India Budget 2017: Spending to get out of trouble

Fostering Public Leadership - World Economic Forum - India Economic Summit 2010

In January 2017, the ministry of statistics and programme implementation of the Indian government, came up with the economic growth prediction for 2016-2017 (i.e. the period between April 1, 2016 and March 31, 2017).

The numbers showed that incremental government expenditure made up for one-third of the increase in the Indian gross domestic product(GDP) in 2016-2017. What did this mean in simple English? This essentially meant that increased spending by the government would be responsible for one-third of the Indian GDP growth in 2016-2017.

In 2015-2016, the contribution of increased government expenditure to Indian economic growth was just a little over 3 per cent. Hence, what it essentially means is that in the current financial year, the Indian government will primarily drive economic growth.

And from the looks of it, this is likely to continue in 2017-2018 as well. The annual budget presented by the finance minister Arun Jaitley on February 1, 2017, seems to suggest so. Let’s look at this in some detail.

The government has allocated Rs 48,000 crore to the Mahatma Gandhi National Rural Employment Guarantee(MGNREGA) programme. The
of MGNREGA is to provide at least 100 days of guaranteed work during the course of a financial year to adult members of every rural household who are willing to do unskilled manual work.

The Rs 48,000 crore allocation to MGNREGA is the highest allocation ever made to the programme. In 2016-2017, the government had allocated Rs 38,500 crore to MGNREGA, though it will end up spending Rs 47,499 crore on it. The increased spending on MGNREGA is to alleviate the negative impact of demonetisation being felt in the rural and the semi-rural areas of India, where major part of transactions happen in cash. And after demonetisation cash has been in short supply.

It is also expected to alleviate the negative impact of demonetisation on the informal manufacturing sector which operates in cash and tends to employ many semi and unskilled people migrating from rural India. From the midnight of November 8 and 9, 2016, the Narendra Modi government demonetised Rs 500 and Rs 1,000 notes, and made them useless.

Interestingly, in 2013-2014, the Indian government had spent Rs 39,778 crore on MGNREGA. Hence, in inflation-adjusted terms, the Rs 48,000 crore allocation is around the same. Given this, the allocation to this cash for work programme is not as much as is being made out to be.

The government has also increased the allocation to the Prime Minister Housing Scheme-Rural by more than 50 per cent to Rs 23,000 crore. This is expected to create some jobs in rural India where disguised unemployment is extremely high. Close to half of India’s population is engaged in agriculture which contributes only around 18 per cent of the GDP.

On the physical infrastructure front, the government has increased the allocation to build highways by 12 per cent to Rs 64,900 crore. Further, the total capital and development expenditure of Railways has been pegged at Rs 1,31,000 crores. This includes Rs 55,000 crores provided by the government.

The allocation to 29 schemes sponsored by the central government has gone up by 21.6 per cent to Rs 3,35,461 crore, in comparison to the allocation made in 2016-2017. The allocation to the infrastructure sector has gone up by 13.5 per cent to Rs 3,96,135 crore. Also, the total resources being transferred to the States and the Union Territories with Legislatures in 2017-2018 is Rs 4.11 lakh crores, against Rs 3.60 lakh crores in this financial year, the finance minister pointed out. This is a jump of 14.2 per cent.

Over and above this, the government has increased the lending target under the Prime Minister’s Mudra Scheme by 100 per cent to Rs 2.44 lakh crore. Under this scheme, the Micro Units Development and Refinance Agency (or Mudra) provides loans at low interest rates to micro-finance institutions and non-banking finance institutions which in turn lend money to micro/small business entities engaged in manufacturing, trading and services activities.

Further, in the budget speech, the finance minister said: “I have stepped up the allocation for Capital expenditure by 25.4% over the previous year”. Also, capital expenditure will form 14.4 per cent of the total expenditure of the government in 2017-2018. This is the highest since 2008-2009. Capital expenditure leads to the creation of assets and hence, is a good thing.

Long story short—the Modi government is trying to spend its way out of trouble. Though at the same time it needs to be said that it is not going overboard with it. A part of this pump-priming became necessary because of the self-goal of demonetisation, which is expected to pull down economic growth in 2016-2017. The Economic Survey for 2016-2017 released on January 31, 2017, expects GDP growth to be between 6.5-6.75 per cent in 2016-2017. India grew by 7.9 per cent in 2015-2016. The question is what would the economic growth have been if the Modi government hadn’t scored the self-goal of demonetisation?

