Maintaining a fine balance

GDP growth across the major developed countries are slowing down.  The global financial markets continue to be volatile leading to outflow of foreign capital from the EMEs. 

By GUEST COLUMN - N.R. Bhanumurthy
  • Published 1.03.16
  •  

GDP growth across the major developed countries are slowing down.  The global financial markets continue to be volatile leading to outflow of foreign capital from the EMEs. 

The challenge for the government in this budget was to revive the growth and at the same time create additional employment opportunities both in the farm as well as non-farm sectors. 

On the macro-growth side, the government tried to maintain the fiscal deficit target at 3.5 per cent, giving a positive indication to foreign investors and rating agencies.  It has also provided many measures to revive industrial sector, especially the MSME sector. 

On the back of the success of the MUDRA scheme, the budget has come up with measures such as enhancing the credit supply and other tax measures.  The incentives that are provided to the real estate sector could also provide a major boost to the sector, which is considered to have a strong linkage with other core sectors. 

The big push to the infrastructure sector should attract more private investments in allied activities.  Incentives to start-ups, food processing industries, and exploration sectors should unlock these sectors and drive faster growth in the next couple of years. 

On the development side, this budget, at least from the FM’s speech, concentrated more on the agriculture as well as on social sector development.  While that was warranted to revive the rural demand, which, in the absence of external demand, should help revive growth as well as investments, it is not clear whether there was huge jump in allocations.  Indeed there is a reduction in allocations to the food ministry (by about Rs 2600 crore), which needs to implement the National Food Security Act across the country from April, 2016, and in overall Agriculture (by about 13,000 crores).  However, in the case of rural development programmes, there seems to be an increase, especially in the rural roads.  For  MGNREGA, there appears no rise in allocation compared to 2015-16.

On the specific policies, the budget brings in many farmer friendly measures such as agricultural insurance, credit enhancement, encouraging food processing industries, e-procurement, incentivising states to reform the APMC act.  The budget also enhanced allocation to local bodies, thus, putting onus on the states and local self governments to improve governance.

It is not clear how far this budget has accommodated the 7th Pay Commission recommendations and OROP that includes the three months arrears in 2015-16.  In that context, more than three-fourths of the additional revenue expenditure, which is to the tune of Rs 1.9 lakh crore, shown in this budget would be allocated to the committed expenditure on the salaries and pensions, while leaving less for other additional expenditures. 

Overall, this budget is more of ‘please all’ one but raises questions on the fiscal targets more so when the real GDP growth projections are not different from the current year.  Perhaps the government might be depending on a new committee to redraw a flexible FRBM targets including for 2016-17!!

Bhanumurthy is professor, National Institute of Public Finance and Policy