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India's Modi offers tax cuts and farm aid in pre-election budget

Slew of measures including new pension aimed at attracting voters

NEW DELHI -- With an eye on crucial votes from distressed farm communities ahead of a general election to take place by May, Indian Prime Minister Narendra Modi's government on Friday unveiled its interim budget, which includes a 750 billion rupee ($10.5 billion) agricultural income support scheme and other measures to boost rural employment and build roads.

"To provide income support to small and marginal farmers ... the government will provide 6,000 rupees annually to be transferred directly to their bank accounts in three equal installments," said Cabinet Minister Piyush Goyal as he presented the interim budget. Goyal, who is in charge of the Finance Ministry while his colleague Arun Jaitley is in the U.S. on medical leave, called agriculture the driving force of the rural economy.

The scheme will be 100% funded by the central government, and almost 120 million farm families owning up to two hectares of land will be eligible. It will be retroactive to December 2018 and have a budget of 750 billion rupees for the financial year beginning April 1, and 200 billion rupees in the revised estimates of the current year. The first installment will be paid to farmers by March 31.

Goyal also announced an interest rate subsidy worth up to 5% on loans taken by farmers in the case of their crops suffering from natural disasters.

Besides, he said 600 billion rupees has been allocated for a rural employment guarantee scheme and 190 billion rupees for construction of roads in rural areas.

India's interim Finance Minister Piyush Goyal holds his briefcase as he arrives at the parliament to present 2019-20 budget in New Delhi on Feb. 1.   © Reuters

A budget in an election year is an interim one, to allow the outgoing government to continue with obligatory spending until a new administration assumes charge. If it is re-elected, it can seek approval for the full budget, while a government formed by any other party is allowed to make changes to the interim budget or go for its own annual financial plan completely.

A mass pension initiative was also announced in the interim budget for 100 million informal sector workers earning up to 15,000 rupees a month. "This pension [scheme] shall provide them an assured monthly pension of 3,000 rupees from the age of 60 years," Goyal said.

In the government's last chance to woo the middle class, the minister also proposed exempting people earning up to 500,000 rupees a year from income tax. At present, the exemption is capped at 250,000 rupees.

Modi is under tremendous pressure to address growing agrarian distress and unemployment, especially after the bitter defeats of his Bharatiya Janata Party in the November and December regional elections. The main opposition Indian National Congress was able to leverage the anger of debt-laden farmers and jobless young population in the states of Rajasthan, Madhya Pradesh and Chhattisgarh, considered BJP bastions, to secure massive morale-boosting victories in the run-up to nationwide elections due by May.

Farmers across the country have been demanding loan waivers and fair prices for their crops and staged protest rallies in the national capital several times last year. Adding to Modi's woes, a local newspaper citing a government survey said on Thursday that the country's unemployment rate was at a 45-year high of 6.1% in the fiscal year ended March 2018.

Nevertheless, Modi continues to enjoy more popularity than his main challenger, INC President Rahul Gandhi, though the gap is narrowing, according to various polls. On Monday, Gandhi promised a nationwide minimum income for the poor if voted to power, ramping up pressure on Modi to go populist in his final budget.

Earlier in January, the Modi government announced a move, termed by critics a "political gimmick," to reserve 10% of government jobs and academic admissions for poorer members of India's upper caste communities, which are not covered under any quota being extended to lower castes, tribes and other such groups.

In recent months, it also slashed goods and services tax rates on a number of products and services to give relief to small and midterm businesses -- a major base of voters who were badly hit by a November 2016 ban on high-value currency notes and a chaotic rollout of the GST in July 2017 -- impacting revenues.

The government also revised the fiscal deficit target to 3.4% of GDP for the current financial year, from 3.3%, owing to higher spending and a potential shortfall in indirect tax revenues.

"No new policies to increase revenues were announced, while a number of expenditure measures were announced that will increase outlays and put pressure on the government's ability to meet its fiscal deficit target," Moody's Investors Service said in its initial comments on the budget.

Meanwhile, a Times Now-VMR opinion poll released on Wednesday showed no party securing majority in general elections for 543 seats of the lower house of parliament. The BJP-led ruling National Democratic Alliance is projected to win 252 seats -- falling 20 short of the magic mark of 272 -- the INC-led United Progressive Alliance 147 and others 144.

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