When pushed to a corner, most governments try to spend their way out of trouble. Nevertheless, the government spending is not always as effective as private spending. In the Indian case, a major reason is massive leakage.  A large portion of the government spending does not reach those it meant for and is siphoned off by the bureaucracy expected to distribute it.

One way of tackling this is for the government to concentrate on running a few important schemes on which it can spend a bulk of its money and focus its time and attention on. The Economic Survey points out that “the Budget for 2016-17 indicates that there are about 950 central sector and centrally sponsored sub-schemes in India.”

One negative impact of running so many schemes is that “in many cases, the poorest districts are the ones grappling with inadequate funds – this is evidence of acute misallocation. Many districts in Uttar Pradesh, Bihar, Chhattisgarh, parts of Jharkhand, eastern Maharashtra, Madhya Pradesh and Karnataka, among others, account for a large share of the poor and receive a less-than-equal share of resources”.

A very important part of economic reform in India is to bring down the number of these schemes. But that as they always say is easier said than done. And as always, this budget missed out on this opportunity as well.

 

The column was originally published on BBC.com on February 1, 2017

 

#EPFnotax: Six reasons why taxing EPF was a stupid idea in the first place

 

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The Narendra Modi government has decided to withdraw their plan to tax the corpus accumulated by investing in the Employees’ Provident Fund(EPF). As the finance minister Arun Jaitley said in the Lok Sabha today: “In view of representations received, the government would like to do a comprehensive review of this proposal and therefore I withdraw the proposal.”

This is a sensible decision to withdraw what was basically a very stupid idea at multiple levels.

a) The finance minister Arun Jaitley in his budget speech had said that only 40% of the corpus accumulated by investing in EPF would be tax free. This would apply on investments made after April 1, 2016.

The entire 100% accumulated corpus could be made tax free by investing 60% of the corpus in annuities. Annuities are essentially policies sold by insurance companies which can be used to generate a regular income.

The trouble is that most annuities in India give a return of around 5-7%. Given this, they remain a bad way to invest a large corpus. Even investing in a long term fixed deposit can give you a better return.

Some savings bank accounts also pay more than the returns that can be generated by investing in annuities. The annuities in their current are essentially nothing but a rip-off and anyone in their right mind would stay away from investing in them.

Then there is the Senior Citizens Savings Scheme, which allows a senior citizen to invest up to Rs 15 lakh. The scheme pays an interest of 9.3%per year. Given that better returns are available elsewhere, why force people to invest 60% of their provident fund corpus into annuities paying 5-7% per year.

b) Also, the change applied only to private sector employees with a salary of greater than Rs 15,000. This meant that the government employees investing in the General Provident Fund (GPF) or employees of public sector companies investing in other recognised provident funds, could withdraw 100% of their accumulated corpus and need not have paid any income tax on it.

Why was the change proposed only for private sector employees? Why was this distinction made on the basis of the employer? If the idea was to tax, the tax should have applied to everyone and not just the private sector employees.

In the way things had been proposed, a private sector employee making Rs 16,000 per month would have had to pay a tax on the accumulated corpus. A government employee need not have done anything like that. How is that fair and equitable?

c) The government has defended this move on the logic of moving towards a “pensioned society”. As the clarification issued by the ministry of finance a few days back pointed out: “The purpose of this reform of making the change in tax regime is to encourage more number of private sector employees to go for pension security after retirement instead of withdrawing the entire money from the Provident Fund Account.”

Why was only the private sector encouraged to move towards a pensioned society? Also, what about those people who are earning less than Rs 15,000 per month. Their need for a regular income after retirement is even greater than those making more money.

d) Also, why make only EPF and other recognised provident funds taxable at maturity. Why leave out the Public Provident Fund? Shouldn’t self-employed professionals who invest in PPF to possibly accumulate a retirement corpus, also be encouraged to become a part of the pensioned society?

e) The government also planned to tax the principal amount invested in the EPF. How fair is this? While calculating capital gains for investments made in stocks or real estate, the principal amount is not included. Also, investments made in real estate and debt mutual funds get indexation benefits, where the impact of inflation is taken into account while calculating the cost of purchasing the asset. This brings down the capital gains on which income tax is paid.

