Lot of politics in this economics

If, before LS elections, a confident BJP was happy to present an interim budget with nothing additional for the electorate, the first full budget of the new govt rushes to compensate for this lack by offering concessions and financial incentives. Election results showed that a mere promise, “Modi Sarkar ki Guarantee”, was not good enough to impact the ballot box: this budget concretises what was vaguely guaranteed earlier.The big political change after LS results is that BJP now needs to accommodate political demands of important allies. The budget was thus very vocal on infra projects and support for Bihar and Andhra Pradesh. This takes forward NDA govt’s past emphasis on investing in infra, with a slight skew towards two states that sent the highest number of MPs as BJP allies.Bihar gets an industrial node at Gaya as part of Amritsar-Kolkata industrial corridor, apart from several road connectivity projects, airports, medical colleges and better tourism infra. Andhra has been promised ₹15,000cr of financial support from multilateral development agencies for its new capital at Amaravati, additional funds for Polavaram irrigation project, a Kopparthy node on Vizag-Chennai industrial corridor, and grants for backward regions.But the biggest theme of the budget was addressing the problem of high youth unemployment. While attempts to push job generation have been there in most NDA budgets, this one goes all-out in this direction. A big initiative is the offer of one month’s wages (up to ₹15,000) for first-time employees registered with EPFO — which is expected to benefit 21mn youth.Then there’s a scheme to incentivise additional employment in manufacturing sector — both for employees and employers — as long as this shows up in EPFO numbers. A plan to incentivise apprenticeships in 500 large companies is expected to provide skilling opportunities to one crore youth over five years, with govt providing ₹5,000 per month as internship allowance. These schemes are again broadly in line with Modi’s govt’s philosophy of formalising jobs market.Two other budget proposals, one related to MSMEs, and another related to urban growth, also play well into job creation. MSME sector, which was badly roiled by demonetisation and the subsequent push for GST, is being given special support. There’s a credit guarantee scheme for MSMEs in manufacturing sector and a proposal for better credit support during stress periods. In start-up sector, vexing angel tax has been abolished. Limit for Mudra loans has been raised to 20L. This implies that the most important job-creating sector — small companies and start-ups — is being given a leg-up.Plus, there’s renewed emphasis on urban investment — again, a recognition that more people need to move out of farms to urban jobs. Cities will be developed as growth hubs, redevelopment of cities will be encouraged by policy interventions, and 14 large cities with over 30L population will be developed as transit hubs. Urban housing will be encouraged under PM Awas Yojna for 1L urban poor and middle-class families with an outlay of ₹10L cr, with 22% of it coming from Centre over next five years.The disappointing part is the half-hearted benefits given to the salary-earning middle class, which do not compensate for the rise in the cost of almost everything. Markets also received a shock when long-term capital gains tax (LTCG) on listed securities was raised from 10% to 12.5% — even as indexation benefits for real estate have been partly eliminated.Net-net, Modi govt has read the message from the election results correctly and given itself economic and political space to recover.