Hi Folks,
As promised we have brought out the excerpts and analysis on Union Budget 2016 – 17. The article contains the factsheet of changes brought about in Union Budget 2016 – 17 as well as the new promises made by the Government of India.
We have let go almost 40 articles in 9 PM brief in the preceding week which were based on Union Budget. We have made sure that through this article you get the brief analysis of those articles.
Any further news if relevant to Union Budget 2016 – 17 is published the article will be updated to accommodate those news.
Wishing You All Luck for Your Exams,
ForumIAS Editorial Team
Union Budget 2016 – 17: Excerpts and Analysis
Union Budget 2016 – 17 was presented by Finance Minister Arun Jaitely in Lok Sabha on 29th February, 2016.
| Introduction | Challenges |
Priorities and Roadmaps |
| 1. GDP Growth – 7.6%
2. Foreign Exchange Reserves – $ 350 Billion – highest ever
|
1. Risk of global slowdown and turbulence
2. Additional Fiscal Burden – 7th Pay Commission and OROP |
1. “Transform India” – to impact on economy and lives of people.
2. Government to focus on –
|
Excerpt 1: Agriculture and Farmers’ Welfare
From “Food Security” to “Income Security”
| Initiatives | Comments |
| 1. Total Allocation – Rs. 35,984 crores. | A whooping increase of 127% but is largely due to interest subsidy and short term – credit. Earlier this subsidy was shown under Department of Financial Services. |
| 2. Pradhan Mantri Krishi Sinchayi Yojana – 28.5 lakh hectares to be brought under irrigation. | The augmentation of irrigation facilities and proper water management holds the key for turning around Indian agriculture. But the allocations are still not enough to make a dent in the next two-three years. |
| 3. Accelerated Irrigation Benefits Program – 89 stalled projects to be undertaken and fast-tracked | |
| 4. Long Term Irrigation Fund – to be setup under the aegis of NABARD – initial corpus – Rs. 20,000 crores. | |
| 5. Programme for sustainable management of ground water resources – Rs. 6,000 crore. | |
| 6. Under the aegis of MNREGA – 5 lakh farm ponds and dug wells in rain fed areas.
And, 10 lakh compost pit to be constructed. |
Farm ponds and Dug wells will accentuate ground water level as well as provide for natural water storage for farm uses.
Compost pit will seek to deliver in house organic manure to farms |
| 7. Parampagat Krishi Vikas Yojana – Organic Value Chain Development in North East. | The emphasis is on value addition so that organic produce grown in this parts finds domestic and export market.
They aren’t game changers and will take certain years of work to materialise. |
| 8. Unified Agriculture Marketing ePlatform | Common platform market for wholesale markets . Will be made available to the country on 14th April, 2016.
An online Procurement System will be undertaken through the Food Corporation of India. Better realization of income on produce for the farmers. |
| 9. Interest Subvention to the tune of Rs. 15,000 crore | Help reduce the loan burden of farmers.
This interest subvention scheme is being criticised for its misuse by large farmers who borrow large amounts of credit at subsidised rates and put it in fixed deposits or lend it to those who don’t have access to institutional credit at higher rates. So this isn’t going to redress rural distress much, and can’t turn around agriculture growth. |
| 10. Pradhan Mantri Fasal Bima Yojana – Rs. 5,500 crore. | If implemented quickly, and with high technology, to assess crop damages and directly put the compensation in farmers’ accounts, this can give some relief to farmers. However, the infrastructure to do this isn’t yet in place. |
| 11. Rs. 850 crore – four dairying projects – ‘Pashudhan Sanjivani’, ‘Nakul Swasthya Patra’, ‘E-Pashudhan Haat’ and National Genomic Centre for indigenous breeds | ‘Pashudhan Sanjivani’, an animal wellness programme and provision of Animal Heaalth Cards (‘Nakul Swasthya Patra’). An advanced breeding technology. Creation of E-Pashudhan Haat, an e market portal for connecting breeders and farmers. |
| 12. Soil Health Card Scheme – To cover all 14 crore farm holdings | To boost productivity and bring about increased prosperity, it has become necessary to nurture the soil. The Soil Health Card scheme has been launched with this ideal.
