Prof. Prashant Chandra Panda*, Bhubaneswar, March 11, 2016 :

Where India Stands: The Budget 2016-17 presented by union minister of finance, Arun Jaitley on 29th February, 2016 in the floor of the Parliament apparently is directed boost India’s growth and accelerate the economic condition of the farmers in India by doubling up their income by 2020. He made an attempt to address the socioeconomic problems of the households in the farm sector that has been reeling under economic distress due to droughts for the last two crop years and the problem of recurring suicides of farmers in different states.

One has to appreciate the fact that India’s budget for the new financial year beginning from 1st April, 2017 comes in the context of global recession and sluggish growth in a number of European countries. The most important issue before the nation and therefore before the NDA Government led by the Prime Minister Narendra Modi of the BJP is to maintain the tempo of growth at 7.6 per cent that India achieved in the fiscal 2015-16 when the rest of the world including China experienced a decline in their growth rates. It may also be noted that India has succeeded in maintaining macroeconomic stability and keeps on surging ahead in its economic growth.

Economic factors that favor India is the sharp fall in oil price in the international market, significant improvement in its Current Account Deficit which declined from $18.4 billion in the first half of last year to $14.4 billion this year and the stock of foreign exchange reserves which stand at the highest level at 350 billion US dollars despite an “an unsupportive global environment…”. The priority for the Finance Minister therefore is to outline measures for successful macroeconomic management of the Indian economy through “prudent fiscal management’ by increasing the level of aggregate domestic demand and maintain the “pace of economic reforms and policy initiatives to change the lives of our people for the better”.

Measures outlined in the Budget for Generating Employment and Income in the Indian Economy: Given the slowdown in the world economy and the decline in India’s exports, the first priority in the budget has been to create enough of purchasing power in the hands of the people particularly in the rural areas where the size of aggregate demand has been going down because of poverty, droughts, crop failures and low income through allotment of higher funds and the implementation of wage employment schemes like Mahatma Gandhi National Rural Employment Guarantee (MGNREG),“Agriculture and Farmers Welfare”, ”Pradhan Mantri Krishi Sinchai Yojana”, “Pradhan Mantri Gram Sadak Yojana”, “Sustainable Management of Ground Water Resources” and setting up of a dedicated “Long Term Irrigation Fund” with NABARD, issue of Soil Health Cards, Crop Insurance Cover to the farmers to protect their income against the loss of crops.

It may be noted that a sum of Rs.35,984. 00 crore has been allocated to Agriculture and Farmers’ Welfare. It may also be noted that a sum of Rs.17,000 crore has been allotted in the current year and Rs.86,000 crore for the next five years in the budget for the development of irrigation apart from an allotment of Rs.6,0000 crore for the sustainable management of groundwater resources. As we know marketing has always been a problem for the farmers. It has been a criticism both in Odisha and in other states as well that farmers are deprived of the Minimum Support Price (MSP) because of the absence of a well developed marketing system. To overcome this deficiency and to sustain the development of agriculture “Unified Agriculture Marketing Scheme” has been proposed in the budget to provide a common e-market platform that will be taking care of 585 regulated wholesale markets in the country.

To improve the prospects of job creation and income generation in rural areas a sun of Rs.38, 500 crore and Rs.19,000 crore have been allotted to MGNREGS and PMGSY respectively for the year 2016-17. Besides the provision of agricultural credit, insurance for agriculture under PMFBY a decentralized procurement programme for the benefit of the farmers, Animal Health Cards (Nakul Swasthya Patra) advanced breeding technology, rural electrification, development of 600 Rurban centres under Sham Prasad Mukherjee Rurban Mission have been emphasized in the budget. Grants-in-aid to GPs and Municipalities have also been taken care with an allocation of Rs.2.87 lakh crore.

