Union Budget – Arun Jaitley’s roadmap

 

Introduction:

  • Focus on Agriculture and Rural economy
  • GDP growth pegged at 7.6pc
  • Focus on cutting plan expenditure to control fiscal deficit is not a good sign
  • Emphasis on rural economy is a positive step, as history has shown us that it was rural economy that insulated India from the recession of 2009.

Some Facts:

  • Rs 86,500 crore-Irrigation for five years
  • Rs 38500 crore- MGNREGA
  • Rs 35,984 crore-Allocation for Agriculture and Farmers welfare
  • Rs 15000 crore- Interest subvention for agriculture loans
  • Rs 5500 crore- crop insurance

The economists view is that the government has charted a well balanced path between growth and development.

  • The above facts prove that the government has indeed shifted focus towards agriculture and rural development
  • However, there is consensus on the fact that rural migration due to downturn of contruction activity is the major reason for rural distress. The budget, unfortunately doesn’t address these concerns of more than 50million rural workers.
  • Govt is too optimistic when it expects a jump in the nominal GDP by 3.5pc to 11pc vis-à-vis last year’s nominal GDP of 8.5pc
  • Disinvestment target has been increased by 125pc
  • All these factors point to plan expenditure cut to control the fiscal deficit at 3.5pc by next year, which is not a very good sign

Infrastructure sector:

The budget has indeed given a push to the infrastructure sector. The total allocation to this sector is 2.21 Lakh cr, of which 55000cr will be spent on roads and highways. The total investment on roads including PMGSY allocation is 97000 cr.

Banking sector:

  • Allocation for bank recapitalization: Rs 25000 cr
  • Experts feel its suboptimal, considering the quantum of NPA’s
  • Constitution of Bank Boards Bureau is a positive step

Investments:

 

  • Savings:GDP ratio decreasing, Tax:GDP ratio decreasing
  • Budget has nothing substantial to kick start investments
  • There is no substantial hike in rural infrastructure and agriculuture infrastructure spending
  • However, some economists differ saying that the utilization of funds has been better in previous budget, hence, the allocation need not be viewed pessimistically.

 

Miscellaneous:

  • The budget also mentions reduction of fertilizer and agriculture subsidies to the tune of 7500cr for better targeting of subsidies
  • The export markets are shrinking and the budget too does not mention any innovative ideas on this front
  • It is also supposed that remittances would shrink this year and hence, a more holistic export policy is envisaged

 

Conclusion:

The government has indeed done well to recognize the importance of the rural and agriculture sector.Further, the shrinking tax to GDP ratio, investments pose a challenge. The OROP, and implementation of 7th pay commission will also pose a significant challenge to the government to handle the fiscal deficit and keep it under 3.5pc. Hence, it has to be seen how the government will go beyond the arithmetic to come out with more coordinated policies to keep the fiscal and revenue targets in place and achieve a balance.

For more facts and details-pls refer Byjus Comprehensive News analysis of 1st march 2016

Other useful articles:

Link 1: Budget 2016-17: Prudent, and a little too staid-The Indian Express

Link2:Budget 2016: Behind the symbolism- EPW

Probable Mains Questions:

  • Is India moving towards a simpler tax system aided by fiscal consolidation? Critically analyse in context of Budget 2016-17

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