The interim budget to be presented in Parliament on Friday is expected to be a full-fledged budget of the Modi government ahead of the Lok Sabha elections that could include tax sops for the middle class and the corporates and a relief package that could address agrarian distress and the stressed small-scale industry sector.
Piyush Goyal, who has been given charge of the finance portfolio in the absence of Arun Jaitley who is in the US for medical treatment, is widely expected to break tradition by going beyond a vote-on-account budget close to the elections by showering sops in various categories.
Minister without portfolio Arun Jaitley had already indicated as much when he said from New York that the interim Budget may go "beyond the traditional " vote-on-account as tackling agricultural challenges "can't afford to wait".
For the record, the government on Wednesday maintained that the budget will be called "Interim Budget 2019-20" after media reports described the coming exercise as "General Budget".
The income tax sops could include a rise in the threshold exemption limit for middle class tax payers, considered a big constituency of the BJP. The exemption threshold could go up from the present Rs. 2.5 lakh to Rs. 5 lakh per annum. The corporates have also been clamouring for reducing the peak rate from 30 to 25 per cent.
The agriculture sector is set to receive good attention from the government after the recent election defeat for the BJP in the Hindi heartland states of Madhya Pradesh, Rajasthan and Chhattisgarh on the back of stress.
Direct investment support upto Rs. 15,000 per hectare for small and marginal farmers on the lines of a mix of the Kalia scheme in Odisha and the Rythu Bandhu scheme in Telangana is widely expected to be announced in the budget along with interest-free loans and nominal premium on the crop insurance scheme.
Another option is to look at reworking the Bhavantar scheme, implemented by the erstwhile BJP government in Madhya Pradesh, under which farmers are compensated for the gap between Minimum Support Price and the market price. Cold chain and provision logistics for famers will get a push to benefit them in marketing their produce.
For the stressed micro, small and medium enterprises (MSME) sector, hit badly by the demonetisation decision of 2016 and GST implementation following that, the budget could contain incentives and easier flow of credit.
There are concerns that the expected giveaways could lead to ballooning of the fiscal deficit, especially in the wake of the shortfall in tax collections, particularly GST revenue.
This is expected to pose a major challenge to the government to meet its fiscal deficit target of 3.3 per cent of the GDP even as it has maintained that the shortfall would be made up by higher direct tax collections.
The Goods and Services Tax (GST) revenue, which crossed the Rs 1 lakh crore mark only twice this year - in April and October - has remained largely subdued for the rest of the year and in the range of Rs 94,000 crore to Rs 97,000 crore per month against the annual GST collection target of Rs 13.48 lakh crore, which translates to a monthly average target of Rs 1.12 lakh crore.
"After the failed budget promise of enhanced procurement of crops through a revised Minimum Support Price (MSP) formula in 2018-19, announcements to be made on February 1, 2019 will be the last opportunity for the government to woo a larger section of society through an interim budget, as against a vote-on-account, by altering both taxes and outlays on schemes," said a report last week by JM Financial Institutional Securities.