Further, there is no tax on long-term capital gains made on stocks and equity mutual funds. Taking all this into account, how fair was it to decide to tax EPF? Why leave out the investing modes of the rich and decide to tax the middle class EPF?

f) Further, it needs to be realised that different people have different needs. As Jaitley said in the Lok Sabha today: “”Employees should have the choice of where to invest. Theoretically such freedom is desirable, but it is important the government to achieve policy objective by instrumentality of taxation. In the present form, the policy objective is not to get more revenue but to encourage people to join the pension scheme.”

For that to happen there are so many other things that need to be set right. People use their retirement corpus for various things. They use the money to get their children married, educated and so on. While the government may look at this as something that shouldn’t be done but at times there is no option.

Sometimes emergency medical costs are also met out of withdrawing out of the corpus accumulated by investing in the EPF. In a country where there is almost no insurance for the old, how fair is to deny them access to the EPF corpus by deciding to tax it?

What all these points clearly tell us is that the Modi government clearly introduced the idea of taxing the EPF corpus in a hurry. There is clearly more thinking needed on it. Also, several things need to change before such a tax is introduced. And these changes are not going to happen any time soon.

(Vivek Kaul is the author of the Easy Money trilogy. He tweets @kaul_vivek)

The column originally appeared on Firstpost on March 8, 2016

Mr Jaitley, Before Striking a Deal with Black Money Wallahs, Let’s Try Selling ITC

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A perhaps apocryphal story goes that photographers and journalists working for this entertainment supplement of a newspaper would take money and put in news items and photographs of celebrities who were willing to pay.

Of course, the management was smart enough to soon figure this out. Further, they thought, if the journalists could make money, why not the company.

Hence, thereon you could simply go to their office, pay them, get a receipt and get stuff published in the entertainment supplement, for a certain price. What was essentially a bribe, became a smart business model.

The government of India has done something similar by coming up with the black money compliance window. Up until, the black money wallahs may have had to pay off the tax department to make sure they don’t come after them.

The government is now telling the black money wallahs instead of bribing my employees, pay us 15% extra (7.5% surcharge, 7.5% penalty over and above a 30% tax) and we won’t come after you. The black money wallahs will have total immunity from prosecution as well.

As finance minister Arun Jaitley said during the course of the budget speech: “I propose a limited period Compliance Window for domestic taxpayers to declare undisclosed income or income represented in the form of any asset and clear up their past tax transgressions by paying tax at 30%, and surcharge at 7.5% and penalty at 7.5%, which is a total of 45% of the undisclosed income. There will be no scrutiny or enquiry regarding income declared in these declarations under the Income Tax Act or the Wealth Tax Act and the declarants will have immunity from prosecution.”

What this essentially means is that if you have black money and are willing to pay 15% extra to the government, the law of the land won’t apply to you. Also, look at it this way, if you miss an advance tax payment, you pay a fine at the rate of 1% per month. But you pay 15% extra on your black money on which you have never paid tax and the government will look the other way.

As philosopher Michael Sandel writes in What Money Can’t Buy—The Moral Limits of Markets: “Why worry that we are moving toward a society in which everything is up for sale?…In a society where everything is for sale, life is harder for those with modest means. The more money can buy, the more affluence (or the lack of it) matters.”

The simple explanation for why the government is doing this is that they need money to match the expenditure that they have planned during the course of 2016-2017. So it is about money. Having said that there are other ways of earning it as well.

Take the case of ITC. As I have pointed out in the past, the government owns 11.19% of this company, which primarily makes money through selling cigarettes. The stake is owned through the Specified Undertaking of the Unit Trust of India. Why does the government continue to own this stake?

Over and above this, the Life Insurance Corporation(LIC) of India owns a 14.41% stake in the company. Effectively, the government owns one-fourth of ITC. Hence, this stake can easily be strategically sold at a price, which is better than the prevailing market.

The 11% stake through SUUTI would be worth Rs 28,471 crore as of yesterday. The government also owns stakes in L&T and Axis Bank through SUUTI. Why is the government holding on to these shares?

Is the government likely to sell these shares in 2016-2017? It is unlikely. Why do I say that? In the budget, the government has given an estimate of the amount of money it targets to earn during the course of this year, through disinvestment. It plans to raise Rs 56,500 crore through disinvestment. Of this Rs 36,000 crore is expected to be earned through the disinvestment of shares in companies that it owns.

Rs 20,500 crore is expected to come in through sale of shares in companies in which the government owns minor stakes. The government’s stake in ITC is worth much more than that. Hence, it is more than likely that the government will continue to own ITC during the course of this year as well. At the same time, it is ready to pardon people who have black money if they pay 15% extra to the government. It is also ready to tax 60% of the maturity corpus of Employees’ Provident Fund of private sector employees.

