Politics trumps ideology


The Hindu

Context

The macroeconomic credentials of the Budget are quite impressive. The highlight is a greater than 25% increase in capital spending and a substantial increase in the transfer to the States

Let us have a look at few terms,

What is capital expenditure?

Capital expenditure is the expenditure incurred by the government which results in the creation of physical or financial assets of the Union government or reduction in financial liabilities of the Union Government. It includes expenditure on buying of land, machinery, building, equipment, expenditure in shares. It also includes loans by the Union government to state and union territories and PSUs.

  • An increased focus on Capital expenditure in this budget indicates a desire to stimulate economy in the right direction by creating long-term tangible assets
  1. 1. Revenue Receipts: Receipts received which cannot be reclaimed by the government i.e. the government does not have to return these receipts to a body. Revenue receipts includes revenue collected by the Union Government through taxes as well as non-tax sources such as interest, dividends on investments
  2. 2Capital Receipts: Receipts of the Union Government which create liability or reduce the financial assets of the government. Capital receipts include market borrowings, borrowings from the RBI and commercial banks and other financial institutions. It also includes loans received from foreign governments and international organisation and repayment of loans granted by the Union government
  3. 3Revenue Expenditure: Expenditure incurred by the Union Government for purposes other than for creation of physical or financial assets. It includes those expenses incurred for normal functioning of the government departments, interest payments on debt of the Union Government, grants given to state governments and other bodies
  4. 4Revenue Deficit: Revenue deficit is the excess of Union government’s expenditure over revenue receipts.
    Revenue Deficit = Revenue Expenditure – Revenue Receipts
  5. 5Fiscal Deficit: Fiscal deficit is the difference between the government’s total expenditure and its total receipts, excluding borrowing.

Source: india.com

Relevant points from the article:- 

Author states that the macroeconomic credentials of the budget are quite impressive with highlights being,

  • 25% increase in capital expenditure
  • A substantial increase in the transfer to the States
  • Fiscal deficit target has been set at 3.2 per cent
  • Allocation under MGNREGS raised: The allocation of ₹48,000 crore for MGNREGS is the highest in the history of this scheme. Now, only the implementation remains. It is important to ensure that beneficiaries receive their full payment on time and that the expenditure is targeted on asset-building to the extent feasible
  • Capping of unknown donations to Rs 2000

 Budget Orientation

Author states that the budget is tilted towards rural population. How? Let us take a look

  • Higher sanitation allocation: Allocation for rural sanitation is higher by 18%
  • Electrification target: Target of achieving 100% electrification by 2018, the benefits of which shall go disproportionately to rural areas
  • Various incentive schemes for the attainment of open-defection-free villages in the form of the supply of arsenic- and fluoride-free piped water to them
  • Assistance to PRI: Panchayati Raj institutions are to receive assistance to raise their level of human resource endowment
  • Special fund for irrigation: A special fund for irrigation has been created, to be operated by NABARD (National Bank for Agriculture and Rural Development)

Overambitious claims made in the budget

As per author following claims seems a little overambitious,

  • Growth rateof 4.1 per cent in agriculture: It is suggested that agriculture will continue to grow by 4.1%. This induces doubt as such a rate has not been consistently attained in the country
  • Lifting gram panchayats out of poverty: There is a plan to lift 50,000 gram panchayats out of poverty. We are yet to be told how these will be chosen and what the plan shall be

 What more should have been done?

Author states that following steps could have been taken,

  • Revenue deficit: There could have been a greater effort to trim the revenue deficit; at least a statement of the intention of eliminating it altogether in the future

Issues

  • Budget unduly tilted towards 20 per cent: While the largest number of Indians do reside in the rural areas, agriculture contributes to less than 20% of the national income. One cannot help but wonder what the government, through this Budget, intends for the remaining 80%.