India-Centric Budget To Meet Need of the Hour
The budget for 2016-17 unveiled by the Prime Minister Narendra Modi-led government, regarded as its most crucial one, has great potential to be a game changer for the NDA government. The Modi government has been struggling to overcome the mismanagement of the economy by the UPA II, which had messed up the telecom, coal and steel sectors, burdening the banking sector with huge stressed assets. While the two scams had adversely impacted the first two budgets presented by Finance Minister Arun Jaitley, the consequential Non Performing Assets of the banks have greatly constrained the budget-making for 2016-17 with the Governor of the Reserve Bank of India (RBI) pontificating to the former on the need to cut the fiscal deficit which is not in the RBI’s domain. The global headwinds — falling growth and trade and trembling financial markets — have also forced the government to first ensure that the clouds of global crisis do not invade India. Considering the current global and domestic ecosystem, the Modi government must be congratulated for presenting a budget of depth in ideas, reach and responsibility.
The budget rightly focuses on domestic demand, investment and entrepreneurs, and on agriculture and rural areas, besides on infrastructure and job creation. This is probably the first budget since the 1990s, where the Finance Minister first took up agriculture, farmers and rural issues. The Indian reality manifestly informs the budget.
The allocation to agriculture and irrigation to execute 23 of the 89 stalled schemes in 2016-17 in order to improve the irrigated area by almost close 3 million hectares — finally by 8 million hectares in the next four years — is remarkable. The provision for rural roads to reach 65,000 habitations is almost three times that of the UPA’s spend. The rural thrust is again reinforced in the interest subvention of Rs 15,000 crore for farmers, allocation for farm insurance of Rs 5,500 crore, development allocation of over Rs 87,000 crore, electrification of 5,500 villages achieved and the plan and provision to complete the balance 13,000 villages in the next 14 months. Grants of Rs 60 lakh for each gram panchayat and Rs 21 crore for each municipality, all aggregating to Rs 2.87 lakh crore as recommended by the 14th Finance Commission will hike up the rural demand.
The voluntary surrender of 75 lakh subsidised LPG connections on the call of the Prime Minister by the well-to-do and extending the connections to 1.5 crore BPL families in next year and to another 3.5 crore such families in the next two years is a huge shift of resources to the poor. The government must be congratulated for activating 85 per cent of the 70 languishing road projects and completing 10,000 kms of roads in 2015-16 and for making the highest ever road kilometres awarded in any year in 2015. The total infrastructure spend of Rs 2,18,000 crore is a huge leap.
Tax relief to those who live in rented houses, raising the interest on home loans for tax purposes, increasing tax rebate by Rs 3,000 for the middle class and extending and increasing presumptive tax benefits for the middle-level traders and manufacturers also show the budget’s tilt towards common households. Juxtaposing the rural thrust with taxes on the rich clearly makes the political thrust in the budget obvious.
Apart from the numbers in the budget, many profound and original economic ideas, specific to Indian conditions, are unveiled in the budget. The realistic approach to the Fiscal Responsibility and Budget Maintenance Act (FRBM) is one such. The Finance Minister has implicitly undermined the 3 per cent fiscal deficit rule considered inviolable and boldly said that fiscal expansion or contraction should be aligned with credit contraction or expansion in the economy. This is precisely what The New Indian Express had argued in the article “FRBM law is irrational. Amend it” (Feb 26, 2016). The philosophy of fiscal responsibility being tied to the arithmetic of 3 per cent is harmful to the national economy. When the banks are too stressed to lend and businesses are too fatigued to borrow and invest, pumping money into the economy through fiscal expansion and raising the domestic demand will alone put the economy on the escalator for growth. And that is precisely what the new approach to the FRBM law implies.
On the down side, while the revenue figures seem to be achievable, there is a question over whether the expenditure side is fully provided — considering particularly the impact of the Seventh Pay Commission. The Finance Minister seems to have not sufficiently carried forward the flagship programme of the Prime Minister, the Mudra Yojana. Originally the government had proposed a separate law to promote micro small business funding on the National Housing Bank model. The Finance Minister has, intriguingly, remained silent on the issue despite the fact that the Mudra programme is among the most popular agendas of the Modi government. In sum, it is an India-centric budget which is the need of the hour today.