At the same time, it continues to finance loss making public sector enterprises. The Economic Survey released before the budget had a very interesting data point. Up to March 2014, the accumulated losses of public sector enterprises stood at a whopping Rs 1.04 lakh crore. The government continues to finance these loss making firms and in the process has to strike a deal with black money wallahs to ensure that it has enough money.

Further, these loss making public sector enterprises are sitting on a huge amount of land and there has almost no effort to monetise this land and make some money in the process. The latest Economic Survey does recommend the sale of land of public sector enterprises. Let’s see if that happens.

The point being that the Modi government could have done several things to earn money before getting into striking deals with those who have black money.

Meanwhile, the government will continue running anti-tobacco advertisements. Funny country we are.

The column originally appeared on the Vivek Kaul’s Diary on March 4, 2016

Employees’ Provident Fund: The Clarification of the Clarification of the Clarification…

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There must be some way out of here” said the joker to the thief
“There’s too much confusion”, I can’t get no relief
– Bob Dylan, All Along the Watchtower

Arun Jaitley presented his third budget on February 29, 2016. Since then, the only point from the budget that is being discussed is the income tax to be applicable on the Employees’ Provident Fund and other recognised provident funds.

In fact, the government’s communication on this left a lot to be desired. The finance minister Jaitley said during the course of the speech: “I believe that the tax treatment should be uniform for defined benefit and defined contribution pension plans. I believe that the tax treatment should be uniform for defined benefit and defined contribution pension plans. I propose to make withdrawal up to 40% of the corpus at the time of retirement tax exempt in the case of National Pension Scheme. In case of superannuation funds and recognized provident funds, including EPF, the same norm of 40% of corpus to be tax free will apply in respect of corpus created out of contributions made after 1.4.2016.”

Given that Jaitley gave a 100-minute-long speech, he could have taken a minute more and gone into the details of this change.

Barely had he finished saying this, all hell broke loose on the social media. As soon as he had finished his speech, the television channels caught on to this point. Jaitley should have ideally provided an annexure to his speech explaining the exact details of the plan. But an annexure wasn’t provided and neither did he go into the details. This created a lot of needless confusion.

What Jaitley basically said was that 40% of the accumulated corpus of the EPF and other recognised provident funds, on contributions made after April 1, 2016, would be tax free. As of now 100% of the accumulated corpus on the EPF is taxfree.

The first interpretation after Jaitley’s speech was completed was that now up to 60% of the EPF corpus will be taxable. On the social media people are quick to draw conclusions without waiting toget into details. A reading of the Finance Bill made it clear that wasn’t the case. If 60% of the corpus was used to buy annuities to generate a regular income, this amount would remain tax free as well.

The minister of state for finance Jayant Sinha clarified this on a television channel, late evening on February 29,2016. And then he made a mistake, which added to the confusion. He said income earned by buying an annuity would be tax free. Income earned from annuities is taxable.

Then he was asked if the corpus of the Public Provident Fund(PPF) would be taxed as well. He did not answer in the affirmative to this question, neither did he say no. The anchor asking the question essentially concluded that the accumulated corpus of the PPF would now be taxable.

After this, the revenue secretary Hasmuk Adhia, clarified that PPF would continue to be the way it was i.e. its corpus wouldn’t be taxable. He also made another remark which again introduced more confusion into the entire debate going on. He said a tax would be levied only on accrued interest on 60% of EPF contribution, after April 1, 2016.

This was contradictory to what Jaitley had said in his speech. He had said that 40% of the corpus will be tax free, which essentially means that 60% of the corpus will be taxed.

It is rather sad to see that the top policymakers of a ministry trying to bring in a very important change on a point that impacts so many people, were not clear about basic things. Either they hadn’t been briefed properly or they just didn’t realise how huge is the change they were trying to bring in.

After all this hungama the ministry of finance put out a clarification. The clarification started with these lines: “There seems to be some amount of lack of understanding [the emphasis is mine] about the changes made in the General Budget 2016-17 in the tax treatment for recognised Provident Fund & NPS.”

Rather ironically, the policy makers at the ministry of finance had contributed majorly to this lack of understanding. After this clarification (actually clarification of a clarification of a clarification if we were to start with Jaitley’s speech, go to Sinha’s comments and then Adhia’s clarification) this is how things stand as of now.

