CBPS Bangalore response to 2016-17 Budget

Fiscal Policy measures are a mixed bag

There is a sense of relief that the FM resisted the urge to splurge despite low oil prices, and extra money from spectrum auctions, as well as better than expected tax collections in the current year.

It is good that fiscal deficit targets have been kept. It will also not add pressure for the government to borrow, and that will give the RBI some flexibility. We can expect pressure for reduction of interest rates!However, the Finance Minister has made an ‘interim’ allocation to meet the pay commission commitments, without mentioning a number. This leaves an opening to slide on the fiscal deficit front.He has also mentioned about setting up a Committee to review the FRBM Legislation leaving open the door for breaching the fiscal deficit targets.

There was a proposal for government would support job creation by contributing to EPF Contributions of first time employees that employers must pay. While further details need to be gone into, an attempt to move to what is a kind of wage subsidy is a good step.

Tax structure remains regressive

The FM did not resist the temptation to take the easy path and raise more revenue from indirect taxes, which are regressive. The net effect of his tinkering with both the direct and indirect taxes, is an increase of ₹ 19610 crore which comes from the indirect taxes. This is regrettable.

He has begun reducing some exemptions for the corporate sector. While this is welcome, reduction in the tax rate for corporations should have been kept on hold until the effect of these in terms of revenue gains was clear.

The steps to improve tax administration are welcome. As is the announcement that Aadhaar will be given backing through a new law, which hopefully protects privacy and penalizes misuse.

Extension of direct transfer to fertilizer subsidy on a pilot basis is a welcome step as this would pave the way in due course for all subsidies should move over to DBT platform and result in both reducing the volume of subsidies as also help in better targeting.

There is nothing specific at all for stimulating industrial investment

Overall, this budget seems to have focused on Agriculture and Rural Development, rather than the industrial sector of the economy. So, it is a budget for Bharat rather than India as some would say.

The only good news for industry is a derivative of certain budget outlays in other sectors. For example, the push for roads would result in improved business for cement and construction companies. The allocation for digital training and skills development would mean a boost for certain companies in the IT sector.

The outlay for the power sector, expanding the coverage for electrification, incentives for exploration and production in the Oil and Gas sectors, offer a positive outlook for companies in these sectors.

Some incentives for companies to be incorporated after 1st March, in terms of lower taxes, moratorium period for taxes, some improvement in loans for MSME sector, etc. may not add up to much.

There is nothing earthshaking in health sector

The new initiative to meet catastrophic health expenditure through a health protection scheme with Rs 1 lakh health cover (Rs. 1.3 L for senior citizens) is a welcome development, signaling acknowledgement of this serious cause of poverty.Same applies to opening of 3000 stores with generic medicines.It is not clear whether these stores will sell medicines or dispense them to rural poor based on prescriptions from health centre medical officers. The PM Aushadhi Yojana for opening dialysis centres is also a new initiative which should be welcomed.

It appears that Universal Health Coverage has been given a safe burial!

On the public health side,the increase in excise duty on tobacco products is a good move,but why were bidis left out – doesn’t the health of the poor matter?

Focus on few centres of excellence

FM announced maintaining the expenditure level of programmes like Sarva Shiksha Abhiyan (SSA) and paying greater attention to the issue of quality but it is not clear how that would happen. The revised estimates for education for the current financial 2015-16 has seen a steep decline (Rs.70555 cores) from the budgeted allocation of Rs. 82777 crores. Although the allocations are a little high from the revised estimates, one cannot be sure that even this will not meet the same fate in revised estimates later this year.

What is more worrying is that focus is on creating a few ‘centres of excellence’ by opening ‘62 more Navodaya Vidyalays’ and ‘creating a regulatory architecture for ten public and ten private institutions to emerge as world-class teaching and research institutions’ rather than taking the challenge of improving the quality in all public institutions in general; this, in principle, can be perceived a move away from equity.

FM announced to set up a higher education financing agency allocating Rs. 1000 crores for the same. The idea is that this will leverage funds from the market and work to create infrastructure in India’s top institutions like the IITs. This is hardly a solution to the growing need for better quality higher affordable education institutions especially for those who are first generation school goers and are now aspiring to enter higher educational institutions. The focus on skill education is welcome but again skill education cannot be enhanced or improved without much greater attention to improving the reach as well as quality of secondary education – something that did not find any mention.

Children remain neglected

It is disappointing that children,who comprise 40 percent plus of the population, did not get mention by the FM. While the budget is called pro-poor, the actual benefits to children and women are not evidenced except LPG for rural women.This indeed would have multiple benefits such as improved health of rural women, lesser logging of trees for cooking fuel, etc.

Maintaining funding level of NREGA may have positive implications for women and children.

Plan – Non Plan distinction being finally given up from fiscal 2017

Over the years, the Plan – Non Plan distinction skewed the public expenditure in favour of the former resulting in unnecessary proliferation of ‘plan’ schemes with little regard to efficiency and effectiveness of expenditure. Removal of plan-non plan distinction together with the proposal to introduce sunset clause and outcome statement for all government programmes would lend greater focus in government expenditure. Rationalisation of central schemes and centrally sponsored schemes is also a welcome step.

Promotion of pulses over cereals

For long the government promoted production of cereals while pulses that provide the essential proteins have been neglected. Budget proposal to support pulses production with minimum support price and Price Stabilization Fund should remedy this imbalance.

** This is based on inputs from Mr. N. V. Krishna, Chairman, TIDE, Prof. Vinod Vyasulu, economist, Mr, J. V. R. Prasada Rao, Former Health Secretary, Government of India, Dr. Sree Lakshmi Gururaja, former UNICEF official (all CBPS Board members), and Dr. Jyotsna Jha, Director, CBPS, Mr. A Srinivas, Adviser, CBPS and Sri Madhusudan B.V., Research Adviser, CBPS.

[Disclaimer: Views presented above are those of the author and do not necessarily reflect those of CBPS]

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