Divergent views of households on budget

by Mahesh Vyas

Finance Minister Arun Jaitley presented a populist budget. The over-arching message of the budget is to identify vote-banks and parcel small and big gifts to each. Farmers have been assured a 50 per cent return on the cost of production, the poor have been assured money for hospitalisation, the salaried classes have been given standard deduction, Members of Parliament have inflation-indexed wages, and so on, there is a little for many, except the stock markets.

The stock markets fell by end of day on budget day but not before being undecided for long. The fall gained momentum in the morning after the budget day.

Since the budget has essentially targeted vote-banks it would be useful to measure the impact of the budget on these.

The result is stark. Rural households give the budget a major thumbs up. Rural consumer sentiments index shot up 8.7 per cent on the day of the budget compared to the earlier day. The budget’s promise to give farmers a 50 per cent return over cost of production on all agricultural crops hit the right cord with rural folk. This has been one of the demands of various agricultural organisations. These farmer organisations have coalesced into a substantial political grouping to assert pressure effectively on the government. The result is evident in the budget announcements. And their sense of victory is expressed in their sentiments shooting up.

It is not entirely clear whether the budget’s promise on the MSP would lead to any substantial gain to the farmers and if so, how it would be funded because we do not see any extra-ordinary increase in allocations in the budgets of relevant ministries. Nevertheless, farmers believe that the announcements imply some kind of instant gratification. Their index of current well-being shot up by 10.7 per cent which is much higher than the 7.4 per cent increase in their index of future expectation.*

Rural India has a much bigger weight than urban India in all-India calculations and therefore the exuberance of the rural folk reflects in the 3.8 per increase in the all-India consumer sentiment index.

Urban India is not impressed. Understandably so because the standard deductions to salaried classes turned out to be a measly Rs.5,800 or so after reading the fine-print, compared to the budget announcement of Rs.40,000.

Further, the boast of a health care system that is bigger than Obamacare did not strike a good note. Not many households have a hospitalised person and those who do not have a person hospitalised do not like to think of a possible hospitalisation. Its a scary thought. We do not, as a society insure against such eventualities unless we are forced by diktat or lured by financial intermediaries. While Rs.500,000 is a big sum for most, the concomitant event is not what one would like to anticipate.

Part of urban India is not happy with the introduction of long-term capital gains tax and increased duties on mobile phones. The other part should be unhappy with the fact that wages still continue to be taxed more than capital gains is. The latter is a silent group but, they are likely to be seeing the anomaly although they cannot quite articulate it.

The last full budget during the tenure of this government does not deliver on the promised acchhe din even at the end of its term. While rural India has got some sops there are none for urbanites.

Electorally, this could be a gamble. Rural exuberance is predicated on a transfer of funds that is not clear. If the benefits are not transferred in time, Modi could face an angry electorate in the hinterlands in 2019. And, there is little time to swing the mood of the urbanites.

*We study consumer sentiments on the day of the budget and compare this to the previous day’s sentiments. This is based on a sample of 975 households on February 1 of which 351 were rural and 624 were urban households. On January 31, the sample comprised 212 rural and 437 urban households.

Unemployment Rate
Per cent
6.2 -0.0
Consumer Sentiments Index
Base September-December 2015
93.5 0.0
Consumer Expectations Index
Base September-December 2015
93.9 0.0
Current Economic Conditions Index
Base September-December 2015
92.8 0.0
Quarterly CapeEx Aggregates
(Rs.trillion) Jun 17 Sep 17 Dec 17 Mar 18
New projects 2.33 1.38 1.24 2.15
Completed projects 0.87 1.21 1.02 1.07
Stalled projects 2.67 0.69 0.93 3.34
Revived projects 0.30 0.34 0.23 0.14
Implementation stalled projects 0.73 0.72 0.58 1.05
Updated on: 25 Apr 2018 12:20PM
Quarterly Financials of Listed Companies
(% change) Jun 17 Sep 17 Dec 17 Mar 18
All listed Companies
 Income 9.6 7.9 11.9 7.6
 Expenses 9.9 9.0 12.9 8.0
 Net profit -19.9 -18.1 -13.9 6.6
 PAT margin (%) 5.3 5.5 4.9 15.2
 Count of Cos. 4,482 4,469 4,431 78
Non-financial Companies
 Income 10.2 8.2 13.2 3.0
 Expenses 10.5 8.2 12.3 4.0
 Net profit -25.1 -6.0 12.7 -1.8
 PAT margin (%) 5.2 6.2 6.4 14.0
 Net fixed assets 9.2 5.3
 Current assets 78.7 9.6
 Current liabilities 11.0 24.5
 Borrowings 10.4 -2.5
 Reserves & surplus 5.2 0.3
 Count of Cos. 3,459 3,442 3,427 55
Numbers are net of P&E
Updated on: 25 Apr 2018 12:20PM
Annual Financials of All Companies
(% change) FY15 FY16 FY17 FY18
All Companies
 Income 5.5 1.5 5.1 1.6
 Expenses 5.6 1.7 5.1 0.7
 Net profit 0.0 -10.3 23.7 9.2
 PAT margin (%) 3.1 2.8 3.6 8.3
 Assets 9.5 10.0 6.9 3.3
 Net worth 8.5 11.4 6.0 2.8
 RONW (%) 5.8 4.9 5.9 12.7
 Count of Cos. 25,647 23,668 20,755 19
Non-financial Companies
 Income 4.7 0.6 4.7 1.5
 Expenses 4.9 0.0 5.2 0.6
 Net profit -8.6 18.4 18.0 10.7
 PAT margin (%) 2.0 2.5 3.1 7.4
 Net fixed assets 13.3 17.3 5.4 4.4
 Net worth 6.9 12.0 4.4 2.9
 RONW (%) 4.6 5.1 6.0 11.5
 Debt / Equity (times) 1.1 1.1 1.0 0.2
 Interest cover (times) 1.9 1.9 2.1 11.8
 Net working capital cycle (days) 66 65 62 38
 Count of Cos. 20,897 19,807 17,287 17
Numbers are net of P&E
Updated on: 18 Apr 2018 11:50AM

Time series available from 1990 onwards