Budget 2016: A fine balancing act

In a cleverly crafted budget, Finance Minister Arun Jaitley has attempted to work out a fine balance between politics, economic growth, social welfare,  and fiscal consolidation  amidst pressing economic circumstances created by the impending 7th Pay Commission recommendations, OROP payouts, poor rainfall of the last two years and a slowdown in the  world economy. How has the Indian economy performed in the last year or so?

Macroeconomic indicators reveal that despite adverse conditions, the economy has performed satisfactorily. The GDP growth has accelerated from 6.3 percent last year to 7.6 percent,  CPI inflation has declined to 5.4 percent from 9.4 percent, the Current Account deficit has come down from $18.4 billion to $14.4 in about a year and foreign exchange reserves have risen to a comfortable $350 billion.

In a sharp political opening to his Budget speech, Jaitley outlined specific policies and measures meant for agriculture and farmers welfare. By allocating about Rs 36000 crores for the farm sector, the Finance Minister(FM) affirmed the BJP government’s commitment to “double the income of farmers by 2022”. Given that still about 55 percent of the net cultivated land is rainfed and the Prime Minister’s emphasis on irrigation, the FM announced a big ticket Dedicated Irrigation Fund under NABARD worth Rs 20,000 crores. The aforesaid  corpus would give more teeth to  Narendra Modi’s irrigation scheme and significantly aid the process of bringing 28.5 lakh hectares under irrigation next year. Another mega announcement in the farm sector is the proposed launch of a unified e-marketing system beginning on April 14, 2016. This Rs 20,000 crore venture to be started from Ambedkar Jayanti this year would link farmers to e-marketing in a big way.

Further, the FM’s emphasis  on rural sector brought into sharper focus the political orientation of his Budget. By aiming to electrify all villages in the country by May 1, 2018, the government has gone all out to deliver a necessity and light up every village in the nation. Moreover, Rs 2.87 lakh crores of grants have been devolved to Panchayats  which translates into about an average sum of Rs 80 lakh per Panchayat; this is a staggering 228 percent rise over the amount recommended by the 13th Finance Commission. The BJP government’s commitment to continue MNREGA is visible as the highest ever money spent on MNREGA was in the year 2015-16;  for 2016-17  Rs 38,500 crores has been allocated to the flagship rural employment programme.

The government’s commitment to economic growth is evident from the Budget’s emphasis on infrastructure.  The total outlay for infrastructure  is pegged at Rs 2.21 lakh crores.  10,000 kms of national highways are to be completed in 2016-17 and 50,000 kms of state highways are to be converted to NH roads in 2016-17. Likewise, 160 airports and airstrips are to be revived and new Greenfield ports are also proposed to be developed in 2016-17. In the power sector, the government is drawing a plan for 15-20 years to augment nuclear power; Rs 3000 crores have been allotted for this.

Social welfare is also a theme which runs through this budget. The Rs 2000 crores cooking gas scheme for BPL families would provide them a big relief as it would minimise economic and health hassles for households which were hitherto using firewood. The Rs 500 crore start-up scheme for SC and ST businessmen would boost entrepreneurship among them, and the health cover scheme  up to Rs 1 lakh per family  with a top up of Rs 35000 for people above 60 years  and the proposed opening of 3000 medical stores to provide affordable generic medicines to the poor come as major health care reforms targeted at the lesser well-off sections.

Finally, the FM has also adhered to the fiscal consolidation roadmap as he proposes to  rein in the fiscal deficit to 3.5 percent of the GDP in 2016-17 as originally envisaged and has also achieved to restrict revenue deficit in the revised estimates for 2015-16 to as compared to the budgeted 2.5 percent. An economic upshot of this fiscal prudence is that the FM has now cleared the decks for the RBI to cut interest rates which could boost investment without risking inflation.