DOES THE INDIAN BUDGET DELIVER ?
Ajay Chhibber
ORGANISATION OF THE TALK
• Economic Context for the Budget
• Key Features of the Budget and Risks
• Potential Game Changers in the Budget
• Looking Beyond the Budget
Road Map and a Guiding Philosophy
CAN ELEPHANT’S FLY
India’s Sweet Spot :
Accelerating Growth,
Declining Inflation,
Lower Fiscal and External Deficit and
Bigger Forex Reserves
BUT HUGE CHALLENGES • Declining Competitiveness
• Low Investment
• Poor Ease of Doing Business
• Terrible Infrastructure
• Slow Job Creation
• Rising Inequalities
• Massive Gender Gaps
• Growing Environmental Problems
NEW GDP NUMBERS HAVE DELIVERED A “DOOSRA”
ITS NOT THE SHIFT TO GDP-MPTHAT MATTERED
2012-13 2013-14old new old new
Agriculture, forestry and fishing 1.4 1.2 4.7 3.7
Mining and quarrying -2.2 -0.2 -1.4 5.4
Manufacturing 1.1 6.2 -0.7 5.3
Electricity, gas, water supply & other utility services 2.3 4.0 5.9 4.8Construction 1.1 -4.3 1.6 2.5
Trade, repair, hotels and restaurants 4.5 10.3 1.0 13.3Transport, storage, communication & services related to broadcasting 6.0 8.4 6.1 7.3
Financial, real estate & business services 10.9 8.8 12.9 7.9Community, social & personal services 5.3 8.8 5.6 7.9GDP 4.5 4.9 4.7 6.6
HUGE SHIFT ACROSS SECTORS ? MANUFACTURING, MINING AND RETAIL TRADE UP; FINANCIAL SERVICES DOWN
GDP growth rates by sectorsDifference between new series and old series
in percentage points2012-13 2013-14
Agriculture, forestry and fishing -0.2 -1.0
Mining and quarrying 2.0 6.8
Manufacturing 5.1 6.0
Electricity, gas, water supply & other utility services
1.7 -1.1
Construction -5.4 0.9
Trade, repair, hotels and restaurants 5.8 12.3
Transport, storage, communication & services related to broadcasting
2.4 1.2
Financial, real estate & business services -2.1 -5.0
Community, social & personal services 3.5 2.3
GDP 0.4 1.9
INDIA EXPERIENCED RELATIVELY A HIGH INFLATION DURING 2008-13, BUT SINCE DEC 2013 IT IS DECLINING
HUGE REAL EXCHANGE RATE APPRECIATION
COMPETITIVENESS DECLINED SIGNIFICANTLY. CURRENTLY INDIA IS THE LOWEST AMONG BRICS.
INDIA’S RANKING IN THE WORLD BANK'S 'EASE OF DOING BUSINESS' INDEX HAS ALSO DECLINED.
ON FDI INFLOWS, INDIA STILL HAS A LONG WAY TO GO TO CATCH UP WITH PERFORMANCE OF OTHER EMERGING COUNTRIES.
INDIA SHARE MARKET AND FOREX RISING RAPIDLY
INDIA’S CURRENT ACCOUNT TO GDP IMPROVED : BUT DID GOLD SMUGGLING INCREASE ?
2015-16 BUDGET : SABKA SAATH, SABKA VIKAS : SABKA BUDGET
• Many New Policies and Initiatives : Execution Will Matter
• Pro Growth, Pro-Poor, Pro Corporate , Nothing for the Middle Class
• Fiscal consolidation Announced Path breached – 2015-16 deficit 3.9% vs 3.6 %
• Target of 3 % fiscal deficit shifted to 2017-18.
• If new GDP numbers accepted why push growth so hard?
BUDGET MATHS : HIGHER DEFICIT: FOR CAP EX OR DEVOLUTION
• Less Cur Exp 0.2 % of GDP
• Less Subsidies 0.35% of GDP
• Addl Disinvest 0.3% of GDP
• Total 0.85% of GDP
• Lower Deficit 0.2% of GDP
• Higher Capex 0.3% of GDP
• Fin Comm 0.35% of GDP
• Total 0.85% of GDP
14TH FINANCE COMMISSION: GAME CHANGEFOR COOPERATIVE FEDERALISM
Last 3 Years 2015-16
(share of divisible pool)
Tax Devolution 32 42
Non Plan Grants 5 7
Total from FC 37 49
Central Asst to state 27 16
Total 64 65
SOME RISKS AND WORRIES
• Quality of fiscal consolidation ?Revenue Deficit Remains High
at 2.8 % of GDP in 2015-16 and stays high
• Tax Assumptions Optimistic : No effort to widen tax base –
Awaiting GST ?
• Petroleum Subsidy projected to decline by 0.8% of GDP-
what if oil prices rise faster?
• Aggressive disinvestment- but it will work ?
OTHER MACRO MEASURES
• Public Debt Office – How Independent Will It Be
• Monetary Policy Committee – flexible inflation targeting
“oxymoron” adopted ?
