Indian Union Budget 2016-17: Modi’s Report Card

India’s federal union budget was released on February 29, 2016 against the backdrop of board examinations for students in Classes X and XII nationwide. With the consistent pressure on his administration to focus on economic issues and to help grow the Indian economy, Prime Minister Narendra Modi appeared to have viewed the budget as his very own examination, one where he was being evaluated by India’s 1.2 billion population.

At 11 am IST, Indian Finance Minister Arun Jaitley took to the podium to present the 2016-17 Union Budget. He said it was based on a policy of “fiscal prudence and consolidation” in the face of global headwinds. With a global slowdown of economies around the world, Jaitley identified three major implications as the budget’s priorities: (a) ensuring macroeconomic stability, (b) shifting focus from weak foreign markets to the domestic market, and (c) developing economic reforms and policies to sustain the quality of life in India.

Despite these challenges along with political roadblocks, Jaitley proudly declared that the Modi government has reduced CPI inflation from 9.4% to 5.4% and primed India’s GDP to grow by 7.6% in the next year. He, then, went on to lay out the budget, structured around 9 pillars, each with a transformative agenda:

Agriculture and wealth creation for farmers

  • Given the spate of farmer suicides due to crop failure and improper government intervention, the new budget is strongly in favor of reforms for the agricultural sector. To begin with, the “Pradhan Mantri Fasal Bima Yojana” allocates Rs. 9,00,000 crore to credit farmers with an additional Rs. 15,000 crore to subsidize loan repayment.     

  • In regards to regular irrigation, the new budget hopes to establish a long term irrigation fund within NABARD with Rs. 20,000 crore, which will irrigate 28.5 lakh hectares as well as expedite the completion of existing irrigation projects.

  • To deal with erratic electricity and power in India’s massive rural landscape, the new budget has committed Rs. 8,500 crore to achieve 100% electrification of India’s villages in the next 3 years.

  • Aside from heralding welfare programs for farmers and agriculture technology reforms, Jaitley stressed the need to strengthen India’s food manufacturing and processing sector.

  • The new budget will open up channels for FDI inflow into organic food production as well as connecting farmers and local vendors to foreign markets.

Rural sector with greater employment

  • The new budget announced a generous amount of expenditure on welfare programs for the rural poor. To improve the rural economy and planning, the government hopes to provide an average of Rs 80 lakhs in aid to Gram Panchayats and over Rs. 21 crore to each Urban Local Body.

  • The government also plans to launch a new program Digital Literacy Mission Scheme to bring literacy to 6 crore rural households in the next three years.

Social sector

  • Jaitley announced the allocation of Rs. 2,000 crore towards providing LPG connections in the name of women members of poor households. This would be a massive overhaul of social security reform. The scheme hopes to cover 1 crore 50 lakh households below the poverty line.

  • The government’s health coverage has been increased to Rs. 1 lakh per family, with an extra Rs. 30,000 available for senior citizens.

  • The government has taken a step towards affordable healthcare after recognizing the high treatment cost for Renal Disease, which is widespread problem. A PPP-venture under the National Health Mission plans to start a National Dialysis Services Programme which aims to reduce the cost of the treatment.

Education, skills and job creation

  • The budget has a Rs. 500 crore Stand Up India Scheme focusing on the growth of SC/ST entrepreneurs—especially women. For this purpose, the Center has interacted with Dalit India Chamber of Commerce and Industry to put in place an entrepreneurship ecosystem. The budget calls for the creation of a National Scheduled Caste and Scheduled Tribe Hub to offer professional support and opportunities to SC/ST entrepreneurs.

  • In regards to job creation - especially in the formal sector, the new budget calls for the opening of more Navodaya Vidyalayas in uncovered districts. It is allocating Rs. 1,700 cr to enlarge the scope of the National Skill Development Mission and set up 1500 Multi Skill Training Institutes all over the country.

  • To sustain quality higher education in the country, the government will raise 10 public and 10 private institutions as “world-class teaching and research institutions” to establish more distinguished centers of learning.

To oversee the funding of such endeavors, the Center plans to spend Rs. 1,000 crore to set up a Higher Education Financing Agency, which will behave as a non-profit organization and leverage funds from the market and supplement them with donations and CSR funds.

Infrastructure and investment

  • With the total outlay on roads and railways coming to Rs. 2,18,000 crore, Jaitley announced higher allocation (via center-state cooperation) to the Pradhan Mantri Gram Sadak Yojana. The government has allocated Rs. 55,000 crore in the budget to the development of roads and highways to improve regional connectivity. This would help speed up the construction of 2,23,000 kms of roadways including 10,000 kms of National Highways and 50,000 kms of state highways.

  • To further boost regional connectivity, the government is drawing up an action plan to revive unused and underserved airports. A center-state partnership, will pump Rs. 50-100 crore into 160 select airports and airstrips to make them functional and enhance regional connectivity.

  • Recognizing the efficiency, cost-effectiveness, and socioeconomic impact of public-private partnerships (PPP), the government has decided to allow private entrepreneurs to offer and manage passenger transport services subject, of course, to efficiency and safety norms. This comes in the form of a proposal to amend the Motor Vehicles Act. To assist this the Center will be creating formal guidelines and frameworks for the Public-Private Partnership mode, which includes a credit rating system for infrastructure-based projects.

Financial sector reforms

  • The budget alludes to an ongoing program called INDRADHANUSH, which hopes to revamp public sector banks. Feeding into its banking reforms is a plan for the recapitalization of PSU banks at Rs. 25,000 crore.

  • To top off better public accessibility of financial services, the budget announced a nationwide rollout of ATMs and micro ATMs in post offices over the next 3 years.

Governance and ease of doing business

  • In order to streamline the ease of doing business in India, the Center will appoint a task force with express purpose of rationalizing human resources in various ministries. To achieve this, the Center hopes to employ the e-platform to offer various services as well as monitor the delivery of those services.

  • The budget calls for a Public Utility Resolution of Disputes Bill to be introduced this year to streamline institutional arrangements for resolution of disputes in infrastructure related construction contracts, PPP, and public utility contracts.

  • As part of the government’s enthusiastic drive to support young entrepreneurs, the Center seeks to amend Companies Act (2013) to create a more enabling environment for start-ups.

  1. Fiscal discipline

  • The budget settles on holding the fiscal deficit at 3.5% of GDP. Instead of fixing numbers as fiscal deficit target, Jaitley’s budget prefers a range to allow government room to deal with dynamism.

  • It also asks for a rethinking of the framework of budgetary allocations, proposing to move from the Plan and Non-Plan classification of government expenditure to Revenue and Capital categories.

Tax reforms

The budget’s tax reforms mostly focus around affording relief to low and middle income households, budding entrepreneurs, and hope to contribute to the wealth creation of farmers. Tax reforms include relief to small taxpayers, measures to boost growth and employment generation, incentivizing domestic value addition to help Make in India, among several others.

India’s 2016-17 Federal Union Budget was released amidst a lot of hype. The refrain from the government was that the budget was pro-poor, pro-rural and focused on inclusive growth or “sabka vikas”. If this budget is any indicator, Modi’s government focus appears to be on leveraging technology and entrepreneurship to address issues gripping the nation.  

There is also understanding of the need to build India’s infrastructure and improve India’s ease of business rankings. However, more needs to be done in the areas of seeking foreign investment and boosting manufacturing.

Edited by Sanjana Hariprasad

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