This will help farmers to make judicious use of fertilizer. |
View: Nearly 65 per cent of small farmers in this country depend on rain-fed irrigation. More than 75 per cent of Indian farmers are not covered by crop insurance. Allocations provided for irrigation, crop insurance will significantly impact the rural population’s ability to withstand negative economic shocks.
Excerpt 2: Rural Sector
Transforming Villages to Transform Lives
| Initiatives | Comments |
| 1. Allocation: Rs. 87,765 crore | |
| 2. Grant In Aid to Gram Panchayats and Municipalities – Rs. 2.87 lakh crore | Recommended by 14th Finance Commission
The single most important budgetary initiative that will radically change the political economy of the country is the allocation of nearly Rs.3 trillion to gram panchayats. There are 250,000 panchayats in the country that will now get almost Rs.1 crore every year. This is by far the most important measure for the democratization of public spending in India. |
| 3. Deen Dayal Antyodaya Mission – Block under drought and rural distress | |
| 4. MNREGS Allocation – Rs. 38,500 crore | Highest ever allocation in absolute terms. But, it is not the highest allocation in terms of allocation:GDP as claimed by the government. |
| 5. Shyama Prasad Mukherjee Rurban Mission – 300 Rurban Clusters | Aim: SPMRM through development of rurban growth clusters aims at catalyzing overall regional growth. Twin objectives: It seeks to achieve of strengthening rural areas and de burdening the urban areas. Thus it seeks for balanced regional development and growth of the country by simultaneously benefiting the rural as well as urban areas of the country.
|
| 6. 100% village electrification by 1st May, 2018. | |
| 7. Digital Literacy Mission Scheme – to cover around 6 crore households in 3 years. | The Digital Saksharta Abhiyan (DISHA) or National Digital Literacy Mission (NDLM) Scheme has been formulated to impart IT training to 52.5 lakh persons, including Anganwadi and ASHA workers and authorised ration dealers in all the States/UTs across the country so that the non-IT literate citizens are trained to become IT literate so as to enable them to actively and effectively participate in the democratic and developmental process and also enhance their livelihood. |
| 8. Rashtriya Gram Swaraj Abhiyan – Rs. 655 crore. | The scheme will help Panchayat Raj Institutions deliver Sustainable Development Goals. |
| 9. Pradhan Mantri Grameen Sadak Yojana – Allocation of Rs. 27,000 crore. | The increase in allocation will help better connectivity of rural areas and better and efficient movement of farm produce thereby helping the farmers. |
Excerpt 3: Social Structure including Healthcare
Protecting and Empowering the Vulnerable
| Initiatives | Comments |
| 1. LPG connection to all BPL families | The ambitious provision of LPG connections to all is quite revolutionary for its health, gender justice and aspirational effects, though its political-economy effects on the subsidy bill will become clear over the next few years. It goes to great lengths to reverse the government’s pro-corporate image.
