UNION BUDGET ANALYSIS 2016 (COMPILATION BY AYUSSH SANGHI)!

KEY$FEATURES$OF$BUDGET$
This article focusses on the General Budget 2015-16.
9 PILLARS OF THE BUDGET
The FMs nine pillars will focus on Agriculture, Rural sector, Social sector, Education, Infrastructural
reforms, Boosting financial sector, Focusing on ease of doing business, Fiscal management to take care of
governments finances and Tax reforms to reduce compliance burden.
BASIS OF THE BUDGET
INTRODUCTION

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Growth of Economy accelerated to 7.6% in 2015-16.

India hailed as a bright spot amidst a slowing global economy by IMF.
Robust growth achieved despite very unfavourable global conditions and
two consecutive years shortfall in monsoon by 13%.

Foreign exchange reserves touched highest ever level of about 350 billion US
dollars.

Despite increased devolution to States by 55% as a result of the 14th Finance

Commission award, plan expenditure increased in 2015-16 in contrast to
earlier years.

CHALLENGES
IN 2016-17

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Risks of further global slowdown and turbulence.

Additional fiscal burden due to 7th Central Pay Commission
recommendations and OROP.

ROADMAP &
PRIORITIES

'Transform India' to have a significant impact on economy and lives of people.

1. Government to focus on
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Ensuring macro-economic stability and prudent fiscal management.

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Boosting on domestic demand.

Continuing with the pace of economic reforms and policy initiatives to
change the lives of our people for the better.

2. Focus on enhancing expenditure in priority areas of - farm and rural

sector, social sector, infrastructure sector employment generation and
recapitalisation of the banks.
3. Focus on Vulnerable sections through!
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Pradhan Mantri Fasal Bima Yojana.

New health insurance scheme to protect against hospitalisation
expenditure.
Facility of cooking gas connection for BPL families.

4. Continue with the ongoing reform programme and ensure passage of

the Goods and Service Tax bill and Insolvency and Bankruptcy law.

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5. Undertake important reforms by
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Giving a statutory backing to AADHAR platform to ensure benefits reach

the deserving.
Freeing the transport sector from constraints and restrictions.

Incentivising gas discovery and exploration by providing calibrated

marketing freedom.

Enactment of a comprehensive law to deal with resolution of financial

firms.

Provide legal framework for dispute resolution and re-negotiations in

PPP projects and public utility contracts.

Undertake important banking sector reforms and public listing of

general insurance companies undertake significant changes in FDI policy.

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SECTOR SPECIFIC
AGRICULTURE
AND FARMERS
WELFARE

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RURAL SECTOR

Pradhan Mantri Krishi Sinchai Yojana to be implemented in mission

mode. 28.5 lakh hectares will be brought under irrigation.
A dedicated Long Term Irrigation Fund will be created in NABARD with
an initial corpus of about 20,000 crore.
Programme for sustainable management of ground water resources with
an estimated cost of ` 6,000 crore will be implemented through multilateral
funding.

Soil Health Card scheme will cover all 14 crore farm holdings by March
2017.

2,000 model retail outlets of Fertilizer companies will be provided with soil
and seed testing facilities during the next three years.

Promote organic farming through Parmparagat Krishi Vikas Yojana and

'Organic Value Chain Development in North East Region'.

Unified Agricultural Marketing e-Platform to provide a common e-market

platform for wholesale markets.

Four dairying projects - Pashudhan Sanjivani, Nakul Swasthya Patra, EPashudhan Haat and National Genomic Centre for indigenous breeds.

2.87 lakh crore will be given as Grant in Aid to Gram Panchayats and
Municipalities as per the recommendations of the 14th Finance
Commission.
Every block under drought and rural distress will be taken up as an
intensive Block under the Deen Dayal Antyodaya Mission.
300 Rurban Clusters will be developed under the Shyama Prasad
Mukherjee Rurban Mission.

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100% village electrification by 1st May, 2018.

District Level Committees under Chairmanship of senior most Lok Sabha
MP from the district for monitoring and implementation of designated

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Central Sector and Centrally Sponsored Schemes.

SOCIAL SECTOR
INCLUDING
HEALTH CARE

A new Digital Literacy Mission Scheme for rural India to cover around 6
crore additional household within the next 3 years.

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National Land Record Modernisation Programme has been revamped.

New scheme Rashtriya Gram Swaraj Abhiyan proposed.

2,000 crore allocated for initial cost of providing LPG connections to BPL
families.

New health protection scheme will provide health cover up to One lakh per
family. For senior citizens an additional top-up package up to 30,000 will be
provided.

3,000 Stores under Prime Ministers Jan Aushadhi Yojana will be opened
during 2016-17.

