Professional Documents
Culture Documents
Contents
Brief
Viewpoint: A loaded fiscal deficit target
Ready Reckoner: 10 Key Budget takeaways
Viewpoint: What is India's potential growth? The Economic
Survey answers
Q&A: Union Budget and Economic Survey
Brief
The latest Union Budget was an important one for the NDA government, and one that was keenly awaited. After
almost two years in power, growth is yet to pick up substantially and sustainably. Even with key economic
challenges inflation and deficit under control, and a smart pickup in long term foreign inflows; a number of
industries awaited relief, as did the individual tax payer.
With this scenario as the backdrop, we at Orbis Economics keenly watched the developments on the Union
Budget front. This report brings to you a compilation of our work on it. Our research on the budget started with
our take on the Economic Survey, 2015-16, where a specific aspect is zoned in on: Indias potential growth;
which speaks volumes about adjusting to new long term economic realities.
On the release of the budget, we did an issue of our weekly subscription report India Macro Weekly on the
10 Key Takeaways from the Budget. From deficit targets to social spends, from infrastructure to finance, the
key announcements were covered. An opinion on the fiscal deficit target was posted as a LinkedIn post, which
spoke about the implications of maintaining it.
All of these are now compiled in this report, in reverse chronological order.
Last but not the least, we got a number of responses on our budget coverage both as comments as well as
offline. Some key issues raised by the professional community have been put together in a Q&A format.
GDP.
Maintaining
similarly
the
packed
deficit
with
target,
is
economic
mistaken!
0
2012-13
2013-14
2014-15
2015-16 2016-17 F
to deal with dynamic situations.. While remaining committed to fiscal prudence and consolidation, a time
has come to review the working of the FRBM Act. I, therefore, propose to constitute a Committee to review
the implementation of the FRBM Act and give its recommendations on the way forward.
10
2015-16 (RE)
2016-17 (BE)
15
11.8
10.8
10
7.3
5.5
3.9
0
Revenue
Capital
Total
governments
capital
spends
are
RE
BE
81.5
80.8
83.0
Corporation Tax
26.5
25.1
25.1
Taxes on Income
18.4
16.5
18.0
2016-17
Direct Tax
Indirect Tax
Customs
11.7
11.6
11.7
12.9
15.7
16.2
Service Tax
11.8
11.6
11.8
Pradhan Mantri Mudra Yojana: Amount sanctioned under PMMY had reached about INR
1trillion and over 25 million borrowers. | The target is now increased to INR 1.8 trillion.
Tax incentives: Manufacturing companies incorporated after March 1, 2016 given the option to
be taxed at 25%+surcharge and cess if they do not claim profit, investment or depreciation
related deductions. | Corporate income tax rate for the next financial year for companies with
turnover not exceeding INR 50 million reduced to 29% plus surcharge and cess. | Encouragement
for startups through 100% deduction of profits for 3 out of 5 years set up during April 2016March 2019. MAT will apply, but capital gains will not be taxed in specific cases.
13
Debt
Recovery
Tribunals
are
also
being
INDRADHANUSH
or
Plan
For
Financial
Data
Management
Centre
14
Irrigated Area
46%
of Net
Cultivated
Area only
requirement of INR 170 billion crore next year and INR 865
billion in the next five years will be provided for. (iv) 23 of these
projects are completed before 31st March, 2017.
A dedicated Long Term Irrigation Fund will be created in NABARD with an initial corpus of about
INR 200 billion.
A programme for sustainable management of ground water resources has been prepared with an
estimated cost of INR 60 bn for multilateral funding. Also, at least 500,000 arm ponds and dug
wells in rain fed areas will be taken up.
15
A new health protection scheme which will provide health cover up to INR 100,000 per family to
provide for unforseen health events that push households below the poverty line has been
envisaged. For senior citizens of age 60 years and above belonging to this category, an
additional top-up package up to INR 30,000 will be provided.
3,000 Stores will be opened during 2016-17 under Prime Ministers Jan Aushadhi Yojana to
improve the availability of generic drugs.
16
to be
Source: NSDC
formal
17
Roads + Railways
connect
the
remaining
65,000
eligible
=
in 2016-17
will be
Capital Expenditure on
road
transport
sector
to
allow
CPI inflation
pulses production.
2
Apr-15
Jul-15
Oct-15
Jan-16
19
20
the 2005-08 period, GDP routinely grew at over 9% rates, even with the old base. If the expectation is the same
under the new base, it clearly implies an acknowledgement of the fact that India is in a 'new normal' phase for
the economy, where the potential growth rate is in fact lower. Given the continued instability in the global
economy as well as India's domestic challenges, this seems reasonable.
21
22
So how should India achieve this potential? In the words of the survey: "Hard policy choices and a cooperative
external environment will be required to convert opportunity into reality. With the external environment out
our hands, the next question is: Did the Union Budget 2016-17 bring India to its potential growth rate?
23
24
Are the fiscal deficit targets achievable, especially in light of the increased expenditures on
OROP and 7th Pay Commission?
The centre has very well laid out the amount of expenditure on OROP and perhaps more widely
distributed but with a clear mention of 7th Pay Commission. Along with this, it also has reasonable
receipts' estimates, so we cant say that the numbers are not credible. A potentially higher nominal
GDP growth rates 2016-17, will also help keep the deficit in check. Moreover, a close look at
revised estimates for 2015-16 and budget estimates for 2016-17 reveals that they deficit numbers
are not that far apart in absolute terms in any case. If the centre can achieve the targets for this
year, it is quite likely that with a higher nominal GDP growth in the upcoming fiscal year, they will
11% above the numbers for last year. Even if the 12.6% number is a stretch, it will be a negligible
stretch, particularly if growth is somewhat better next year. Therefore, there is a good possibility of
achieving the target.
25
Why does the centre still have a fiscal deficit target, which is not in a range but a single
number?
The budget document addresses this very question. It says that a committee will be appointed to
consider this matter. The fiscal deficit target at the present point in time is based on a number of
assumptions, which could be outside policy control. Factors such as weather, which impacts
agriculture output, global economic conditions and commodity prices can impact growth and
deficit targets. Hence, a range for deficit has been proposed in lieu of a single number.
26
DISCLAIMER
All rights reserved. All copyright in this report is solely and exclusively owned by Orbis Economics
(OE). The same may not be reproduced, wholly or in part in any material form (including
photocopying or storing it in any medium by electronic means and whether or not transiently or
incidentally to some other use of this presentation), modified or in any manner communicated to
any third party except with the written approval of OE.
This report is for information purposes only. While due care has been taken during the
compilation of this report to ensure that the information is accurate to the best of OEs
knowledge, the content is not to be construed in any manner whatsoever as a substitute for
professional advice.
OE neither recommends nor endorses any specific products or services that may have been
mentioned in this report and nor does it assume any liability or responsibility for the outcome of
decisions taken as a result of any reliance placed on this report.
OE shall not be liable for any direct or indirect damages that may arise due to any act or omission
on the part of the user due to any reliance placed or guidance taken from any portion of this
report.
27