So far, I have looked at what could have been in
terms of the budget; and the overall Macro-Economic Scenario and the Budget
assumptions, and asked myself three questions : namely, in short. Will the
budget give a boost to investment, demand and boost agriculture? But, before we
move to looking at answering these questions, let me first of all appreciate
and point out the most significant changes made from this year onwards :
1. Merging Railway and Union Budgets
2. Plan and Non Plan heads done away with, replaced by
Capital and Revenue heads
3. Moving forward of the date of budget presentation
and unveiling
4. This has gone unnoticed : rationalization of
schemes, and focus on the key schemes
I would also like to point out that, at least in
those articles I read, there was not a sufficient presentation of the
viewpoints of both sides, that is, for and against these changes given above. A
detailed study of the accompanying budget documents brings out the Government’s
viewpoint fully; my article is not meant to analyse these moves – except the 4th.
This has been clearly stated in the Fiscal
Policy Strategy Statement, pg 18 pt 10 and pg 26 pt 56; and in the Budget
Speech Point 18; this rationalization, first begun last year, is being
carried forward this year. In my opinion, this deserves a deeper study. That said,
off the cuff it can be seen that a more directed and rationalized scheme
structure will aid their implementation. This is a truly laudable effort that
has been started, and needs to be highlighted. Granted that key will be the selection
of schemes but that someone is thinking along a defined implementation ease is
laudable.
THE BUDGET
This year, the budget in the first part focuses on
Farmers, Rural Population, Youth, The Poor, Infra, Financial Sector, Digital
Economy, Public Service and Prudent Fiscal Management.
1.
Farmers
: In my analysis of June 2015 {https://reflectionsvvk.blogspot.in/2015/06/farmer-distress-in-india.
html}, I had identified the major ills of this sector – please visit link.
a. PLUSES : Increase
in Ag Credit to 10 Lakh Crore, up from 9
Lakh Crore : Pg 9 Pt 22; interest
waiver 60 days; PACS Computerisation in 3 yrs Pg 9 Pt 23; Focus on Soil Health Pt 25; Long term and Micro Irrigation Funds Pts 26 & 27; Dairy Fund is a good start, though needs more
focus Pg 10 Pt 31
b. COULD HAVE BEEN
BETTER : Farmer Realised Price
improvement requires a far more focused approach, and tackling Mandis and their
power, which has not been done. A start has been made, let us see how this is
carried forward {Pts 28-29}. On
Insurance, a reduction in provision from RE 16-17 is, in my opinion, hasty a
good monsoon notwithstanding – Pt 24
c. MISSES : The factor of rationalization of Fertilizer
Subsidy, and link it to NPK ratio has been totally passed over; as are the other inputs like seeds etc.
2.
Rural Sector :
a. MNREGA : {Pg 11 Pts
34-36} Restrained yet again; kept at nearly the same level
as RE 16-17!
b. For the rest, from Pts 38-45 on Pgs 11-12, the budget speech Rural roads, skill development,
electrification, and most critically clean drinking water to 2800 arsenic and
fluoride affected habitations. These are all good intentions, and, when
implemented will decidedly have a positive impact. But it needs to be noted
that the impact will be in the Medium to Long Term!
3. Youth – Pgs 12-14
Pts 46-58 : The
only creditable and far-reaching point I found in this section dealt with focusing
on secondary education for 3479 backward blocks; question is the
implementation. Do we have requisite funds? And the direction? Still, good that
someone has thought of this. For the rest, while the intentions are good –
skilling initiatives, online courses – how practical are these? Online courses
certainly aren’t the solution; and skill initiatives in both Farming and Rural
sector – well, let me just say they cant replace a proper education! Yes, the Incredible
India Campaign 2 is a good thought – let us see its implementation
4. The Poor : Pg
14-16, Pt 59-70 : Increased allocation by nearly 28,000 Crore for
women and children, but this is in comparison
with BE, not RE. Another great point – affordable housing, which I analyse
separately as it features in several sectors. Action plans for major diseases
is also appreciable, as is mention of tertiary health care and specialized doctors,
and drug pricing. Excellent! But the
best is the reforms contemplated in labour laws …
5. INFRASTRUCTURE : The Big One, Pg
16-20, Pts 71- 94 :
a. This includes the Railway budget, which is pretty
standard, though with a welcome focus on clean trains & solar stations. The part I like the best was the end-to-end solution for some
commodities in partnership with logistics players.
b. While 2.41 Lakh Crore has been allocated as a whole
to Rails + Roads + Shipping, I could not find any comparison with RE 16-17 in
the budget documents. Allocation for
Transport is higher than RE quite significantly, almost 15%, up from 1.07
Lakh Cr to the current 1.24 Lakh Cr.
c. For Telecom, while allocation is increased, {up 2200
Cr for IT & Telecom}, the plan for the OFC will, when complete, bring rich
dividends.
d. Our effort to develop IT, Telecom and Electronics as
a competitive advantage on a national scale continues, with focus again. That
said, it is high time we as a nation started thinking of growing up the value
chain – from assembly lines to original equipment, own brands and innovation in
technology.
6.
FINANCIAL SECTOR : Pg 20-22, Pts 95-110 :
a.
Banking Reforms given a near-total miss
b.
Again, the focus
is on elex platforms for commodities – this is good, clearly so. But it
requires ground-level reforms, which are still awaited!
c.
