The budget for the financial year
2016-17 which was presented by the honorable finance minister Mr. Arun Jaitley on
February 29 was properly balanced between growth and fiscal discipline. The main
focus of the budget was on three major sectors - rural sector, social sector
and infrastructure sector. It was a budget for Rural India – for the upliftment
of the underprivileged and marginalized section of people. According to
experts, the concept of inclusiveness was first tried and tested by the
congress led UPA government. The idea was brilliant but unfortunately over the
period of time the focus was turned to more of populist ideology. The latest budget
tried to provide an enabling environment which can empower rural economy
thereby bringing back the same concept of inclusiveness.
The two major challenges faced by
the nation in the past couple of years are; first - the squeeze in the rural
consumption because of the two back to back below normal monsoons and second - the
corporate under investments. By giving a push to the rural sector and directly
addressing the problem of rural consumption, budget also indirectly addresses
the problem of corporate under investments.
The following are the major
announcements and observations from the budget.
On the agricultural and farmer’s
welfare front, the government has been allocated a total of 35984 crores and ensured
that proper steps will be taken to double the income of farmers by 2022. Special
focus has been given to irrigation, crop insurance scheme, organic farming
through Paramparagat Krishi Vikas Yojana, building of compost pits and farm
ponds using the MGNREGA scheme and building a common e-market platform to boost
the income of farmers.
One of the path-breaking
initiatives in the budget as far as the rural sector is concerned; will be the
allocation of 2.87 lakh crores to gram panchayaths and municipalities as per the
recommendations of 14th finance commission. This devolution of power
can radically change the existing political regime and can give a fillip to the
local self-governance initiatives.
Other major announcements for the
rural sector were - allocation of 38500 crores for MGNREGS for 2016-17,
development of 300 Rurban clusters under the Shyama Prasad Mukhajee Rurban
Mission, 100 percent electrification by 2018 and emphasis on digital literacy
through Digital Literacy Mission. The DBT scheme will be extended to provide
fertilizer subsidies. This can create tremendous impact and help the government
to effectively address the issue of leakages in the system.
The major announcement made in
the social sector was the announcement to provide LPG gas connections to poor households
in the name of women members. This can benefit 1.5 crores of households in the
BPL category. Apart from that the government also announced to start National
Dialysis Services Program and has been allocated 500 crores to stand up India initiative
which promotes entrepreneurship among SC, ST and women.
The government has earmarked 1700
crores for the skill development program through the Pradhan Mantri Kaushal
Vikas Yojana. Other important announcements in the education sector were – transforming
ten public and ten private institutions into world class research and
development centres and the establishment of digital depository to keep the
academic certificates.
Another thrust area of the budget
was infrastructure especially the development of roads and highways. The total
allocation towards this was a whopping 97000 crore including Pradhan Mantri
Gram Sadak Yojana initiative.
On the financial sector front, the
primary focus of the government was to restore the credit growth and strengthen
the existing regulatory framework for medium to long run sustainable growth.
Key initiatives observed are - amendment of RBI act to include monetary policy
committee (The interest rate decisions will be taken by a six member committee,
three from RBI side and three from government side with the governor having a
casting vote in case of a tie.), enactment of insolvency and bankruptcy code, making
the Asset Restructuring Companies to hold 100 percent stake to address the stressed
assets issue by modifying the SARFAESI act and amendment of Sebi act to include
more benches in the Security Appellate Tribunal to resolve the litigations quickly.
The capitalization plan to the
public sector banks remains unchanged at 25000 crores which was a
disappointment. But at the same time it has been assured in the budget those
other plans such as Indradhanush and the bank board bureau will be in focus for
2016-17. Government is also considering the option of reducing the stake of
PSBs to less than 50 percent.
The fiscal deficit target for the
2015-16 remained at 3.9 percent as per the revised estimates and the projected
fiscal deficit target for 2016-17 remained at 3.5 percent as per the budget
estimates. The government has taken a prudent step to contain the fiscal
deficit target within the comfortable range which can give the RBI more room to
cut rates. Another major announcement was to do away with the classification of
plan expenditure and non-plan expenditure from 2017-18 and the establishment of
committee to review the FRBM Act (Fiscal Responsibility and Budget Management) and
to suggest changes such as fixing fiscal
deficit target in a specific range.
The announcements made by the
finance minister on the personal tax front were focused on giving some relief
to the small tax payers at the same time taxing the well-off section in the
society more. The income tax slabs remain unchanged but the tax rebate for
individuals with income up to 5 lakhs has been increased to 5000 from 2000. The exemptions under section 80 C did not
witness any changes nevertheless the limit under section 80 GG has been
increased to 60000. Another major announcement which can have a significant
negative impact on salaried employees was on the tax treatment of provident
fund. The withdrawal which earlier was fully exempt from tax has been changed to
60 percent taxable for interest accrued from 2016-17. This has to be considered
as a move from the government side to shift from an EEE regime to EET regime as
per the findings provided in the latest economic survey.
Another interesting announcement
was the introduction of a limited period window (1st June to 30th
September 2016) for tax payers to disclose their undisclosed assets. It has
been assured in the budget speech that there will not be any further enquiry
and the persons will have immunity from prosecution.
In summary it was a budget for
Bharat – The Rural India. According to experts, the policies announced can
structurally change the future of rural and social economy. The key will be on
how the government transforms the promises into reality.
Regards,
Harikrishnan
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