Budget 2016: A course correction in the right direction
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Finance minister Arun Jaitley has presented his third budget when the economic recovery is fragile, balance sheets are stressed and global economy is weak. The minister says in the opening para that amid global headwinds, the Indian economy has held its ground firmly, but at the same time, he is very much aware that risks loom large. Therefore, while putting more importance on agriculture and farm welfare, rural and social sectors, attempts are made to rejuvenate the rural demand which may spur the micro, small and medium enterprises sector to generate more employment.
Keeping a balance, the finance minister has also declared financial sector reforms to bring in transparency and stability and ease of doing business and tax reforms being effected to reduce compliance burden with faith in the citizenry.
After practically two years of being at the helm of affairs, the ruling party, I would say, has made a course correction, and that is in the right direction. Despite decades of industrial development, about 600 million Indians, or roughly half of the population, depend on growing crops or rearing animals to earn a living. The country still relies on imports of essential items, such as pulses and cooking oil. Almost half of the average Indian household’s expenditure is on food, an important factor behind inflation. Food security at the micro level remains elusive.
Rural incomes are not adequate and low productivity is a chronic problem because of the shrinking size of cultivated plots. It has been estimated that unless the agri-sector takes off to 9.4% plus growth trajectory, the possibility of reducing poverty in a significant manner and within a short time frame is slender. In this budget, attempts have been made for reforming agriculture which revolve around investment, incentive and institutions. The allocation for agriculture and farmers’ welfare is Rs.35,984 crore.
Greater stress has been put on optimal utilization of our water resources. As only 46% out of the 144 million hectares (ha) of net cultivated area in the country is irrigated, an attempt is made to create new infrastructure for irrigation. The Pradhan Mantri Krishi Sinchai Yojana been converted to mission mode and 28.5 lakh hectares is estimated to be brought under irrigation under this scheme. Eighty-nine irrigation projects under the accelerated irrigation benefits programme which have been languishing will be fast-tracked, says the finance minister. It is expected to irrigate 80.6 ha.
The finance minister says these projects require Rs.17,000 crore next year and another Rs.86,500 crore in the next five years. But we are surprised to find only Rs.5,700 crore for the whole country. For a realistic comparison, Odisha state budget for water resources last year was more than Rs.6,500 crore. So, what to make out of the assurance that 23 of these projects will be completed before 31 March 2017?
Along with this, a dedicated long-term irrigation fund being created in NABARD and a provision of Rs.12,517 crore has been made through budgetary support and market borrowings in 2016-17.
Some weeks ago, the prime minister announced an improved crop insurance scheme. This has also found place in this budget. The finance minister had earlier promised farmers improved crop insurance. This could be an effective crop insurance programme which could mitigate risks faced by farmers. This is actually the first line of defence for farmers and also enables the National Democratic Alliance government to carry out long-term agricultural reforms without being distracted by the fallout of natural calamities. One is aware that attempts to craft a crop insurance package are over four decades old. As it was done in a casual way, that resulted in low penetration. Any financial product that is poorly designed is bound to fail.
Therefore, the Pradhan Mantri Fasal Bima Yojana is expected to protect the farmers from adverse consequences of nature. The best part of it is farmers will pay a nominal amount of insurance premium and get the highest-ever compensation in the event of any loss suffered.
The finance minister stated in the beginning that his wish is to enhance expenditure in the farm and rural sector, social sector, the infrastructure sector and provide for recapitalization of banks. Banks’ third quarter results have made it impossible to ignore the fact that public sector banks have been hiding potential bad loans for far too long. More bad debt is expected in the March quarter and there could also be further slippages, spelling further gloom for public sector banks.
The finance minister has very rightly recognized the need for financial sector reforms to bring in confidence in the market. He indicated the RBI Act 1934 will be amended to provide statutory basis for a monetary policy framework and that is reflected in the Finance Bill, 2016. The Code on Resolution of Financial Firms, together with the Insolvency and Bankruptcy Code, 2015, when enacted, will provide comprehensive resolution mechanism.
To revamp public sector banks, the finance minister has allocated Rs.25,000 crore with an assurance that if additional capital is required, it would be provided. The best part of the budget speech was the recognition of the problem relating to stressed assets. The minister has committed himself to strengthen the infrastructure of debt recovery tribunals, including computerized processing of court cases to support reduction in the number of hearings and faster disposal.
In the budget for 2016-17, the total expenditure projected is Rs.19.78 trillion. The increase in plan allocation is 15.3% over current year’s budget estimate. There has been only a marginal increase for women and child development and minority affairs but substantial increase in agriculture and farmers’ welfare, drinking water and sanitation, housing and urban poverty alleviation, human resources development, new and renewal energy, road transport and highways, rural development and urban development. This demonstrates the priorities of this government.
The finance minister recognized the risks of fiscal expansion when credibility is important in a risky global economy. The sharp decline in nominal gross domestic product growth creates new debt sustainability challenges. The budget has tried to do a fine balancing act. Attempt is made to invest in the farm and rural economy which will generate demand and, thereby, micro, small and medium enterprises sector will reap the benefit.
I will be failing in my duty if I do not mention about the tax devolution the centre makes to the states. The net tax revenue to the centre has been projected to increase by about 3% from Rs.9.20 trillion in budget estimate 2015-16 to Rs.9.48 trillion in revised estimates 2015-16, whereas tax devolution to the states has gone down 3.5% in the revised estimates. I would say the centre is depriving the states of their share through levy of cess and surcharge, which do not form a part of the sharable pool. Depriving the states of their legitimate share is rather unfair.
Bhartruhari Mahtab is Biju Janata Dal MP.