Special mention for the Stand Up India scheme in
point 110 – a laudable scheme, please see references section of this article
for details
d.
Another good
thought here is the resolution mechanism for financial firms & the dispute resolution
mechanism for infra contracts
7.
DIGITAL ECONOMY : Pgs 22-24, Pts 111-120 : This is the weakest section of the budget; I
could not relate to it. While the points are all good, with great intentions,
the on-ground reality in terms of connectivity, options and cost has a long way
to go. Already, there is indication of a fall in online transactions post remonetisation. Neither is there
anything specific in this section…
8.
PUBLIC SERVICE : Pg 24-25 Pts 121-130 : There is nothing specific here; these are all
laudable words, but once again, like above, I could not relate. What is this
section doing in a budget is beyond my understanding is all I can say here.
9.
PRUDENT FISCAL MANAGEMENT : Pg 25-27, Pts 131-138 : The best part of this section is the increase in capital expenditure by 25.4%,
and the increase in capital expenditure to 14.43% of total expenditure. It
needs to be noted that this percentage is the highest ever in the past 10 years
at least; it was 13.89% in RE 16-17, 14.13% in 15-16, and 13.08% in 10-11. A standing
ovation for managing the CE @ nearly
14% for two years running, and planning for it for a 3rd straight
year! Further, as things are shaping up, we could actually see the Govt Debt at
sub-60% of GDP in the next few years!
PART-B – Tax Proposals
For this, before
we proceed, The FM’s budget speech pt 140, Pg 28 needs to be highlighted for
all of us to read. Of 4.2 Cr organized sector employees, 1.74 Cr file returns. For
informal sector, the numbers are 5.6 Cr and 1.81 Cr. Out of the 13.94 lakh
companies registered in India upto 31st March, 2014, 5.97 lakh companies have
filed their returns for Assessment Year 2016-17. Of the 5.97 lakh companies
which have filed their returns for Assessment Year 2016-17 so far, as many as 2.76
lakh companies have shown losses or zero income. 2.85 lakh companies have shown
profit before tax of less than ` 1 crore. 28,667 companies have shown profit
between ` 1 crore to ` 10 crore, and only 7781 companies have profit before tax
of more than ` 10 crores. These are shocking numbers, and full marks for
highlighting!
The best part about this section is the treatment to
the MSME, which starts by highlighting that 2.85 Lakh companies making profit
of less than 1 Cr pay tax @ 30.26%, while the 298 companies making profit of
more than 500 Cr pay @ 25.90% {effective rate}. The section then goes on to
give a series of measures including reducing income tax to 25% for companies
with turnovers upto 50 Cr.
The next good point is the attempt at transparency
in electoral funding; while this has been panned by some – at least this is a start.
The declaration of Rs. 2000 per person is actually a reduction from the current
level of Rs. 20,000. That said, there is some logic in the criticism as well –
as stated on BS, Page 10, article “FM Acts Tough on Political Funding” dated 2nd
Feb that as long as there is no limit on the number of such transactions, the impact might just be meaningless!
On personal taxes, I am not in agreement; this could
have been done next year, or even in 2019; that would have freed 15500 Cr for
other avenues – my personal favourite would be defense. This is frankly a move I do not support,
though it benefits me personally.
HOUSING
This deserves a special mention, since my initial
call on it was wrong by a degree of just about 100%! I was initially surprised,
a thought that we need other measures to stimulate demand other than housing.
Then, I researched the economics behind the housing aspects, going first to a
book by Bimal Jalan, and then further studying the examples of Singapore,
Turkey and some other places with respect to housing. The research establishes
the ability of affordable housing to stimulate demand both up-stream and
down-stream, a factor noted in at least two previous examples. And this budget
not only focuses on housing, it also focuses on rural housing. The copies of
the sources I studied are attached with this article
CONCLUSION
We started with
questions – will it stimulate investment, demand and agriculture? The focus on MSME – which are 40% plus contributors
to GDP, is a definite plus, as is the focus on housing, which I have supported with empirical evidence from 2-3 nations. Then
you have the increased allocations for Transport, Telecom, increased
Agricultural Credit as well as a focus on the Poor and the Farmers. Add to this
the fact that the Agricultural plus Unorganised sectors contribute well over
70% to the economy, and we can arrive at a conclusion that there is a definite stimulus to investments as well as demand
But, at the same time, there are misses that we have
to account for, some of which I have alluded to above. Fact of the matter is
that we are still not focusing on Health Education and Defense as much as we
should; this needs to be done. However, given the current macroeconomic
challenges that we analysed earlier, this budget does a pretty decent job. That
said, my initial views stand vindicated – a bland and safe budget which could
have done far more, given that general elections are still 2 plus year away. The biggest challenge is that the measures
will take time to stimulate, and in the meantime we have the slowdown and the
macroeconomic factors to contend with.
The reason is that the basic assumption that the
economy will get better from Q1 2017-18 after a slowing Q3-Q4 of the current
fiscal is an assumption. Then you also have the basic challenges mentioned in Pt 6 on Pg 4 of the Budget Speech. Thus,
the basic criticism of some people also stands – that the revenue side
challenges might remain, and that the fiscal target undertaken might prove to be a challenge if
the assumptions do not pan out as planned. I sincerely hope, for all our sakes,
that it does work out, that the stimulus given will be enough… that remains to
be seen.
REFERENCES AND BIBLIOGRAPHY
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