Despite all the rhetoric about providing health insurance for all the allocation to the ministry of health and family welfare has increased by a paltry Rs.4,240 crore, barely enough to keep the amount at the same abysmally low level of 0.24% of GDP (gross domestic product). The allocation for the Integrated Child Development Services programme (which is still not universalized) has actually been cut in nominal terms, fromRs.15,394 crore to Rs.14,000 crore. As states are struggling to find ways of even paying the anganwadi workers and helpers who are the backbone of the programme, it is terrible to think what will happen if such a stringent cut is actually implemented. Arun Jaitley proudly declared that he has increased the Mahatma Gandhi National Rural Employment Guarantee Scheme allocation to the highest ever level of Rs.38,500 crore—but that is false, as the spending under this head reached Rs.38,552 crore in 2013-14. At only 0.25% of GDP, this would also be much lower than the 0.59% that was achieved in 2009-10. And this also conceals the arrears that must be paid by the centre for this programme. As many as 21 states are still waiting for the money they have already spent that the central government has yet to pay them for the current year, so the final allocation will be around Rs.6,500 crore less if that is accounted for. |
| 2. New health Protection Scheme – Cover of Rs. 1,00,000. | |
| 3. Prime Minister Jan Ausadhi Yojana – 3000 stores to be opened. | |
| 4. National Dialysis Services Programme in PPP mode | |
| 5. Stand Up India – 2 projects per bank branch to benefit 2.5 lakh entrepreneurs | |
| 6. National Schedule Caste and Schedule Tribe Hub in partnership with industry associations |
Excerpt 4: Education
Unprecedented Focus on Quality of Education
| Initiatives | Comments |
| 1. Higher Education Fiancing Agency – Initial Capital Base – Rs. 1,000 crore. | Allocations for school education have increased by a minuscule Rs.1,367 crore, hardly sufficient to ensure the much-needed expansion and universalization of good quality secondary education. Meanwhile, the current government anger at universities seems to be reflected in its purse strings, as the budget of the University Grants Commission has been slashed to less than half of the current year’s spending, from Rs.9,315 crore to only Rs.4,492 crore. |
| 2. Digital Depository of Educational Certificates | |
| 3. 62 new Navodaya Vidyalaya to be opened | |
| 4. Increased allocation to Sarva Shiksha Abhiyan – better quality of education | |
| 5. Regulatory architecture to 10 private and 10 public institutions – to emerge as world – class Teaching and Research Institutions |
Excerpt 5: Skill and Job Creation
Better Skill, More Opportunities and More Jobs
| Initiatives | Comments |
|
Skill Development |
|
| 1. 1500 multi skill training institutes to be opened | The target is to move people out of entitlement and provide them skills so that they can be hired for skilled manufacturing jobs. |
| 2. National Board for Skill Development Certification to be setup in partnership with industry and academia | Government is serious about skill development and treat it as the top most priority. The government is trying to streamline the sector of skill education with the help of academia and industry. |
| 3. Entrepreneurship Education and Training – through online courses | |
|
Job Creation |
|
| 1. GoI will pay contribution of 8.33% for of all new employees enrolling in EPFO for the first three years of their employment | |
| 2. 100 Model Career Centres to operational by the end of 2016-17 under National Career Service. | |
| 3. Model Shops and Establishments Bill to be circulated to States | |
Excerpt 6: Infrastructure and Investment
Enhanced Efficiency and Quality of Life
|
Initiatives |
Comments |
| 1. 70 stalled projects covering 8,300 Kms to be revived | The focus on improved infrastructure through network of roads, rail, ports and airports will provide impetus for enhanced growth and in turn, generate employment. Targeted focus on affordable housing with tax exemptions for developers and individuals will auger well for the sector.
