By Akhilesh Tilotia, Kotak Institutional Equities
Budget 2016: The government has stuck to its promise by maintaining the trajectory of the fiscal deficit and its word shall now be valued for its commitment. The prime minister is also making good on his word to the poor: they have first right on the treasury of India. The Budget, hence, represents a balance between the commitment of the prime minister to the citizens of the country and the commitment of the finance minister to financial markets, investors and global credit rating agencies.
The first four of the nine pillars of the Budget focus on agriculture, rural, social sector and skill development. Building more roads in villages (Rs 27,000 crore of investment), more storage capacity (~10 million tonne), irrigation infrastructure (Rs 86,500 crore over five years) and better crop insurance schemes and coverage show strong commitment to farmers and agriculture.
Gram Panchayats and municipalities will now receive almost Rs 3 trillion a year, up 3X. MGNREGA, a rural unemployment insurance scheme, has seen higher allocation and a new health insurance scheme has been announced for economically weaker families.
The numbers of the fiscal promise will need to add up to support the promise to the citizens. The 3.5% fiscal deficit to GDP ratio for FY17 embeds assumptions that need stress-testing.
The government expects to receive large monies from the telecom sector (Rs 99,000 crore) and disinvestment (or, the newly-named Department of Investment and Public Asset Management, Rs 56,500 crore), both of which may fall short.
The government appears to have under-provided for the 7CPC payouts in its expenditure plan. The overall growth in capex spends appear low at 3.9% y-o-y: this may require a fillip to kick-start the capital cycle. The increase in excise duties budgeted seems to be low — perhaps the government is hoping to reverse some of the excise increases in oil in the course of the year.
Any government has as its core agenda the mandate to promote and sustain harmony in its polity, however complex. To deliver on promises to the poor and make the fiscal math work, the rich have been required to chip in. New terms like Krishi Kalyan cess on service taxes, infrastructure cess on vehicles, 10% tax on dividend income over Rs 10 lakh have now entered our lexicon along with an increase in the surcharge on incomes of the super-rich. Social equity is a cherished and worthy goal, between here and there, there are miles to go and no time to sleep.