The Finance Minister may have been inspired by Gandhiji’s idea of rural ‘Bharat’ while planning the budget. India recorded their highest ever foreign reserves at $350 billion besides attaining a growth rate of 7.6% in 2015-16. Finance Minister Jaitley had his task cut out: to maintain macroeconomic stability while boosting domestic demand. He delivered by managing to increase expenditure especially in the rural and infrastructure sectors without compromising the fiscal deficit target and also accounting for OROP and 7th Pay Commission. Following Adam Smith’s canon of equity, he raised the taxes for the rich in order to distribute taxes equitably in relation to the tax payers’ ability.
| No. | Deficit (%) | Budget 2015-16 | Budget 2016-17 |
| 1 | Fiscal | 3.9 | 3.5 |
| 2 | Revenue | 2.8 | 2.5 |
| Expenditure (Lakh crores) | |||
| 1 | Total | 17.77 | 19.78 |
| 1a | Planned | 4.65 | 5.5 |
| 1b | Non-Planned | 13.12 | 14.28 |
With an objective to improve technology and governance, the government will invite bids from global players for the high value giant (BHEL, oil, defense sector) PSUs. Listing the profitable PSUs and four general insurance companies on the stock exchange and winding-up the
loss-making units is also the agenda. The disinvestment targets were corrected after the Government fell miserably short last year.
A 3 year tax holiday for startups and a reduction of corporate tax to 29% for companies with revenue less than Rs 5 crores were the highlights given that the share of the MSME sector to the GDP is 37%. For manufacturing companies incorporated on or after 1/3/2016, the tax charged will be 25% sans exemptions.
To pave the way for the scheme of corporate tax 25% sans exemptions, the government will restrict the accelerated depreciation (the biggest exemption outflow: Rs 37,010 crores in
2014-15) to 40% from 1/4/2017. Also, deduction for research will be reduced to 150% from 1/4/2017 and to 100% from 1/4/2020.
AGRICULTURE
If India is to grow at 7-7.5%, agriculture must grow at 3% or more. Its growth rate dropping to 2% this fiscal besides the fact that it employs two-thirds of the country’s population meant that a special allocation (Rs 35,984 crores) was warranted.
| Category | Amount (Rs in crores) |
| Long Term Irrigation fund | 20,000 |
| Sustainable management of groundwater resources | 6,000 |
| Pradhan Mantri Gram Sadak Yojana (PMGSY) | 19,000 |
| Interest subvention | 15,000 |
| Prime Minister Fasal Bima Yojana (crop insurance) | 5,500 |
| Dairying products | 850 |
Management of water has gained significance as the Government has targeted to irrigate 28.5 Lakh hectares besides fast tracking 89 languishing irrigation projects (AIBP). A dedicated fund created in NABARD corroborates the point. The FM has allocated the resources judiciously by handing over the projects of 5 Lakh farm ponds and dug wells along with 10 Lakh compost pits to MGNREGA.
Conversion of fertilizer subsidy into DBT is another imperative change. Holistic investments were observed as the soil health card shall benefit 14 crore farm holdings while the e-platform provided opens new markets. Reduction of the loan burden will provide further relief to peasants.
RURAL (Allocation: Rs 87,765 crores)
Tractor sales, a barometer of economic activity in rural markets, plunged 15% last financial year. A low disposable income, a result of fall in the rural wage hike, leads to drastic fall in demand. Innovative pricing strategies fail to improve the inventory turnover as rural people reduce the frequency of consumption but do not downgrade their product choices. This is grave as rural India accounts for 46.9% of the economy. The Government modified its flat spending policy and provided Rs 2,87,000 crores as Grant in Aid to Gram Panchayats and Municipalities.
| Month | Rise in wages (%) |
| November 2014 | 11.1 |
| November 2015 | 4.3 |
While Rs 38,500 crores has been allotted to MGNREGA, the Deen Dayal Antodaya Mission will support skill development. Developing 300 Rurban clusters and covering 6 crore households under Digital Literacy Mission Scheme are revolutionary initiatives. However 100% village electrification is overdue and the Government was compelled to set a deadline of 1/5/2018 for it.
SOCIAL SECTOR INCLUDING HEALTHCARE
Health of the citizens gained prominence as each family received health cover up to Rs 1,00,000 with an additional Rs 30,000 top-up for senior citizens. Affordable medicines will be available to everyone as 3000 stores shall be opened during 2016-17 under Jan Aushadi scheme. Freeing the women of India from the curse of smoke was a prerequisite before we work towards women empowerment. Rs 2000 crores were allotted for providing LPG connections to BPL families. The ‘Stand up India’ scheme aims to help SC, ST and women entrepreneurs by providing support during the pre-loan stage and delivering sessions on problem solving and best practices giving the advocates of women empowerment ample reasons to cheer.
EDUCATION, SKILLS, JOB CREATION
| Rs in crores Allotted to | Budget 2015-16 | Budget 2016-17 |
| Department of School Education and Literacy | 42,186 | 43,554 |
| Department of Higher Education | 25,399 | 28,840 |
| Social sector including education and health care | 1,39,619 | 1,51,581 |
| Skill development | 1038 | 1804 |
Providing regulatory architecture to ten private and ten public institutions besides opening 62 new Navodaya Vidyalayas were the highpoints. Digital depositories for documents shall ease processes. Rs 1000 crores have been provided to the institutions to emerge as world class teaching institutions by building infrastructure and not just for research which is creditable. Disturbingly low learning outcomes indicate that India needs to invest in quality of education imparted. Half the students of class 5 cannot read text of class 2 level.