Manish Agarwal, Partner and Leader – Infrastructure, PwC India feels that several more initiatives were expected for infrastructure, particularly on implementation of Kelkar Committee recommendations to revive private investment. C. Sasidhar – Managing Director, Krishnapatnam Port Company Limited, believes that the Budget reflects a very promising infrastructure and investment push with increased budgetary allocation for key infrastructure areas such as roads, railways and ports. The limited focus on the National Investment and Infrastructure Fund for funding investments is another key disappointment. |
| 2. Record 10,000 kms of highways to be approved in 2016 – 17 | |
| 3. Total investment in roads including PMGSY – Rs. 97,000 crore | |
| 4. Opening up road transport by removing permits in passenger transport segment | |
| 5. Calibrated marketing freedom in order to incentivise gas production from deep-water, ultra-deep-water and high pressure-high temperature areas | |
| 6. 100% FDI to be allowed through FIPB route in marketing of food products produced and manufactured in India | |
| 7. 100% FDI to be allowed through FIPB route in marketing of food products produced and manufactured in India | |
| 8. Reforms in FDI policy in the areas of Insurance and Pension, Asset Reconstruction Companies, Stock Exchanges | |
| 9. Steps to revitalise Public Private Partnership (PPP)
§ Public Utility (resolution of disputes) bill § Guidelines for renegotiation of PPP concession agreements § New credit rating system for infrastructure projects |
Excerpt 7: Financial Sector Reforms
Building Trust Improving Predictability
| Initiatives |
Comments |
| 1. Comprehensive Code on Resolution of Financial Firms to be introduced. | Analysts were disappointed that the government had not increased the amount for capital infusion in public sector banks. Since bad loans have increased substantially in Oct-Dec quarter, following the Asset Quality Review of RBI, and expected to go up further, bankers expected between Rs.10,000 crore to Rs.15,000 crore additional capital infusion in 2016-17.
The budget disappoints with its allocation of a meagre Rs.25,000 crore for recapitalizing banks. That works out to less than $4 billion when the total stressed assets (including unrecognized stressed assets) could be close to $200 billion. The Rs 25,000 crore provided for the capitalisation of public-sector banks in this financial year is woefully inadequate. In the next five years, PSBs will require several multiples of this amount to be able to meet the capital requirements of Basel III. Another key announcement that is worrisome in this context relates to the consolidation of PSBs. As we have witnessed with the merger of Indian Airlines and Air India, bunching up two large and struggling PSUs only serves to exacerbate problems for the merged entity. Consolidating PSBs without first empowering the boards of these banks would create more costs for the financial system than benefits. The fact is that the banking sector is sliding fast, threatening to take the ongoing industrial slowdown into its second stage and converting it into a macroeconomic crisis that will pervade the real and the financial side. Already, the currency and equity markets have been affected. Given the current state of the banking sector in terms of asset quality and capitalization, it would have been ideal had the funding not only been hiked but also front-loaded as the deadline set for cleaning up of balance sheets is March 2017. |
| 2. Statutory basis for a Monetary Policy framework and a Monetary Policy Committee through the Finance Bill 2016 | |
| 3. Deepening of corporate bond market | |
| 4. Financial Data Management Centre to be set up for data aggregation and analysis. | |
| 5. Amendments in the SARFAESI Act 2002 to enable the sponsor of an ARC to hold up to 100% stake in the ARC and permit non institutional investors to invest in Securitization Receipts | |
| 6. Comprehensive Central Legislation to be bought to deal with the menace of illicit deposit taking schemes | |
| 7. Roadmap for consolidation of Public Sector Banks – Allocation of Rs. 25,000 crore towards recapitalisation of the PSBs. | |
| 8. General Insurance Companies owned by the Government to be listed in the stock exchanges |
Excerpt 8: Governance and Ease of Doing Business
Minimum Government and Maximum Governance
| Initatives |
Comments |
| 1. Introduce DBT on pilot basis for fertilizer | Where the budget has disappointed is the lack of any bold move to rationalise the biggest resource guzzlers — food and fertiliser subsidies (more than Rs 2,00,000 crore, plus more than Rs 1,00,000 crore of pending bills). That’s where the biggest scope for savings was. The budget stopped at just doing some pilots in fertiliser subsidy for DBT — not enough to make much difference to the farm sector.