As the ministry of finance’s clarification points out: “The Government has announced that Forty Percent (40%) of the total corpus withdrawn at the time of retirement will be tax exempt both under recognised Provident Fund and National Pension Scheme.”

Does this mean what it means? Not really. There are certain nuances to it. For employees within the statutory wage limit of Rs 15,000 per month, things would stay as they currently are i.e. their corpus would continue to be 100% tax free.

Further, if you are a private sector employee and you want 100% of your EPF money to be tax free you need to buy annuities. As the finance ministry’s clarification points out: “It is expected that the employees of private companies will place the remaining 60% of the Corpus in Annuity, out of which they can get regular pension. When this 60% of the remaining Corpus is invested in Annuity, no tax is chargeable. So what it means is that the entire corpus will be tax free, if invested in annuity.”

What this means is that the private sector employees can make 100% of their EPF corpus accumulated on contributions made after April 1, 2016, tax free, by investing 60% of it in annuities. What about public sector employees? This is where things get interesting. The clarification is totally silent on this.

Hence, for public sector employees their provident fund continues to be 100% tax free at maturity. It means that public sector employees (or babulog) do not need to invest money in annuities at all. They can withdraw 100% of the money tax free. A private sector guy wanting to withdraw 100% money has to pay tax on 60% of the corpus he has accumulated on contributions made since April 1, 2016. Further, this is a clear attempt by the babus who drafted this change to ensure that their provident fund continues to remain 100% tax free.

Why is there this differentiation? Why is the private sector employee being treated in this unfair way? The press release further points out: “The idea behind this mechanism is to encourage people to invest in pension products rather than withdraw and use the entire Corpus after retirement.”

Doesn’t the government want public sector guys to do this? Shouldn’t babulog also be buying annuities to generate a regular income from their provident fund corpus after retirement? The government hasn’t offered an explanation for this but a possible explanation for this is that many retired government employees already get a pension from the government. Hence, their provident fund is 100% tax free.

This is bizarre. Many government employees get a fixed pension and on top of that get 100% tax free provident fund. A private sector employee on the other hand is forced to buy annuities. Why? The ministry of finance’s clarification points out: “There are about 60 lakh contributing members who have accepted EPF voluntarily and they are highly – paid employees [italics are mine] of private sector companies. For this category of people, amount at present can be withdrawn without any tax liability. We are changing this. What we are saying is that such employee can withdraw without tax liability provided he contributes 60% in annuity product so that pension security can be created for him according to his earning level. However, if he chooses not to put any amount in Annuity product the tax would not be charged on 40%.”

The term highly-paid is not defined. I have a problem with this approach. It assumes all government employees earn a lower salary than private sector employees. And that is incorrect. If the idea is to tax, why not have a cut off on the basis of the total amount of the corpus that has been accumulated rather than try to differentiate between public sector and private sector employees? That would be a much more equitable way of going about it.

Also, the question is, is this government worried about an equitable way of doing things at all?  I don’t really think so. The government plans to open a compliance window for those who have black money and are willing to declare it. Black money is income which has been earned but on which tax hasn’t been paid.

This would involve a tax of 30%, a surcharge of 7.5% and a penalty of 15%. By paying 15% extra, those who have black money can ensure that “there will be no scrutiny or enquiry regarding income declared in these declarations under the Income Tax Act or the Wealth Tax Act,” They will also have immunity from prosecution. What this means is that if you are willing to pay 15% extra, the law of the land will not apply to you.

Money can’t possibly buy love, but it definitely can buy everything else. The Modi government just showed us that.

The column originally appeared on the Vivek Kaul Diary on March 3, 2016

Why Narendra Modi’s budget looks strangely familiar

narendra_modi

The Narendra Modi led government in India presented its third budget today. The budget was presented by finance minister Arun Jaitley, in a nearly 100 minute long speech.

Before the budget was presented the fear was that the Narendra Modi government is gradually going back to the Congress party’s way of doing things, at least on the economic front. The Congress party has governed India in every decade after independence.

So what is the verdict after the budget? Modi seems to have titled the farm way. As the finance minister Jaitley said during the course of his speech: “We need to think beyond ‘food security’ and give back to our farmers a sense of ‘income security’. Government will, therefore, reorient its interventions in the farm and non-farm sectors to double the income of the farmers by 2022.”

