Budget 2015-16 makes a quantum jump in fuelling India’s growth take-off
Union Budgets do not have magical powers to provide economic nirvana. Yet, some Budgets are considered truly transformational. This Budget clearly addresses the nit- ti-gritties towards furthering the government’s growth focus and intent to move away from red tape to facilitate ease of doing business. Key flagship schemes, with specific focus on social issues, a major push on infrastructure, ‘Make in India’ and ‘Invest in India’, while taking care to maintain fiscal discipline are major highlights of this budget. What is especially heartening is the focus on three key areas – JAM Trinity – Jan Dhan, Aadhar and Mobile – to implement direct transfer of benefits and GST – fungibility of Fll & FDI, as part of invest in India.
Growth orientation with emphasis on execution has indeed been one of the key differentiating factors of the Budget 2015-16. The backdrop in which the Budget has been presented is indeed unique – unlike the last few years, India is not facing challenging macro-economic conditions. Sharp moderation in global commodity prices, led by oil had provided head- room for increasing growth-stimulating productive spending, without having to compromise on fiscal discipline. More importantly, with easing interest rate cycle, both monetary and fiscal policy had a rare opportunity to be in perfect harmony with economic revival as its key objective. As such, it was a unique and perfect setting for unveiling reforms that would stimulate growth by firing the twin engines of investment and consumption.
The Budget has addressed growth challenges by adopting a two-pronged strategy. At a macro level, the government’s expenditure priorities were re-oriented towards productive heads. At a micro level, the government increased its focus on sectors such as housing and roads that have greater absorptive capacity and hence high growth multipliers.
Likewise, at a micro level, the counter-cyclical pump-priming has been targeted at high multiplier sectors such as roads and housing. The government’s ambitious, but highly relevant plan of building 50 million rural and urban houses by 2020 is by far the largest housing project in the world. Further, the plan to complete 100,000 km of road projects and electrify 20,000 villages by 2020 will result in a quantum jump for the entire economy.
Apart from growth focus, the Budget had rnariy elements that distinguished it from trends observed over last few years. The most important deviation was that the Budget was based on credible and realistic arithmetic. Fiscal deficit as a percentage of GDP has been projected at 3.6 per cent for this year, and the roadmap to reach 3 per cent by 2017-18 is truly commendable.
The government’s motto of empowering state governments is a great development. The Budget upheld the spirit of co-operative federalism by reforming the existing system of fiscal transfers from the Union to the states. The government has decided to increase states’ receipts of tax devolution to an all-time high of 62 per cent, while also restructuring Centrally sponsored schemes to provide greater spending power to the states.
The Budget also laid the foundation for one of the most anticipated structural reforms on indirect taxes – GST. This will put in place a state-of-the-art indirect tax system with a dateline of 1 April, 2016, which will play a transformational role. It will definitely boost the economy by developing a ‘common Indian market’ and reducing the cascading effect on of goods and services.
Most importantly, the government’s intent to reduce corporate tax rate to 25 per cent over the next four years will greatly help India’s prospects as an investment destination. Postponement of applicability of GAAR by two years will be a key positive for foreign companies who are looking for a stable and predictable tax regime.
The surge in investor confidence after elections has been provided a leg up by the government’s resolve to transform its ‘Vision into policies’. However, to sustain the momentum, it is important to back it up with sustained delivery. The policies announced in the Budget will need concrete steps with time-bound framework for implementation. Most importantly, in order to realise the spending targets, the government will have to ensure that revenue inflow through disinvestments is not patchy and back-loaded and that expenditure is closely monitored through quarterly progress reports.
I subscribetotheFM’sstatementthat opportunities arise when opportunities are created. Seizing the opportunity – capre diem – has been achieved through the Budget.