TEC India (Budget 2017) – Part 1

Written by: Ronak Pol
Published: 1st February 2017

Even after a series of frictions both globally and within the country, economic growth of India has been fairly stable in the previous year. With a favourable monsoon the CPI inflation of the country was within the RBI mandate. And although GDP growth reduced following the demonetisation episode, compared to other emerging economies, the year has been relatively favourable for India.

All the policy decisions from Goods and Services Tax(GST) to Income Decleration Scheme(IDS) and Demonetisation have lead us to this day where the finance minister was expected to reveal a set of reformatory fiscal measures.

This years budget was no slouch by a margin, but will create a different sort of problem for the government in the following year.

This is a two-part article with part 2 coming in tomorrow

Global Uncertainty and Challenges ahead.

IMF estimates that world GDP will grow by 3.1% in 2016 and 3.4% in 2017, while the emerging economies are poised to grow from 4.1% to 4.5%. Although these are well founded reports there is no denying that the global uncertainty in the last few years has only increased. Policies like demonetisation, although termed as a resounding success are bound to leave some permanent impacts on the Indian economys growth

The Indian economy is also faced with challenges like increased policy rates by the US federal reserve which will affect net investment flows in the country. Also the prices of crude oil are poised to rise in the near future but capped by the shale gas producers. The government was also swift in acknowledging the possible challenges that the TRUMP administration poses for Indian balance of payments.

These global challenges are bound to play their part when it comes to global growth in the coming quarters, but a sense of awareness shown by the Indian government gives confidence that they would have discounted these factors while making budgetary allocations.

Focus of the Budget

Announcing the budget 1 month in advance and merging the Railway budget with the Union budget is surely a welcome change this year. The finance minister stated that his overall approach has been to spend more in rural areas, infrastructure and poverty alleviation.

Rural agriculture and allied sectors

Farmers: There have been small, but substantive changes to change the quality of life of the Indian farmer. Government has taken steps to ensure better availability of credit, increase the ease of repayment and improve crop insurance. Crop Insurance has been a major focus with significant improvements in the Fasal Bima Yojana. Funds have also been set aside for infrastructure measures that help better irrigation. Steps have also been taken through e-NAM to reduce information asymmetry and help farmers find a fair price for their crop. Funds have also been allocated to improve milk processing infrastructure.

Rural Population: Better utilization of the presently allocated fund was the theme when addressing the idea of poverty alleviation. After terming MGNREGA as a beacon of Congress failure in 2015, the government has now increased allocated funds to MGNREGA by 9500 cr to a record-breaking 48000 crore. Another infrastructure investment came in the form of Pradhan Mantri Gram Sadak Yojana where the investment now stands 27000 cr.

The total allocation for these sectors is 1,87,223 crores, which is 24% higher than the previous year.

Youth and Education

Government has shown a mandate to improve the quality of education in the country. The present tone is to improve the quality of higher education in India and to introduce a more skill focused education system. Also the government wants to incorporate its digital India initiative into the education system by providing online modes of learning. The most interesting development is a National Testing Agency to reduce the administrative responsibility of other premier institutes. Although specifics of the same have not yet disclosed by the government.

Poor and underprivileged

Women and Child welfare has been a significant area for investment in the budget, this year the allocation has gone up from 1,56,528 crores to 1,84,632 crores. A very interesting move is to refinance housing loans of worth 20,000 crore from the excess liquidity provided by demonetisation. This is a contentious decision because of the structure of funds received from demonetization as the permanence of these funds with the government is not certain.

Another welfare expenditure comes in the form of fund allocated for uplifting of Schedule cast,Schedule Tribe and Minorities the total  expenditure of 88,508 dwarfs the total amount spent of MGNREGA.

Conclusion

So far so good. Government expenditure has undoubtedly gone up providing a fiscal stimulus to the economy, but tomorrow we will discuss the sustainability of this budget with respect to the deficit targets and tax cuts.

click to read part 2

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