Provision of funds for the above mentioned programmes vindicates the stand of the government to spend a major part of funds in rural areas so as to create more jobs, more income and more liquidity in rural India that could be expected to double up the income of the farmers by 2020 and create and an expanding market for India’s manufacturing sector in the rural segment of the economy. It may also be mentioned that the creation of opportunities for the development of young entrepreneurs in Indian villages through financial assistance from the Mudra Bank (Micro Units Developments and Refinance Agency, Ltd) would prove highly encouraging to the young entrepreneurs and “start ups” in rural and semi-urban areas. Exposure of the farmers to digital literacy in rural areas will be a boon for the farmers as this may give them internet access to different input and product markets and to the prevailing conditions in the market. Besides, strengthening of the Gram Panchayats in the country as outlined in the budget could be expected to create a more enabling environment for the farm sector and the farmers.

Creating Sources of Growth: This approach of the government to sustain growth in all the sectors of the economy and particularly the emphasis to create new sources of growth for the economy in the rural sector may succeed in building up conducive conditions for India’s growth at the macro level. This is how India plans to create “bright spots” (IMF) and keep India’s “growth extraordinarily high” (World Economic Forum).

It may also be noted that provision of Rs.25,000 crore in the budget for strengthening the financial standing of India’s public sector banks which have run into a situation of creating a huge burden for themselves in terms of bad loans and acquisition of Non-Performing Assets (NPAs) could be expected to provide them the relief till they successfully implement their recovery policies against the defaulting high profile borrowers.

It may also be stated that financial provision has been made in the budget for the development of the infrastructure sector like oil and gas industry, coal production and the power sector besides roads, railways and the development of new airports in unconnected tier II cities in India. Budgetary allocations for the purpose stand at Rs.2, 21, 246 crore.
Development of the social sector in terms of the provision of quality education, provision of health insurance, ensuring subsidies to the target population and gas connection to the BPL families are the other welcome features in the budget. Besides the opening of 62 Navodaya Vidyalayas in India in next two years in uncovered areas, the budget contains the proposal to set up a Higher Education Financing Agency (HEFA) a non-profit organisation with an initial capital base of Rs.1,000 crore. An important step proposed in the budget under the National Health Mission for health and welfare of the people is the provision dialysis services in all district hospitals under “National Dialysis Services Programme”. Funds will be provided through the PPP mode. To reduce the drudgery and burden of the housewives in rural households LPG connections will be given to as many as 1 crore 50 lakh households below the poverty line in 2016-17.

The budget has highlighted the importance of quality in higher education. It is a welcome step. But imparting quality education does not start at the bottom. it starts at the bottom with primary education which to-day suffers from a number of deficit areas like the absence of good teaching and infrastructure.

The MSME sector which plays an important role in the development of the Indian economy in terms of creating income and employment opportunities has been given due economic weight age. As per the latest data furnished in the RBI Bulletin, February, 2016 we have in India an estimated number of 49 million MSMEs in the country which provide employment to 111 million people only next to agriculture in terms of offering employment. It may also be noted that this sector accounts for 45 per cent of the manufacturing output and contributes as high as 40 per cent of all exports from the country. It may also be noted that about 55 per cent of the MSMEs in India are located in rural areas. If we are planning for rural development and inclusive growth we have to develop the sector and exploit its growth potential in different agro-industries areas in view of the enhanced priority given to agriculture and the development of the farm sector as a whole. The Government is aware of it and has therefore established Micro Units Development and Refinance Agency Ltd. (MUDRA) for developing and refinancing all micro-finance institutions (MFIs) which lend to micro and small business entities engaged in manufacturing, trading and service activities. It may be noted that a sum of Rs.1, 80,000 crore has been allotted in the budget in 2016-17 as against Rs.70, 000 crore in the fiscal year 2016.

Skill Development: Given the rapid growth of the economy, there will be an ever increasing demand by the employers for skilled and trained youth in different trades and crafts. It is proposed to provide training to as many 76 lakh rural and urban youth in different skills. Pradgan Mantri Kaushal Vikas Yojana (PMKVY). As many as 1,500 Multi-Skill Training Institutes will be set up in the country for the purpose. An allotment of Rs.17, 000 crore has been made in the budget for the purpose. Provisions have also been made in the budget for Entrepreneurial Education and Training will be provided in 2200 colleges, 300 schools and 500 Government it is and Vocational Training Centres to prepare manpower for India’s development. To facilitate the training and skill formation a National Board for Skill Development Certification in partnership with industry and academia. It is planned to train one crore youth over the next three years.