Providing a legal framework for the Aadhaar platform, which will help to ensure that subsidies are directed to the needy. Fertiliser and electricity subsidies together amount to 1.6 per cent of the GDP, much of which leaks abroad or to non-agricultural uses, or goes to inefficient producers, or to firms given the exclusive privilege to import. |
| 2. Creating a social security – bill for targeted delivery of subsidies, benefits and services using Aadhar framework | |
| 3. Automation facilities in 3 lakh fair price shop by March 2017 | |
| 4. Amendments in Companies Act to improve enabling environment for start-ups. | |
| 5. Price Stabilisation Fund with a corpus of ` 900 crore to help maintain stable prices of Pulses | |
| 6. “Ek Bharat Shreshtha Bharat” | Launched to link States and Districts in an annual programme that connects people through exchanges in areas of language, trade, culture, travel and tourism |
| 7. Nationwide rollout of ATMs and Micro ATMs through postal network | |
| 8. Task force – for rationalisation of human resources in all ministries. Comprehensive review and rationalisation of Autonomous Bodies. |
Excerpt 9: Fiscal Discipline
Boosting Growth while Ensuring Fiscal Prudence
|
Initiatives |
Comments |
| 1. Fiscal Deficit in 2016 – 17 – at 3.5% | Budget for 2016 was framed in the backdrop of a debate on whether to stick to deficit targets set under the Fiscal Responsibility and Budget Management Act or go for enhanced public investments to counter the ongoing economic slowdown.
Despite higher expenditure owing to the 7th Central Pay Commission and the one rank one pension norm for defence forces, the Finance Minister chose to stick to the fiscal consolidation road map he outlined last year and set a 3.5 per cent of GDP target for 2016-17. Chief Economic Adviser Arvind Subramanian said that though the fiscal deficit targets have been retained, the Finance Minister has ‘done magic as the fiscal consolidation planned will not divert from the aggregate demand in the economy.’ The bond markets have welcomed the move, as seen in yields for 10-year paper falling in response to a lower-than-expected gross market borrowing by the Centre. The need of the hour is a rate cut. And for that, we needed an announcement of sticking to the path of fiscal consolidation. it will now give Reserve Bank of India Governor Raghuram Rajan just the required monetary space to undertake a reduction in interest rates that the economy desperately requires today. This also implies that the government is not actively pursuing any significant fiscal stimulus through public investment. A substantial reduction in the subsidy provisions would have helped the government’s resolve to curtail public expenditure. The political cycle and proximity of State and General Elections may not present such an opportunity again. The decision to stick to fiscal consolidation appears laudable, but is dependent more on optimistic assumptions regarding nominal GDP growth and reduction in capital expenditure relative to GDP. With international scope limited for exports, therefore, what was required of this Budget was a direction to the economy in terms of generating demand domestically by increasing public spending and investments, which in turn would generate employment for the fast-growing unemployed youth population of this country. This Budget does little or nothing on that count. A Budget in such difficult times should address the problem of a slowdown squarely. It can do it in two ways: directly by injecting demand into the economy; and indirectly by creating opportunities for other sources of demand to pick up. Big business and the media want the government to do the latter and not the former, whereas a pro-people government will push for the first. The strange thing about this Budget is that it does neither. There are broadly five sources of demand in an economy: consumption by the poor, consumption by the rich, private investment, fiscal deficit and trade surplus. A gloomy external sector means the last source is not available. While a rise in the fiscal deficit directly increases the profits as well as wages in the economy, thereby pushing demand up, it indirectly increases private investment. |
| 2. Committee to be setup to review implementation of FRBM Act | |
| 3. Every scheme – to have a sunset date (expiry date) and outcome review | |
| 4. Done away with Plan and Non Plan classification of expenditure from 2017 – 18. |
Excerpt 10: Tax Reforms
Moving Towards a Simplified Tax Regime
|
Initiatives |
Comments |
|
Individuals |
|
| 1. Tax rebate under section under 87 A from Rs. 2,000 to Rs. 5,000 for income bracket upto Rs. 5 lakhs | Finance Minister Arun Jaitley raised the tax surcharge on the super-rich, but used a googly to sneak in an unkind cut for the salaried class, whose retirement savings are parked in the Employees’ Provident Fund (EPF).
