Three key things that standout from other measures in Budget 2016

India Council on Competitiveness | Mar 2, 2016, 12.36PM IST
There were several key messages from the budget this year, but the three which seem to stand out are in the areas of boosting infrastructure growth, reinvigorating rural demand and the rebooting financial sector.

For boosting infrastructure, the roads sector is given an unprecedented Rs 97,000 crore of investment allocated in this year's budget. It is expected to have a multiplier effect on the economy in the coming years and help in efficient transportation. This along with the Rs 1.21 lakh crore CAPEX in railways seems to be a major thrust of the union government going ahead.

The government is expected to approve 10,000 km of National Highways in Fiscal 2016-17 apart from the plan to upgrade 50,000 Km of state highways to national highways.

Apart from this, the move to develop airstrips of AAI in some of the towns in India is another positive step concerning infrastructure. Similarly, the plan to reinvigorate PPPs in infrastructure is also a positive one which may help private sector step in for some investment.

Second, for reinvigorating rural demand two related sectors have been targeted. One is the agriculture sector which has seen two back to back seasons of scanty rainfall. For the farmers in the sector, the announcement of a Fasal Bima Yojana will provide relief. And so will the move to create irrigation infrastructure through the strengthening of the Pradhan Mantri Krishi Sinchai Yojana over the long term.

The creation of the e-platform for farmers to sell their produce in wholesale markets across the country will aid in more freedom to the farmers to sell their produce. The change in the APMC Act in 12 states about the same is a progressive step. For the rural sector, which is the second sector, the structural step to give more funds to Panchayats and Municipalities (Rs 2.87 lakh crore) as per the recommendations of the Fourteenth Finance Commission is taken. It is an appropriate step as it will lead to a massive devolution of funds to the third tier of governance. Similarly, the steps for development of urban clusters for market access and job generation will aid in strengthening the rural economy in the long term. The substantial allocations to MGNREGS (Rs 38500 crore) and the rural sector overall (Rs 87,765 crore) underlie the impetus that is being given to rural economy and demand in the sector.

Third, another major focus area for the budget has been addressing the challenges of the financial sector. The introduction of the comprehensive Code on Resolution of Financial Firms in Parliament, as well as the code on Bankruptcy when enacted, will help in resolution as well as help bring in more accountability in the financial system. Also, the PSU banks have been facing problems due to asset quality and rising NPA.

In addition to the comprehensive INDRADHANUSH already being implemented, the budget has done well to provide an allocation of Rs 25,000 crore for the recapitalisation of PSU banks. Also, the motivation to solve people's problem at the retail level are worth mentioning. These include the intent to tackling the issue of illicit deposit taking schemes as well as the intent to provide better access to financial services in rural areas through the rollout of ATM's and Micro ATM's over the next three years.

Apart from these broader sectors other things where the government has done well at the macro level include sticking to the fiscal deficit target of 3.9 percent and 3.5 percent for the years 2015-16 (R) and 2016-17 (B) respectively.

The government has also announced a committee to look into the FRBM Act, 2003 which is a good thing considering that market conditions in India are different than they used to be in the past. On the personal tax front, not much is seen for the middle class and the EPF taxation seems to be a negative move that has seen some visible backlash on social media. Another negative on the personal front seems to be on duties on several items where almost everything seems to get expensive from jewellery to cars to mobile phones to air travel. The only thing that is getting cheaper it seems are shoes and footwear. All in all the budget seems to be good for the rural economy and infrastructure sector and seems to take care of the financial sector problems at hand but leaves much to done for the middle class.

(The article is co-authored with Sankalp Sharma, Senior Researcher at the Institute for Competitiveness, India. Amit Kapoor is Chair, Institute for Competitiveness & Editor of Thinkers. The views expressed are personal. Amit can be reached at amit.kapoor@competitiveness.in and tweets @kautiliya)

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