National Dialysis Services Programme to be started under National

Health Mission through PPP mode.
Stand Up India Scheme to facilitate at least two projects per bank branch.
This will benefit at least 2.5 lakh entrepreneurs.
National Scheduled Caste and Scheduled Tribe Hub to be set up in
partnership with industry associations.

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EDUCATION,
SKILLS AND JOB
CREATION

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SKILL
DEVELOPMENT

JOB CREATION

Digital Depository for School Leaving Certificates, College Degrees,

Academic Awards and Mark sheets to be set-up.

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1500 Multi Skill Training Institutes to be set-up.

National Board for Skill Development Certification to be setup in
partnership with the industry and academia.

Entrepreneurship Education and Training through Massive Open Online

Courses.

GoI will pay contribution of 8.33% for of all new employees enrolling in
EPFO for the first three years of their employment.

100 Model Career Centres to operational by the end of 2016-17 under

National Career Service.
Model Shops and Establishments Bill to be circulated to States.

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INFRASTRUCTU
RE AND
INVESTMENT

62 new Navodaya Vidyalayas will be opened.

Regulatory architecture to be provided to ten public and ten private
institutions to emerge as world-class Teaching and Research Institutions.
Higher Education Financing Agency to be set-up with initial capital base
of 1000 Crores.

Amendments to be made in Motor Vehicles Act to open up the road

transport sector in the passenger segment.

Comprehensive plan, spanning next 15 to 20 years, to augment the

investment in nuclear power generation to be drawn up.

Steps to re-vitalise PPPs:

o! Public Utility (Resolution of Disputes) Bill will be introduced

UNION BUDGET ANALYSIS 2016 (COMPILATION BY AYUSSH SANGHI)!

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during 2016-17.
o! Guidelines for renegotiation of PPP Concession Agreements will
be issued.
o! New credit rating system for infrastructure projects to be
introduced.

FINANCIAL
SECTOR
REFORMS

GOVERNANCE
AND EASE OF
DOING
BUSINESS

Reforms in FDI policy in the areas of Insurance and Pension, Asset

Reconstruction Companies, Stock Exchanges.

100% FDI to be allowed through FIPB route in marketing of food products

produced and manufactured in India.

A new policy for management of Government investment in Public Sector

Enterprises, including disinvestment and strategic sale, approved.

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A comprehensive Code on Resolution of Financial Firms to be introduced.

Statutory basis for a Monetary Policy framework and a Monetary Policy
Committee through the Finance Bill 2016.

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A Financial Data Management Centre to be set up.

Amendments in the SARFAESI Act 2002 to enable the sponsor of an ARC
to hold up to 100% stake in the ARC and permit non institutional investors
to invest in Securitization Receipts.

Comprehensive Central Legislation to be bought to deal with the menace of

illicit deposit taking schemes.

General Insurance Companies owned by the Government to be listed in

the stock exchanges.

Bill for Targeted Delivery of Financial and Other Subsidies, Benefits and
Services by using the Aadhar framework to be introduced.

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Introduce DBT on pilot basis for fertilizer.

Automation facilities will be provided in 3 lakh fair price shops by March
2017.
Amendments in Companies Act to improve enabling environment for startups.

FISCAL
DISCIPLINE

Price Stabilisation Fund with a corpus of 900 crore to help maintain stable
prices of Pulses.

Ek Bharat Shreshtha Bharat programme will be launched to link States

and Districts in an annual programme that connects people through
exchanges in areas of language, trade, culture, travel and tourism.

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Plan / Non-Plan classification to be done away with from 2017-18.

Every new scheme sanctioned will have a sunset date and outcome review.
Rationalised and restructured more than 1500 Central Plan Schemes into
about 300 Central Sector and 30 Centrally Sponsored Schemes.
Committee to review the implementation of the FRBM Act.

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PROVIDING
CERTAINITY IN

Committed to providing a stable and predictable taxation regime and

reduce black money.

Domestic taxpayers can declare undisclosed income or such income

UNION BUDGET ANALYSIS 2016 (COMPILATION BY AYUSSH SANGHI)!

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TAXATION

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SIMPLIFICATION
AND
RATIONALIZATI
ON OF TAXES

represented in the form of any asset by paying tax at 30%, and surcharge at
7.5% and penalty at 7.5%, which is a total of 45% of the undisclosed
income. Declarants will have immunity from prosecution.
Surcharge levied at 7.5% of undisclosed income will be called Krishi
Kalyan surcharge to be used for agriculture and rural economy.
New Dispute Resolution Scheme to be introduced. No penalty in respect of
cases with disputed tax up to 10 lakh.
High Level Committee chaired by Revenue Secretary to oversee fresh cases
where assessing officer applies the retrospective amendment.

One-time scheme of Dispute Resolution for ongoing cases under

retrospective amendment.