The odd changes in taxation provisions for future provident fund withdrawals make it a budget hostile to the middle class. The impact of this will be felt by the higher income groups because their contributions will be taxed at the time they are made as well as when they are withdrawn. This will impact everybody who is not an excluded employee and makes a withdrawal from these schemes, but will doubly impact higher income groups who contribute more than Rs. 1.5 lakh to PF and/or superannuation. This has been rolled back since then. The proposed exemption for a one-time portability from a recognised provident fund or superannuation fund to the National Pension System will greatly benefit employees. At the moment, employees have their savings in several different pots. This allowance of portability of funds will mean that employees can have all their funds in a single scheme which would mean that the rate of return could then be applied to a much larger corpus of funds. The government has announced tax changes that raise more revenue for it by way of indirect taxes than direct taxes. This continues the legacy of regressive taxation. |
| 2. 60 % of the PPF amount withdrawn after retirement will be taxed. | |
| 3. Increase the limit of deduction of rent paid from Rs. 24,000 p.a to Rs. 60,000 p.a | |
|
Boost Employment and Growth |
|
| 1. Roadmap to reduce corporate tax while phasing out tax exemptions | For 2016-17, the Finance Minister has promised to bring fiscal deficit down to 3.5 per cent primarily through a 20 per cent increase in indirect taxes and as much as 39 per cent in excise duties. This is ominous in itself since govt is tightening the screws whereas what the economy needs is its loosening.
There is another problem an increase in indirect taxes brings to the table: inflation. The fact that the economy is not witnessing high inflation today is not because of any prudent monetary policy but because the oil prices are at a real low — that might not be the permanent state of affairs in the coming year. If the oil prices go up, with these hiked indirect tax rates, inflation might hit through the roof. The retrospective tax was not repealed. The reduction in the corporate tax rate did not take place as promised. |
| 2. 13 cesses levied by different ministries to be abolished | |
| 3. Tax relief for MSME sector | |
Excerpt 11: Environment
|
Initiatives |
Comments |
| 1. Additional Cess on Coals (doubled) | Expand the scope of the fund for broader environmental purposes and accordingly given it a new name—the clean environment cess
Boosts India’s efforts to disincentivize fossil fuel-based energy, it also raises a pertinent question about the utilization of already accumulated funds under the original National Clean Energy Fund (NCEF) |
| 2. Taxes on Cars | |
| 3. Renewable energy allocation – Rs. 4,000 crores for solar energy and Rs. 400 Crore for wind energy | 3% of the budget for MNRE has been marked for publicity and awareness generation, which is crucial if the government increasingly promotes rooftop solar systems in residential and commercial buildings.
New programmes to be funded through this project include a programme on energy storage and another on biofuels, as well as new and innovative projects like the National University of Renewable Energy and a World Renewable Energy Museum. |
| The government has also exempted solar lamps and improved cookstoves from excise duty | Direct saving of the order of 12.5% on the appliance cost |
| The introduction of an infrastructure cess on private cars has brought the problem of traffic congestion and air pollution to the forefront. | A more appropriate approach could have been a recurring annual tax towards the use of private cars, to manage both pollution and traffic.
The budget missed another opportunity to attend to the management of waste water |
View: Resource efficiency has to be the foundational mantra for any budgetary exercise. But India has to be efficient with both financial as well as its natural resources. Ultimately, programme design has to weave in appropriate pricing of natural capital and resources. Without this, distortions continue in energy, water and other markets, resource use remains inefficient, the poor remain deprived, and the vulnerable face the brunt of our collective resource profligacy.
For all the grand commitments that India made at the Paris climate summit what is missing in this budget is a conscious transition to a low-carbon economy
Here is what is missing—any mention of allocation of funds for the protection of India’s large swathes of existing forests, lakes, wetlands and water resources or the biodiversity found in them as these are the drivers of the nation’s economic growth and health.
