< Previous | Contents | Next >
T
his year’s Union Budget was presented on February 1st, in place of the long tradition of presenting on the last day of the February. In the aftermath of the demonetisation drive, there were high expectations from the
budget regarding tax relaxation and some stimulus being announced. It has got mixed reactions from the business, trade and the experts. Overall, the budget has avoided populist announcements and has stuck to the fundamentals of fiscal policy. Main highlights of the budget are as given below.
Performance of 2016–17: The budget document, at the outset, gives a precise overview about economic performance of the previous year, in the following way—
• In the last two and half years administration has moved from discretionary, favouritism based to system and transparency based.
• Inflation brought under control. CPI-based inflation declined from 6% in July 2016 to 3.4% in December, 2016.
• Economy has moved on a high growth path. India’s Current Account Deficit declined from about 1% of GDP last year to 0.3% of GDP in the first half of 2016–17. FDI grew 36% in H1 2016–17 over H1 2015–16, despite 5% reduction in global FDI inflows. Foreign exchange reserves have reached 361 billion US Dollars as on 20th January, 2017.
• War against black money launched.
• Government continued on path of fiscal consolidation, without compromising on public investment.
• The Indian economy has been robust to mild shocks and IMF forecasts, India to be one of the fastest growing major economies in 2017.
Transformational reforms: It enumerates three reforms of last year and titles them as ‘transformational’ of the previous year have been enumerated as follows—
(i) Passage of the Constitution Amendment Bill for GST.
(ii) Demonetisation of high denomination bank notes.
(iii) Enactment of the Insolvency and Bankruptcy Code; amendment to the RBI Act for inflation targeting; enactment of the Aadhar bill for disbursement of financial subsidies and benefits.
Global uncertainties: This year budget was will be faced with certain challenges in the form ‘global uncertainties’, namely—
(i) Global economy faces considerable uncertainty, in the aftermath of major economic and political developments during the last year.
(ii) The US central bank’ intention to increase policy rates in 2017, may lead to lower capital inflows and higher outflows from the emerging economies.
(iii) Uncertainty around commodity prices, especially that of crude oil, has implications for the fiscal situation of emerging economies together with India.
(iv) Signs of ‘retreat from globalisation’ (de-globalisation) of goods, services and people, as pressures for protectionism are building up.
New reforms: This year’s budget announces three major reforms—
(i) Presentation of the budget advanced to 1st February to enable the Ministries to operationalise all activities from the commencement of the financial year.
(ii) Merger of Railways Budget with General Budget to bring Railways to the centre stage of Government’s Fiscal Policy and
(iii) Removal of ‘plan’ and ‘non-plan’ classification of expenditure to facilitate a holistic view of allocations for sectors and ministries.
Demonetisation: It has the following main comments on the demonetisation drive which the government activated by year end—
• Bold and decisive measure to curb tax evasion and parallel economy.
• Government’s resolve to eliminate corruption, black money, counterfeit currency and terror funding.
• Drop in economic activity, if any, to be temporary.
• Generate long-term benefits including reduced corruption, greater digitisation, increased flow of financial savings and greater formalisation of the economy.
• Pace of remonetisation has picked up and will soon reach comfortable levels.
• The surplus liquidity in the banking system will lower borrowing costs and increase the access to credit.
• Announcements made by the PM on 31st Dec, 2016 focusing on—
housing for the poor; relief to farmers; credit support to MSMEs; encouragement to digital transactions; assistance to pregnant women and senior citizens; and priority to dalits, tribals, backward classes and women under the Mudra Yojana—address key concerns of our economy.
Roadmap and Priorities: The budget document outlines the following ‘roadmap & priorities’ for the upcoming year 2017–18—
Agenda for the year: “Transform, Energise and Clean India”, i.e., TEC India, which seeks to—
(i) Transform the quality of governance and quality of life of our people;
(ii) Energise various sections of society, especially the youth and the vulnerable, and enable them to unleash their true potential; and
(iii) Clean the country from the evils of corruption, black money and non- transparent political funding.
Themes: Ten distinct themes to foster the above-cited broad agenda are—
1. Farmers: committed to double the income in 5 years;
2. Rural Population: providing employment & basic infrastructure;
3. Youth: energising them through education, skills and jobs;
4. The Poor and the Underprivileged: strengthening the systems of social security, health care and affordable housing;
5. Infrastructure: for efficiency, productivity and quality of life;
6. Financial Sector: growth & stability by stronger institutions;
7. Digital Economy: for speed, accountability and transparency;
8. Public Service: effective governance and efficient service delivery through people’s participation;
9. Prudent Fiscal Management: to ensure optimal deployment of resources and preserve fiscal stability;
10. Tax Administration: honouring the honest.