13 cesses, levied by various Ministries in which revenue collection is less

than 50 crore in a year to be abolished.

Customs Single Window Project to be implemented at major ports and

airports starting from beginning of next financial year.

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UNION BUDGET ANALYSIS 2016 (COMPILATION BY AYUSSH SANGHI)!

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BUDGET ANALYSIS
1. POLITICAL EXPEDIENCY WINS OVER COOPERATIVE FEDERALISM
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Looking to leave its political imprint over spending in rural India, the National Democratic
Alliance (NDA) government has budgeted for a massive 31 per cent hike in its share of
spending on nine big-ticket centrally sponsored schemes (CSS) in 2016-17 over last year's
budgetary allocation.
Last year's Budget mantra of 'cooperative federalism' has been sidestepped to favour political
exigencies.
To fund these schemes, the Centre has introduced new cesses and surcharges on top of existing
ones.

Revenue from these sources remains in the central kitty and will not have to be shared with
states.

Surprisingly, despite the Opposition's repeated attempts to paint it as being anti-poor, the NDA
government has not claimed too much political dividend out of the fact that it actually spent
more on most of these centrally sponsored schemes in 2015-16 as compared to its original
budgetary allocations.

The mid-course correction in the shape of hike in spending came as an afterthought. It suggests
that the government hit by the 'suit-boot' jibes of the Congress and aware of growing distress in
rural areas, routed the additional tax revenue it garnered to prop up the rural economy.
The renewed faith in CSS this year is in sharp contrast to last year's Budget rhetoric.

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After accepting the recommendations of the 14th Finance Commission, which proposed to
increase the states share in the divisible pool from 32 per cent to 42 per cent, the NDA
government had cut back on several of these schemes last year.
The sharp increase in untied funds was matched by an almost commensurate cut in central
funding to central schemes.
In this year they backed to all CSS and increased the financial allocation including MGNREGA.

2. JAI KISAN BUDGET

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As the Indian economy is facing agrarian distress, the Budget was a tough balancing act
between fiscal consolidation and much-needed spending to revive economic growth.
To bridge the gap, the Government is revisiting the roadmap, especially in the rural areas, which
was documented in the first Budget.
The roadmap includes rural electrification of all villages by March 2018, road network
connecting each village by 2019 and doubling of farmers income by 2020, besides maximum
irrigation facilities to farmers and digital literacy as well.

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BUDGET 2016: SOME HITS, SOME MISSES
The Union Budget for FY 16-17 is certainly the best budget of this government so far. It is replete with big
ideas in social security, education and land management, but has misses on the banking sector, GST and
formalization of the economy.
HITS
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The decision to give statutory status to Aadhaar is wonderful and timely!

Aadhaar is the centre of JAM (Jan Dhan, Aadhaar and Mobile) and DBT (Direct Benefit
Transfer) reforms.

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After the success of DBT in LPG, a pilot project for DBT in fertilisers has been announced.
The proposal to further target LPG connections to 5 crore poor households in 3 years will
ensure universal coverage of cooking gas, reduce pollution, improve health, reduce
deforestation and create employment.

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The automation of 3 lakh PDS outlets will also be based on Aadhaar.

A nationwide deployment of micro-ATMs in post offices, a digital depository for degree
certificates, and food procurement by FCI from farmers will all leverage Aadhaar.

The announcement of 10 public and 10 private institutions to emerge as world class teaching and
research institutions is a tremendous move.

It is now up to public spirited individuals to set up world class universities in the tradition of an
ancient Takshila or a modern Yale. Full autonomy is the key to the success of such institutions.

The National Land Record Modernisation Programme starts today under the Digital India
Initiative. Modernised land records through de-materialisation and leveraging JAM will bring
prosperity to villages, while reducing litigation and conflict. It is the first step in mobilising land
for housing and inclusive development in cities.
FISCAL PRUDENCE: The master stroke of this Budget is Mr Jaitley's decision to adhere to the
fiscal deficit targets of 3.9 per cent of gross domestic product in a year that he had himself
announced last year. It was a master stroke because by sticking to these numbers Mr Jaitley
addressed the concerns of the most vocal and influential sections of the economy - the
economists, the market analysts, the rating agencies, the World Bank and the International
Monetary Fund, Indian business leaders and of course the Reserve Bank of India.
CONSERVATIVE TAX REVENUE NUMBERS: This is the second big takeaway from the
Budget. The current year has seen nominal growth of 8.6 per cent and yet tax revenue growth is
at around 17 per cent. Barring unforeseen developments, achieving 11.7 per cent tax revenue
growth next year should not be a big task particularly if the projection of nominal growth of 11
per cent is realised.

MISSES
ON BANKING REFORMS
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Banking reforms are underwhelming.