We need a green protection fund which could be used to protect existing forest belts, let our rivers flow free of garbage and sludge, provide front-line forest protection staff with better equipment, and better protect our rich biodiversity.
Excerpt 12: Black Money
| Initiatives |
Comments |
| A new scheme under which those with undisclosed income and assets located in India can come clean by paying a tax of 45%. Unlike a scheme giving opportunity to those with undisclosed foreign assets to come clean, which is largely seen to have failed, this plan provides immunity from prosecution. As per the scheme, anyone who is non-compliant can come clean by paying tax at 30%, a surcharge of 7.5% plus penalty of 7.5%, taking it to a total tax rate of 45%.
|
Nobody quite knows just how much black money is sloshing around in the domestic economy. But the last time the Indian government gave a general amnesty from prosecution in 1997, it collected $2.56 billion, or 0.6% of GDP. A similar mop-up today could fetch $13 billion. The take-up this time might be somewhat lower because Jaitley is calling for a 45% levy on money that’s been squirreled away illegally into real estate or converted into gold bars. In 1997, the tax rate on voluntary disclosure was a more “reasonable”’ 30%.
Even if the government collects, say, $10 billion, it would still free the other 55% of below-the-radar wealth, or $12 billion, from the need to hide outside of the banking system. Including both the government’s share and what tax offenders get to keep, a fresh $22 billion could potentially get credited into bank accounts. Something similar happened in 1997. Deposits in the Indian banking system rose by 19% and swelled by another 21% the next year even though GDP growth slowed because of the Asian financial crisis. For those two years, deposit growth was four times economic expansion, a ratio that hasn’t been surpassed since. A repeat performance could give banks the chance to earn some badly needed profit. After setting aside 25.5% for reserve and liquidity requirements, the resulting new cash will be lent out, and ultimately become a deposit at another bank. If the process repeats just twice more, there could be an increase of more than $37 billion in loans. And since India’s lenders currently earn a net interest margin of 2.6% in aggregate, that could mean about $1 billion in extra earnings.
|
Excerpt 13: Miscellaneous
| Initiatives |
Comments |
| 1. Exemption of service tax on services provided under Skill Development Programme | |
| 2. Exemption of Service tax on general insurance services provided under
‘Niramaya’ Health Insurance Scheme launched by National Trust for the Welfare of Persons with Autism, Cerebral Palsy, Mental Retardation and Multiple Disability |
Conclusion:
From a macroeconomic perspective, Jaitley faced three key challenges:
- First, under-consumption in the rural sector;
- Second, under-investment in the urban corporate sector, especially in a downbeat global economy; and
- Third, leverage in the banking system, which is threatening to convert real side sluggishness into a banking and financial sector crisis.
While the issue of rural under-consumption has been adequately addressed directly, it is hoped that the under-investment crisis will be addressed indirectly through rural stimulation, which is contestable. By trying to build a consumerist rural economy without a corresponding investing “urban” sector is flawed. Rural demand may drive overall aggregate demand, but its structure and composition need not match the investment needs of the economy and that can derail this budget very easily. The third challenge has been left unaddressed.
We’ve already achieved high growth. GDP growth has now accelerated to 7.6 per cent.. We are growing faster than China or anyone else. Mission accomplished! Now we can turn our focus away from growth to redistribution. The redistribution should be done better, with lower leakages and improved targeting. Money should go to the poor and to farmers. More taxes and more transfers can reduce distress. That is why the focus of the budget is not on reviving investment and growth.
Regardless of what the GDP numbers say, however much they point upwards, almost everything tells us that the economy is looking down. Unless we acknowledge that there is a problem of slow growth and low investment, we do not worry about how to solve it. Perhaps that is why the budget did not focus on investment revival.
To sum up, this is a budget for the social economy. The social economy, in the context of the budget, refers to financial allocations and economics embodying the principles of improving service delivery to citizens and the democratization of the expenditure decision-making processes.
Leave a Reply