This isn’t surprising given that agricultural growth has been very low at the rate of 0.5% per year, over the last two years, due to bad monsoons. Further, the agricultural growth is expected to be at 1.2% this year, much lower than the overall growth of 7.6%.

Initiatives allowing farmers a better access to the market have been planned. Plans have also been made around judicious use of fertilizers, to increase crop yields across land which does not have access to irrigation and so on.

The government has also planned to offer incentives around the production of pulses. In the recent past, price of the tur dal (pigeon pea) has touched Rs 200 per kg and given that India needs to produce more pulses.

But that was the good bit.

Before the Modi led Bhartiya Janata Party (BJP) came to power in the 2014 Lok Sabha elections, the Congress led United Progressive Alliance (UPA) with Manmohan Singh as prime minster, was in power for a decade.

Singh’s term as prime minster, especially the second term, was marked by an increasing amount of doles as well as corruption. Loans to farmers were written off. The Mahatma Gandhi National Rural Employee Guarantee Act (MGNREGA) was passed and so was the Food Security Act. In July 2014, Modi had slammed the UPA government’s food security scheme by saying: “The government in Delhi thinks that just by bringing in the Food Security Bill there will be food on your plate.”

Modi has also mocked the other big Congress scheme, the MGNREGA in the past. In February 2015, Modi had said: “I will ensure MGNREGA is never discontinued. It is proof of your failings. After so many years of being in power, all you were able to deliver is for a poor man to dig ditches a few days a month.”

The Modi government has done a u-turn on this front and allocated Rs 38,500 crore to the scheme for 2016-2017. This is the highest ever allocation to the scheme, the finance minister Jaitley proudly claimed during the course of his speech. Modi is now looking more and more similar to Manmohan Singh. He is a better marketer though than Singh and his regime isn’t corrupt. Not until now, at least.

MGNREGA aims at providing at least 100 days of guaranteed employment in a financial year to every household whose adults are willing to do unskilled manual work. The trouble is that MGNREGA essentially became another scheme where money is simply given away without any substantial assets being created.

Modi in the run up to the 2014 Lok Sabha elections had promised minimum government and maximum governance. But with the allocations to MGNREGA being at its highest ever level, looks like that promise has gone out of the window, at least for now.

The economist Surjeet Bhalla has called MGNREGA as the fourth most corrupt institution in the world after FIFA, the BCCI (the board that governs cricket in India) and the public distribution system used by the Indian government to distribute food grains as well as kerosene to the poor.

The food security scheme provides rice and wheat at Rs 3 and Rs 2 per kg to the poor. The Economic Survey of the government presented on February 26, points out that nearly 54% of the wheat, 48% of the sugar and 15% of rice, meant to be distributed through PDS is lost as a leakage.

The price at which the government sells the food grains and the price at which it buys is essentially the food subsidy that it provides. The allocation to food subsidy is at Rs 1,34,835 crore for 2016-2017. This has come down a little from the Rs 1,39,419 crore that was allocated last year.

Nevertheless, no effort has been made to tackle this leakage which costs the country a lot of money. The Report of the High Level Committee on Reinventing the Role and Restructuring of Food Corporation of India presented a report in January 2015 to tackle this issue. It has since been gathering dust.

Further, what India needs is the creation of huge number of jobs. The organised sector in this country continues to remain very small. In 1991-1992, the total number of people working in the organised sector had stood at around 27 million. Since then the number has jumped to around 29.6 million (as of 2011-12, the latest data available).

At the same time nearly 58% of India’s population continues to be dependent on agriculture which generates around 16-18% of India’s gross domestic product. What this tells us is that there is huge overemployment in the sector and jobs need to be created in other sector so that people can move away from agriculture. And that is clearly not happening.

Modi’s win in 2014 tapped into the aspiring class of India and promised to create jobs. In fact, in November 2013, Modi had said: “If BJP comes to power, it will provide one crore jobs which the UPA Government could not do despite announcing it before the last Lok Sabha polls.”

The government is betting on the creation of road and railway infrastructure for the creation semi-skilled and unskilled jobs required for moving people away from agriculture. The finance minister has allocated Rs 97,000 crore towards the road sector. Together with the capital expenditure of the Railways, this amounts to a good Rs 2,18,000 crore during the course of the year.

The question is will this be enough to move people away from agriculture by creating a substantial number of jobs? There are no easy answers for that.

(Vivek Kaul is the author of the Easy Money trilogy. He tweets @kaul_vivek)

A slightly different version of the column appeared on BBC.com on February 29, 2016