Budget 2016: Focus on demand side of growth

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Published: March 1, 2016 12:34:23 AM

The Budget has initiated measures aimed at doubling the incomes of the farming community

Finance minister Arun Jaitley has achieved the most difficult target of reducing the fiscal deficit to 3.5% in spite of the additional expenditure to be provided for, while at the same time reducing direct taxes and imposing indirect taxes on some luxury products.

This year’s Union Budget addresses the many problems of the farming community and initiates measures aimed at doubling their incomes. There is considerable emphasis on education and health, which together constitute the software of development.

Infrastructure has received Jaitley’s special attention. It is encouraging that 100% electrification of villages will be achieved by 2018. Large investments have also been proposed in transportation. A total of R2.2 lakh crore will be invested in rail and road sectors. The investment in agriculture and transport—along with ease in withdrawal of pensions and increase in deduction from R24,000 to R60,000 in respect of house rent—should put large amounts of disposable income in the hands of the consumer and generate demand for industry, the lack of which had, in recent times, slowed down growth and reduced corporate profitability.

The finance minister has given special attention to start-ups, which have already imparted dynamism to the financial and distribution sectors. Exemption from tax for the first three years and the increase in turnover for presumptive taxation in respect of other businesses should stimulate growth and generate new jobs. The finance minister has also reduced the rate of corporate taxation to 25% for new companies without any change in taxation of existing companies. The facilities provided for ‘Make in India’ will increase the share of industry in GDP and generate 100 million jobs.

Lower fiscal deficit and investment in agriculture should restrain inflation, which, as the Economic Survey predicts, may be around 4.5% in 2016-17. This may prompt reduction in policy interest rates, and with the Budget support given to banks, reduce banks’ basic rate as well. Union Budget FY17 pays great attention to the demand side of growth, which had weakened recently, and act as a driver to faster growth.

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