Fiscal Dimensions of the Budget: Given the threat of inflation against the background of droughts and crop failures, the budget aims at maintaining the fiscal deficit in 2o16-17 at 3.5 per cent of GDP as against the fiscal deficit of 3.9 per cent of GDP in 2016 financial year. Fiscal deficit is planned to be reduced to 3.3 percent in 2017-18. An important question that comes to mind the ability of the Government to maintain the fiscal deficit at that point given the huge expenditure programmes that have been proposed in the budget given the existing sources of funding that consist of Tax Receipts, Dividends, Profits and Recovery and Debts and Interests on government loans. The budget provides relief to small tax payers, relief for the house rent payers, presumptive tax relief to small and medium enterprises numbering 33 lakh business people whose turnover or gross receipts do not exceed one crore rupees. The turn over limit under the scheme in the budget has been raised to Rs.2 crore that will also benefit a large number of assesses in the MSME category as well. Corporate Income Tax rate for companies with turnover not exceeding Rs.5 crore (in the financial year ending March, 2015) has been reduced to 29 per cent plus surcharge and cess. The importance of Adhar framework has been focused to deliver financial and other subsidies. Under the Make in India programme Start Ups have been provided with relief in terms of tax 100 per cent deduction of profit for 3 out of 5 years during April 2016 to March 2019.

The important thing to be noted in the budget is the loss of Rs.1, 060 crore from the Direct Taxe Proposals and the accrual of Rs.20, 670 crore to the Centre from the Indirect Taxes leaving revenue to the tune of Rs.19, 610 crore with the Government of India. Total expenditure in the budget for the year 2016-17 has been fixed at Rs.19,78 lakh crore.

Since the adoption of the GST which would have endowed the Government with more funds and flexibility is now a distant possibility Government may resort to deficit financing to meet revenue shortfalls and meet the budgetary requirements. An important source of funding the government expenditure is disinvestment and sale of government properties including idle and unutilized land. So far as disinvestment by the government is concerned it has always fallen short of its targets over the last ten years. Given the scenario of world recession the prospects of increasing India’s declining exports appear not to be that encouraging. This creates a genuine doubt whether the budgeted target of maintaining the fiscal deficit at 3.5 per cent of GDP can be maintained if we have to raise the level of aggregate quantum of demand at the macro level to create conditions of high growth for the Indian economy. Of course monetary policies of the Reserve Bank of India may play an important role here in lowering the Bank Rate to encourage private investment in Indian Industries. This appears a remote possibility as its Governor Rajan is following a policy of tight rope walking to check the inflationary forces in the economy.

Budget 2016-17 and Growth of the Indian Economy: Budget 2016-17 has given clear directions to boost the growth of the Indian economy and sustain the growth rate at 7.6 per cent and above. It may be noted that for the first time it aims at creating and tapping the internal or the domestic sources of growth for the economy given the continuity of the slow in the world economy. It has therefore placed enough of emphasis on the farm sector to serve two purposes: (i)to create new and tap the existing sources of growth in India’s Farm Sector and thereby provide the scope for the growth of a class of young entrepreneurs that would help the growth of the manufacturing sector and (ii) with the launching of the PM’s Jan Dhan Yojana and the prioritization of the development of the farm and the farmers, the objective of inclusive finance and inclusive growth can be fulfilled.

In order to fasten India’s growth, the FM has failed to appreciate the hopes and aspirations of the middle class which provides the drive for growth in terms of spending and expenditure.
Naxal infected states like Odisha have been pleading with the Centre for Special Packages for the economic and social development of those areas. It is time their pleas are taken seriously and they are given all assistance including finance to get out of these problems and concentrate on development.

The road map for development of the Indian economy has been laid out. Given the international and domestic constraints that we pointed out in the preceding paragraphs the objectives of sustaining growth at 7.6 per cent and above and maintaining the fiscal deficit at 3.5 per cent may prove challenging for the Finance Minister.

•[ Prof Panda teaches Economic at KIIT University, Bhubaneswar]