• FMC and SEBI to be merged - good
• Demonetisation of gold- sovereign gold bonds – how much will it
generate ?
• Wealth tax to be abolished – replaced by 2 % higher income tax
above Rs 1 crore
• FDI and FII to be treated the same
Private Sector Banking 74% ( 49% FII/FPI cap)
Commodity and Power Exchanges 49% (26%FDI and 23% FPI/FII)
Credit Info Companies 74% (24% FPI/FII)Insurance 49% ( FDI+FPI/FII)Single brand retail 100%Multibrand 51%
Stock Exchanges 49% (26%FDI and 23% FPI/FII)Defence 49% (24% FPI/FII)
Railways (in selected areas) 100% (above 49% clearance in select area)
EXISTING FDI/FII LIMITS
PRO GROWTH AND EMPLOYMENT
• More Infrastructure spending Rs 70,000 cr ; 5 UMPPS plug and play mode
• National Investment and Infrastructure Fund Rs 20,000cr – game changer
• Ease of doing business ; much in state hands
• Lower Corp Tax from 30 to 25% by 2019 – loopholes to be removed
• GAAR delayed by two years : nothing on retrospective taxation
• REITS tax benefit
• Import Duty on inputs, raw materials and components reduced
• MUDRA Bank
• New Bankruptcy Law – potential game changer
INFRASTRUCTURE GETS BOOST, SOCIAL SPEND DECLINES : GUJARAT MODEL ?
FY 16 (Y on Y) Increase as % of GDP
Roads 59% 0.1%
Railways 33% 0.1%
Defence 10% 0.2%
Rural Development 21% 0.1%
Total 0.4%
States exhorted to pick up decline in social spend and agriculture?
STRATEGIC DISINVESTMENT (PRIVATIZATION) ISBACK : NAV RATNA’S ON THE BLOCK
• NDA Government under PM Vajpayee started strategic disinvestment
• UPA stalled- carried out desultory disinvestment
• Disinvestment target of Rs 41000 crores in 2015-16 budget.
• Strategic disinvestment is back target of Rs 28,000 crores – huge
efficiency gains
• IOC, NALCO, BHEL,NMDC,VSNL and Dredging Corporation under
consideration.
PRO POOR ?
• Funding for MGNREGA kept but Sarva Shiksha Abhiyan, National
Health Mission and ICDS reduced: States to pick up slack
• By 2022 20 m houses for urban poor, 40 m for rural poor and 60 m
toilets
• Universal Security System : Pension, Health , Accident : potential game
changer
• 20,000 villages to be electrified by 2020
• Nai Manzil Youth Scheme for self employment and talent utilization
UNIVERSAL SOCIAL SECURITY: JAN DHAN TO JAN KALYAN
• Atal Pension Yojana - 50% of premiums to be paid
• Pradhan Mantri Jyoti Bima Yojana – cover Rs 3 lakhs premium Rs
330/yr
• Pradhan Mantri Suraksha Bima Yojana- cover Rs 2 lakhs premium Rs 1
/month.
• But Cuts In Health Spending
PRO ENVIRONMENT ?
• Cess of Rs4/litre on petrol and diesel will raise Rs 30,000cr per year
for transport infrastructure.
• Cess of Rs 200/tonne on coal will raise Rs 10,000 cr per year to be
used for renewables
• By 2022 175000 MW of renewable capacity- 60,000MW on solar
• Helps Meet Global Carbon Tax Requirements ; But Is this Enough ?
ASPIRATIONAL INDIA ? SHIFTING FROM HAND-OUTS TO HAND-UP’S
• Small Bang Reforms But Role of State Shifting From Provider To Enabler
• Five Game Changers in the Budget
> Devolution to States
>New Investment and Infrastructure Fund
>Bankruptcy Law
>Universal Social Security
>Strategic Disinvestment
AGENDA FOR NEXT BUDGET ? AND BETWEEN BUDGETS?
• Land Acquisition Law – passed Lower house , upper house ?
• Stalled Infrastructure projects 7% of GDP
• Recapitalisation and reform of state banks – NPA +restructured loans 12%
• No Clear PPP model – plug and play for power ?
• No Power sector reform ; need reforms in distribution ?
• Reform of Food and Fertiliser Subsidy ( Shanta Kumar Panel )
• Middle Class Hurt : Higher Petrol Prices, higher service taxes
• Agriculture – neglected
Clarity on GST Timeline
POLITICAL ECONOMY AND CRICKET
• In Cricket start slowly in first 20 overs and accelerate in last 20 overs
• In Politics difficult reforms in first two- three years and reap electoral rewards in the last two years – need a Road Map
CAN THE ELEPHANT RUN ?
GDP-MP Growth in 2015-16 projected 8.4 %;
Faster than China;
Double digit to come ??
UNSHACKLING INDIA FOR THE 21ST CENTURY BUDGET MAKES A START
India’s Most Famous Finance Minister and Economic Advisor Chanakya (Kautilya) 3rd Century BC
“ Jahan Raj Vepari Vahan Praja Bhikhari”
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