IMF claims that India can exploit their demographic advantage to increase their per capita GDP by 2% till 2033. Hence, it became the principal theme as Rs 1700 crores were allocated to the Pradhan Mantri Kaushal Vikas Yojana to train 1 crore youth over next 3 years by setting up 1500 multi-skill training institutes. Weighted deduction under 35CCD (skill development) shall continue till 1/4/2020. The Government shall contribute 8.33% towards EPF for the first 3 years of employment for everyone and has allocated Rs 1000 crores for the same.
INFRASTRUCTURE AND INVESTMENT (Allocation: Rs 2,21,246 crores to infrastructure)
| No. | Category | Thousand crore Rs |
| 1 | Roads (including rural and PMGSY) | 97 |
| 1a | PMGSY | 19 |
| 1b | Highways | 55 |
| 2 | Sagarmala project (port sector) | 8 |
Upgrading 50,000 km state highways to national highways besides authorizing 10,000 km national highways is the Government’s plan. Opening the road sector to passenger segment to enable entrepreneurs to operate buses on various routes required amendment of the Motor Vehicles Act. Increased public convenience, efficient transport, generation of jobs for youth due to investment in this sector and favorable economic multiplier effects will be the benefits.
The Government will tie-up with State Governments for reviving 160 airports as the projected cost is merely 50-100 crores per airport. For augmenting the investment in nuclear sector, calibrated marketing freedom shall be provided to incentivize gas production in deep-water and high-pressure-high-temperature regions. Expectations such as removal of excise duty on CNG and direct benefit transfer for kerosene subsidy remained unfulfilled. Discontinuing tax-holiday for production of mineral oil on and after 1/4/2017 is detrimental.
Policies to entice foreign investors will increase foreign reserves. Macroeconomic stability will increase as India will remain the fastest growing economy. Capturing the changing risk at different infrastructure project stages is critical and the new credit system will achieve it.
| Allowed Foreign investment in sectors | Earlier (%) | After Budget 2016 (%) |
| Insurance | 26 | 49 |
| Pensions | 26 | 49 |
| Asset Reconstruction Companies | 49 | 100 |
| Stock Exchanges | 5 | 15 |
| Central public sector enterprises | 24 | 49 |
FINANCIAL SECTOR REFORMS
A monetary policy committee guiding the interest rates will lead to transparency. RBI will provide access to NDS-OM trading platform to simplify retail participation in primary and secondary markets through stock exchanges.
Merging the banks being the Finance Minister’s objective, recapitalization is the intermediate step.
| Financial Year | Rs in crores provided towards recapitalization of banks |
| FY16 | 25,000 |
| FY17 | 25,000 |
| FY18 | 20,000 |
| FY19 | 20,000 |
Currently dealing only in futures, the commodity derivatives market is set to become lucrative as SEBI plans to introduce index-based products, options and weather derivatives. This will pave the entry for FPIs and banks into the segment by increasing the depth and liquidity.
By disbursing a cumulative 1 Lakh crores, Mudra scheme has already benefitted 2.5 crore borrowers. It will target Rs 1,80,000 crores disbursement to the MSME sector as it is the backbone of the economy. The policy of supporting the small players is reiterated by the increase in turnover limit under presumptive taxation.
| 44AD Presumptive Tax limit (Rs in Lakhs) | Earlier | Now |
| MSME sector | 100 | 200 |
| Professionals | NA | 50 |
OTHER ANNOUNCEMENTS
The deduction for HRA was increased from Rs 24,000 to Rs 60,000. The long-term capital gains period was changed from 3 years to 2 years. Changes were made in excise duty rates on certain inputs to reduce costs and improve competitiveness of domestic industries as a part of Make in India.
Affordable housing was promoted by providing 100% deduction on profits for flats (up to 30 sq. metres in 4 metros and up to 60 sq. metres in other cities) approved during June 2016 to March 2019. MAT however will apply. Deduction for additional interest of Rs 50,000 for loans up to Rs 35 lakhs, exemption from service tax on construction of affordable houses up to 60 sq. metres under any scheme and extension of excise duty exemption to ready mix concrete were some of the other benefits delivered.
A new scheme for voluntary disclosure of black money has been mooted. Surcharge collected under it will be used exclusively for agriculture. Infrastructure cess on small cars and TDS on luxury cars were some of the levies increased.
CONCLUSION
A budget is a policy statement addressing the needs of the economy and not a forecasted cash flow. India being a bright spot globally, it was crucial to maintain composure and deliver a budget that was fiscally responsible and futuristic. Though the middle class was discontented,
the tightening of the fiscal policy presented an opportunity to RBI to ease the monetary policy. Finance Minister’s vision for India coincides with Gandhiji’s and Bharat’s USP of incredible growth rates with impressive macroeconomic stability shall continue.
REFERENCES
http://economictimes.indiatimes.com/
http://www.hindustantimes.com/
http://timesofindia.indiatimes.com/budget-2016/
http://www.thehindu.com/business/budget/
http://www.business-standard.com/
http://www.financialexpress.com/
http://www.moneycontrol.com/news/economy/
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