The third budget of the Finance Minister Arun Jaitley looked giving priority to the fiscal discipline and highlighted the growth pillars of the Indian economy in Agriculture, Rural, Social sector, Skills, Ease of Doing Business and Tax and Compliance reforms.
The 85th annual budget presented by Finance Minister of India Arun Jaitley can be called a growth oriented one putting major thrust on Agriculture and infrastructure. The government with its proposals showed its intent to stick to the roadmap for fiscal consolidation with next year’s fiscal deficit target at 3.5 per cent of the GDP, but that remains a herculean task in the face of an additional burden on account of the recommendations of the 7th Central Pay Commission and the implementation of Defence OROP.
Government as expected tried to maintain a balance between the sagging rural growth and high expectations of the industry. Also there were lots of social reforms like massive mission to provide LPG connection to poor households, a new health protection scheme, increased outlay for infrastructure, Rs 2.87 Lakh crore Grant in Aid to Gram Panchayats and Municipalities, setting up of 1500 Multi Skill Training Institutes and incentives for jobs creation.
The BE 2015-16 envisaged a tax to GDP ratio of 10.3 per cent, non-debt receipts to GDP ratio of 8.7 per cent and total expenditure to GDP ratio of 12.6 per cent. The envisaged growth for gross tax revenue was 15.8 per cent over Revised Estimates (RE) 2014-15. The total expenditure in BE 2015-16 was estimated to increase by 5.7 per cent over RE 2014-15. At the end of December 2105, there was a significant shortfall in non-debt capital receipts, mainly on account of the shortfall in disinvestment receipts, as only Rs 12866 crore of the budgeted amount of Rs 69,500 crore was realized. Major subsidies decreased by 1.7 per cent during April-December 2015, as compared to April- December 2014 due to a decline in petroleum subsidy by Rs 22,545 crore, as compared to the corresponding period in 2014-15, due to fuel pricing reforms and steep decline in the global prices of petroleum products. Fiscal deficit at 87.9 per cent of BE in the year 2015-16 (April-December) was higher than the five year average of 82.3 per cent, but lower than the corresponding figure of 100.2 per cent in the previous year.
GDP Growth: Indian economy as per the Advance Estimates released by the Central Statistics Office, is estimated to register a growth rate of 7.6 per cent in 2015-16, higher than growth of 7.2 per cent achieved in 2014-15. From the demand angle, the growth in private final consumption expenditure at 7.6 per cent in 2015-16 has been the major driver of growth. The growth of fixed investment improved from 4.9 per cent in 2014-15 to 5.3 per cent in 2015-16. The exports and imports are both estimated to decline by 6.3 per cent in 2015-16, the former mainly on account of subdued global demand and the latter largely reflecting the decline in international petroleum prices.
Prices: The headline inflation, based on the CPI (combined) series, dipped to 4.9 per cent during 2015-16 (April-January), as against 5.9 per cent in the year 2014-15. Food inflation measured in terms of Consumer Food Price Index (CFPI) declined to 4.8 per cent during 2015-16 (April-January), as compared to 6.4 per cent in 2014-15. The CPI-based core inflation (non-food, non-fuel) also remained range-bound, inching up from 4.2 per cent in March 2015 to 4.7 per cent in January 2016. The decline in core inflation was largely on account of the decline in the inflation in housing (rent), transport, communication, education and other services.
Industry and Services: Growth in IIP in April-December 2015 was 3.1 per cent, higher as compared to 2.6 per cent in same time period last year. As per the sectoral classification of IIP, electricity sector grew by 4.5 per cent, manufacturing by 3.1 per cent and mining by 2.3 per cent during April-December 2015-16. In 2015-16, as per the advance estimates, the services sector accounting for 53.3 per cent of India’s gross value added at current basic prices, is estimated to grow at 9.2 per cent (at constant prices). Among the service sector activities, the sectors like: trade, hotels, transport, communication and services; and, financial, real estate and professional services are estimated to register robust growth rates in 2015-16.