Public sector banks face an existential crisis. Beyond NPAs and the Basel 3 capital requirement,
they confront a number of other challenges - a rapidly retiring workforce, stranded assets in the
form of branches, intense competition, and inadequate credit appraisal skills for a globalised,
technology intensive world.

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They have the burden of implementing unprofitable social goals and are encountering
technological disruption which is bewildering even to the best banks.

Getting them out of government ownership is the only viable option and this was the last chance
to say so.

ON GST
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Rather than spinning wheels on the GST Bill, can we not focus on getting many of the benefits
of GST that are possible through executive decision?

For example, the excise and service tax arms of the CBEC in the finance ministry can be merged
immediately to align the two taxes.

The GSTN company is in place and it can offer a state of the art VAT system with automated
invoice matching to all states. At least 15-20 states will come on board.

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The design can be made future proof for the switch to GST.
A common gateway for payment of both central and state taxes can be provided by GSTN
immediately.

ON FORMAL SECTOR AS LEGITIMATE PARTICIPANTS

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This budget also missed the opportunity to bring a majority of Indians into the formal sector as
legitimate participants.

This requires adherence to two principles - ensuring that the benefit of entry into the formal
sector outweighs the cost, and that compliance is simple while evasion is difficult.

Building on JAM is the opportunity to use what iSPIRT calls the 'India Stack', a set of electronic
services that enable paperless, presence-less and cashless transactions.

Perhaps the most important miss is that the budget completely does not get this coming 'great
disruption'. It is going to come at speed and scale and threaten many industries and institutions.
It can also be used as state policy. The Chinese get this. At the January 2015 launch of Webank,
China's first online bank set up by the internet giant Tencent, Prime Minister Li Keqiang said,
"We will lower costs for and deliver practical benefits to small clients, while forcing traditional
financial institutions to accelerate reforms."

The brilliant Economic Survey talks about the chakravyuha challenge. Even as the government grapples
with it, leveraging disruptive technology is a great option!
BY NO MEANS A SOCIALIST BUDGET
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Finance Minister Arun Jaitleys emphasis on doubling farm incomes, rural development, and
allocations for a battery of impressively named schemes for the social sector may give the
impression that the right-wing NDA government has suddenly taken a socialist turn. The
reality, however, is otherwise.

Howsoever one defines it, an essential feature of socialist policy making is increasing government
expenditure. But Union Budget 2016 marks a new low for government expenditure as a
percentage of GDP.
As N.C. Saxena, former National Advisory Council member, says, Declining government
spending has been a trend that began in UPA II and continued into the NDA years. From a
high of 15.9 per cent of the GDP in 2009-10, government spending was down to 13.3 per cent last

UNION BUDGET ANALYSIS 2016 (COMPILATION BY AYUSSH SANGHI)!

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year, and in this years Budget, its slipped to 12.6 per cent of the GDP. How can such a steady
reduction of government expenditure be termed socialist?
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Also, far from any radical hikes in social spends that a socialist tag would suggest, 2016
budget is a holding operation that seeks to reap electoral dividends by passing itself off as
socialist. The recently published Economic Survey 2015-16 had clearly spelt out the importance
of increasing investments in health and education for reaping the demographic dividend. This
piece of advice, however, has gone unheeded in this Budget.

GROWTH AND REFORMS

Will the Budget help accelerate growth?
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Increased spending on agriculture and rural development besides increasing agricultural output
may push up rural demand for manufactured goods.
There is also the hope that after two years of drought, the monsoon will be good in the coming
fiscal.
The additional spending on infrastructure may draw in private investment. Apart from these,
there are no direct measures to stimulate private investment.

As far as reforms are concerned,

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There are references to new pieces of legislation relating to Aadhar, dispute resolution in publicprivate-partnership projects and modifying the Motor Vehicles Act.

Important pieces of legislation such as the Goods and Services Tax Bill and Insolvency and
Bankruptcy Code are already caught in the political logjam.

Under the circumstances, the government must move strongly in the area of administrative
reforms so that cumbersome procedures are eliminated and the administrative machinery,
including the delivery system, functions more efficiently.

These are low-hanging fruits which can be plucked. The ease of doing business is influenced by
how well the government functions.

The decision to stick to the path of fiscal consolidation is a wise one. It will send out the right signals to
the investors. The impact of high public spending will depend upon the drive and efficiency with which
the new projects and programmes are taken up and executed. Implementation is the key to boosting
investor confidence.

QUESTION on Budget
1.! A critical component of minimum Government and maximum governance is to
ensure targeted disbursement of Government subsidies and financial assistance to the
actual beneficiaries. Public money should reach the poor and the deserving without
any leakage. Discuss the statement in the light of steps taken by the government in
budget 2016-17.
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