with LPG connections to free women from inhaling smoke from firewood, and there has been an in the maternity leave to six months. His “Beti Bachao, Beti Padhao’’ scheme too has been a great success (has it?) undre the scheme, more than 1.26 crore accounts were opened across the country, and Rs 19,183 crore transferred to those accounts, until November 2017.

Another sector that faced the double whammy of demonetization and GST implementation was the cash-only medium, small and micro industries and needed a fiscal boost to get back on the growth path, has finally found a savior in the government. The FM has thrown a lifeline by reducing income-tax to 25% for SMEs, with a turnover of Rs 250 crore—nearly 99% of companies filing tax returns-- which is expected to help them play a far larger role in Make in India. The allocation of Rs 3 lakh crore in FY19 for PM's MUDRA Yojana, will also help the smaller players get easy access to funding—a perennial problem for MSMEs over the years. Recognising its potential as an engine of growth and one of the country’s major employers, the Budget has allocated Rs 3,794 crore for credit support, innovation, and capital interest subsidy.

The infrastructure push:

Infrastructure has always been the Achilles heel in the India growth story. The Budget estimates that funds in excess of Rs 50 lakh crore are needed to increase the GDP growth, but also requires connecting the nation with a network of roads, airports, railways, ports and inland waterways. This year, the FM allocated Rs 5.97 lakh crore, an all-time high compared, realizing quite clearly that the private sector is unlikely to invest in this sector. The government has already cleared Rs 5.35 lakh crore for the Bharatmala project for constructing 3,500 km of roads.

Similarly, Rs 1.48 lakh  crore has been earmarked mostly for capacity creation for the Railways. It will also entail commissioning  4000 kilometers of electrified railway network in FY 18, 3,600 km of track renewal and redevelopment of 600 major railway stations. Moreover, Mumbai’s overstretched local train network will get  90 km of double line tracks costing more than Rs.11,000 crore as also additional suburban network of 150 km  at Rs.40,000 crore.

Air transport has not been ignored either. The Budget proposes to expand airport capacity by more than five times to handle a billion trips, and plans to connect 56 unserved airports and 31 unserved helipads under the UDAN ( Ude desh ka aam nagrik) project. Investments in infrastructure not only has a multiplier effect, but it also provides huge employment—something that the country is desperate for.

In a sense, it is a political Budget that has learnt from its past mistakes, while at the same time keeping it mind the country’s major priorities.