Pre Budget commentary FY 2016-2017
Pre
Budget commentary FY 2016-2017
This article was a part of an article writing competition at my college. It lost out on the number of likes on facebook, but came 2nd in comments from judges.
Current
Fiscal Health of India
India’s
public debt to GDP ratio in FY2015 was at 67%. It is the highest amongst the
developing economies of the world. The figure is still away from a sustainable level so as to make
available precious public resources for developmental purposes.
India’s
fiscal deficit is also on a downward trend, but is expected to miss the target
of FY2015 of 3.9% of the GDP
With
the tax revenue target of Rs 14.49
lakh crore likely to me met and 2.21 lakh crore received in the form of non tax revenue (90% of the target),
India is expected to meet the overall revenue targets for the previous budget.
Failure/Success
of flagship reforms taken after Budget 2015
The
biggest failure of the Budget 2015 agenda is the implementation of GST. Budget document highlights GST as
the “Game changing reforms on the anvil”. But frustratingly, policies in India
are determined by politics rather than economic data and the GST remains a pipe
dream.
Monetizing Gold was through
Gold monetization scheme as well as the Sovereign Gold Bond was another major
reform. 900Kg of gold was mobilized till January,2016 and Rs 246 crore through
first tranche and Rs 726 crore through the second, are expected by the Gold
bonds. Gold monetization scheme looks unlikely to take off due to the sentimental
value and low offer rate of 2.5%, the gold bonds are expected to give a boost
to government borrowing.
Other
initiatives such as Mudra bank, Green India fund, Make in India, Skill India
and Swachh Bharat Abhiyan have seen
mixed responses over the timeline and it is too early to judge the success or
failure of them.
Expectations
& Suggestions for Budget 2016
Thanks
to global slowdown and a hunger for development,
fiscal spending has been high and the deficit target of 3.9% of the GDP
this year looks increasingly difficult. The path decided in the previous Budget
had targeted a 3.5% fiscal deficit for 2016-17. That target looks to be revised
this year. The RBI has warned the government of the adverse effect of this such
as overheating. Further rate cuts looks difficult in this light.
The
stressed balance sheets and non performing assets (NPA) of the Public sector
banks. PSU banks had written off Rs 1.14 lakh crore in the last three years.
Corporate profits for these banks have been on a decade low. RBI’s strategic
debt restructuring (SDR) scheme has not been able to clean up this mess for the
PSBs. The idea of an Asset Management
Company (AMC) of the government to help banks write off the NPAs has gained
traction. This will also help in injection of fresh capital in these banks
which is required to up the private investment.
The
Fiscal Responsibility and Budget
Management (FRBM) Act up gradation and moving away from the 3% deficit
target in the act to a more astute measure of debt/GDP ratio would be a good
thing to start with.
Increasing
the tax base, clarity on National Infra and Investment Fund and bankruptcy
codes and incentives
to infrastructure segment are the other expectations from the budget.
Last
but not the least, I expect the Budget to once again reinstate the belief in
the new GDP series which has again been challenged on the grounds that it is
not reflecting the true situation of the economy.
Notes:
1. Due to limit on wordings, the paper focuses only on financial aspects of the Indian Budget.
1. Due to limit on wordings, the paper focuses only on financial aspects of the Indian Budget.
Sources:
1.
http://www.tradingeconomics.com
2.
www.finmin.nic.in
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