Budget 2018 is populist in at least two of its major measures. It promised
returns of 50 per cent on production of agricultural crops and a health insurance policy that is touted as bigger than Obamacare. The bombast has worked on the electorate.
The consumer sentiments index went up by 3.8 per cent on February 1, the budget
day, when the announcements were made. Note that the 50 per cent mark-up on the
cost of crop production was announced early in the budget speech - well before
noon - and so, the impact of this was felt during the course of the day.
We surveyed and got responses from 975 households on budget day. Of these, 351
responses were from rural regions and the remaining 624 were from
towns. These results were compared with responses from the survey of January 31,
which got responses from 649 households.
The responses were sharply divergent between rural and urban regions. The
consumer sentiment index in rural India shot up by 8.7 per cent on budget day.
And, on the same day, the consumer sentiment index for urban India fell by 4.8
per cent compared to the index of the previous day.
The Union Budget therefore seems to have elicited a starkly opposite view
from rural India compared to urbanites.
Rural India has a quick understanding of the meaning of a 50 per cent return on
cost of production. Different people possibly have different interpretations of
cost of production. But to each, the meaning of a 50 per cent return on their
understanding of cost of production is music to their ears. So, respondents
unhesitatingly gave a thumbs-up. Experts can keep figuring out whether
this is A2 plus FL (operational cost including cost of family labour)
or whether it also includes fixed costs and so on and so forth.
Farmers’ demand of a 50 per cent return on cost of production had turned into a
political movement. This was one of the recommendations of the MS Swaminathan
committee and most farmer organisations had made this one a rallying points
in their various agitations. Their political pressure seemed to have had
sufficient impact for the government to make a dramatic announcement.
Urbanites did not bite the bait of Modicare or re-introduction of standard
deduction or lower direct taxes on small and medium-sized companies. Nobody
likes to anticipate a hospitalisation and so cannot tangibly connect favourably
with the proposition.
By the end of the budget week, sentiments had sobered a bit. The consumer
sentiment index was 0.6 per cent higher in the week ended February 4 compared to
its level in the preceding week that ended on January 28. The rural index was up
3.5 per cent while the urban index was down 3.4 per cent. The sharp divergence
in rural and urban sentiments remained intact but the degree of the divergence
Last week’s divergence apart, rural and urban sentiments have diverged
substantially over the past two years. The consumer sentiment index (base 100
during September-December 2015) for rural India was 97.5 in January 2018. The
same was much lower at 91.0 for urban India. Farmers’ lobbies have managed to
get governments to waive loans, give higher prices for farm produce and
implicitly make promises to the various farm organisations. All these
give-aways, promises and now an entitlement from the finance minister have
helped keep rural consumer sentiments buoyant. The announcement in budget 2018
seems to deliver on the several promises made to the farm lobby in the recent
Urban India does not have a corresponding lobbying power to extract similar
largesse. Nobody demanded Modicare and apparently, nobody cares.
On jobs, the optics were not about providing jobs but about the success of the
government’s policies towards creating formal jobs.
The government has a narrative - that an estimated 7 million jobs are believed to be created in the formal sector during this financial year. Budget 2018
continued to pursue this narrative. The finance minister took the narrative
further and went on to claim and that this is a reflection of the success of
government’s programs to generate formal jobs.
Budget documents reveal that the central government employed 3.54 million people
in 2016-17. It added 44,397 jobs to its stock of 3.49 million jobs of 2015-16.
Central government jobs were declining for a long time. But, recently there has
been some increase. The average increase in employment during Modi sarkar times
has been just about 70,000 per annum. This is small but, it is much better than
any time in the past 17 years.
First Published in Business Standard Link