A ‘People’s Budget’ to Spur Inclusive Economic Growth

Budget 2016 can be described as a ‘people’s budget’ that is aimed at spurring inclusive economic growth through measures that will drive rural development, relieve agricultural stress and boost farmers’ welfare. The Budget however has missed out on outlining innovative policies to spur India’s manufacturing sector to drive growth at a time when the economic scenario appears challenging, both externally and internally.

Macroeconomic Impact

Sticking to the fiscal deficit target of 3.5% for FY17 leaves room for the RBI to cut interest rates and ease balance sheet pressures in the financial sector. However, the allocation for recapitalization of public sector banks in the Budget appears inadequate to help them manage their non-performing assets (NPAs), which stood at around Rs 4 lakh crore as on December 31, 2015.

Impact on Social Sector

Rural Economy

Budget 2016 has focused on raising rural prosperity through giving agriculture and rural development a fillip. The much needed allocation to road connectivity to the rural hinterland coupled with fiscal support to relieve farmer stress is expected to boost the rural economy.

It’s definitely a step in the right direction as the rural economy badly needs a boost especially after two successive droughts. The measures could revive rural demand to stimulate overall economic growth.

The use of the Aadhar platform for Direct Benefit Transfer for LPG and Fertiliser subsidies will help rural stakeholders, as it will ensure that benefits of government subsidies directly reach the needy.

Moreover, the decision to allocate Rs 2,000 crore in the Budget for providing cooking gas connection to women members of poor households is a constructive measure towards empowering women and protecting their health.

Healthcare

For addressing the country’s healthcare challenges, the government has announced a new health protection scheme that provides health insurance coverage of up to Rs.1 lakh per family and an additional top-up package of up to Rs. 30,000 for senior citizens belonging to poor and economically weak families. It has also announced a National Dialysis Services program and the opening of 3,000 stores under Prime Minister’s Jan Aushadhi Yojana in FY17. While these initiatives are good they are still woefully short of the kind of investment needed to provide affordable healthcare to patients in a country that ranks among the lowest public spenders on healthcare in the world.

Education

The Budget has taken some good steps to improve the quality of higher education in the country. The Budget proposes to create an enabling regulatory architecture for creating world-class teaching and research institutions. It has also envisaged a Higher Education Financing Agency (HEFA) with an initial capital base of Rs 1,000 crore to fund infrastructural upgrades in our top institutions.

Impact on Common Man

The salaried and small tax paying business community are also beneficiaries of this Budget with several tax deductions expected to put more disposable income in the hands of the Aam Admi and thereby boost domestic consumption. E.g., First–time home buyers can now claim an additional deduction of Rs 50,000 on interest paid on home loan. However, the retirement benefit of withdrawal from PF corpus is now partially taxable, which is not good news.

Impact on Corporate Sector

The Budget has been below the expectations of the corporate sector.

Ease of Doing Business

In this Budget, there is no specific direction on ease of doing business, which is critical to encourage investments in manufacturing to support the ‘Make in India’ agenda.

The rules and regulations pertaining to land, environment and others at both State and Central levels need to be aligned.

Boost to Manufacturing

There has been no incentive to boost the manufacturing sector that leads to real job creation apart from an offer of a 25% tax rate for new projects, which is grossly inadequate.

Infrastructure Creation

The Budget allocation of Rs 2.2 lakh crore for infrastructure is a welcome move. However, success will depend on the effective utilization of these funds during the year.

Encouraging Start-ups

To give a leg-up to start-ups, the Budget is offering a three-year tax holiday for start-ups set up during April 2016 to March 2019. This is a good beginning, but a lot needs to be done to realize the full benefits that start-ups can bring to an economy like ours.

Skill Development

The Budget proposes to set up 1,500 Multi Skill Training Institutes across the country and a National Board for Skill Development Certification in partnership with the industry and academia. This is a long awaited, positive development for the youth of India. It also aims to provide Entrepreneurship Education and Training through Massive Open Online Courses (MOOCs). These measures lay a strong foundation for skilling 1 crore Indian youth over the next three years.

Impact on Science & Technology

The promising Biotechnology sector has been totally excluded as the Budget failed to make any provisions for the funding needs of the industry. The weighted deduction for expenditure on Scientific Research is being reduced to 150% from 200% currently, which does not augur well for future of innovation in the country. The only compensating factor has been the introduction of a Patent Box regime that levies a low 10% tax rate on income accruing from IP.

Conclusion

Going by what Budget 2016 has to say, Modinomics is no longer about wealth creation by India Inc. but about Jan Dhan and rural prosperity to drive inclusive economic growth.