External sector: The value of India’s merchandise exports (customs basis) declined by 1.3 per cent to $ 310.3 billion in 2014-15. In 2015-16 (AprilJanuary), the growth of exports declined by 17.6 per cent ($ 217.7 billion vis-à-vis $ 264.3 billion in the corresponding period of the previous year). Imports declined by 0.5 per cent to $ 448.0 billion in 2014-15. Imports for 2015-16 (April-January) were valued at $ 324.5 billion, 15.5 per cent lower as compared to $ 383.9 billion in the corresponding period of the previous year. Imports of petroleum, oil and lubricants (POL) declined by 41.4 per cent in 2015-16 (AprilJanuary) to $ 73.1 billion, as compared to $ 124.8 billion in the corresponding period of previous year, mainly due to the decline in international crude oil prices. Non-POL imports for 2015-16 (April-January) declined by 3.0 per cent to $ 251.4 billion, as compared to $ 259.1 billion in the corresponding period of the previous year. Based on the Balance of Payments (BoP) data available for the first six months of 2015-16, the trade deficit on BoP basis was $ 71.6 billion in AprilSeptember 2015 as compared to $ 74.7 billion in April-September 2014. Buoyant remittances (private transfers) supplemented the lower crude oil prices in reducing the current account deficit, and lower but the significant capital flows -resulted in a sizeable capital account surplus. This resulted in increase in the stock of foreign exchange reserves, which stood at $ 350.3 billion at end September, 2015.
Money and Banking: Liquidity conditions were generally tight during the first quarter (Q1) of 2015-16, mainly due to restrained government spending. In the second quarter (Q2) of financial year (FY) 2015-16, however, liquidity conditions eased significantly as public expenditure picked up and deposits exceeded credit substantially. In the third quarter (Q3) of FY 2015-16, liquidity conditions tightened mainly due to the festive season currency demand.
The slowdown in the growth in the balance sheets of banks witnessed since 2011-12 continued during 2015-16 as well. The moderation in the growth of assets of the SCBs was mainly attributed to tepid growth in loans and advances (below 10 per cent). The decline in credit growth reflected the slowdown in industrial credit off take, poor growth of earnings reported by the corporate sector and risk aversion on the part of banks owing to rising non-performing assets. The total number of banking outlets increased from 553,713 at the end-March 2015 to 567,530 at end-September 2015.
The third budget of the Finance Minister Arun Jaitley looked giving priority to the fiscal discipline and highlighted the growth pillars of the Indian economy in Agriculture, Rural, Social sector, Skills, Ease of Doing Business and Tax and Compliance reforms. While, there was focus on rural economy, infrastructure spending, social welfare schemes and ‘digital’ initiatives. Rationalization of indirect tax and duty structures for various sectors such as IT hardware, defence, mineral and petrochemical, aviation too was incorporated in the budget. The Finance Minister said that the government will undertake three major schemes to help the weaker sections. He said the Pradhan Mantri Fasal Bima Yojana has already been announced. The farmer will pay a nominal amount of insurance premium and get the highest ever compensation in the event of any loss suffered. Sh. Jaitley announced a health insurance scheme which will protect one-third of India’s population against hospitalization expenditure. He also announced that the Government is launching a new initiative to ensure that the BPL families are provided with a cooking gas connection, supported by a Government subsidy.
There were some disappointments as well as surprises, while the implementation of the crucial pay commission proposals remained unclear, the allocation for bank capitalisation of Rs 25,000 crore was the major disappointment, especially when Economic Survey had identified the need of Rs 1,80,000 crores. However, focus on rural economy is important, especially in light of global economic situation. The budget stated that in light of the encouraging performance of the economy in the first three quarters of 2015-16, marked by pickup in economic growth, lower inflation, manageable current account deficit, high foreign exchange reserves, buoyant tax revenues, increasing foreign direct investment flows along with the government’s push to reforms in crucial areas including banking, infrastructure, power, taxation, etc., the near term prospects for the economy looks bright.