Long on aspirations and short on action - A monograph on the Union Budget 2015-16 - B. Yerram Raju

Budget 2015 special issue 3 Business Advisor

Long on aspirations and short on action:

A monograph on Union Budget 2015-16

Dr B. Yerram Raju

Budgets elsewhere in the world do not attract as much

attention as in India for the reasons that India has for

long adopted centralised planning that involved

devolution of resources from the Union Government to

the States, and that there are announcements of a

number of centrally sponsored schemes that impact the

livelihoods of the poor and several personal tax saving

instruments in the fiscal policy annually.

This Budget attracted more attention than the rest

because of the very effective nine-month Modi rule that has put India on the

global investor radar. The fact that President Obama and other global rulers

and global investors as also all the industry associations welcomed the

Budget with aplomb, rather than just a cheer, and the fact that the youth

were watching the Budget proceedings in preference to the World Cup

Cricket match highlights measured by TV viewers‟ rankings on that day, are enough evidence of the market interest in this Budget.

Budget is an estimate of future revenues and expenditure over a specific

period. Budgets are usually prepared on annual basis for governments –

both Centre and State – and annual and monthly basis for business

enterprises. In other words, it is an annual statement of income and

expenditure of the Government to be placed before Parliament as

constitutional responsibility. Estimates are estimates and they can either be

exceeded or fall short. It is invariably the case that all the budgets reflect

only shortfall in achievements.

The epochal budget of Manmohan Singh that spearheaded the economic

reforms of P. V. Narasimha Rao government has been archived successfully,

after the touch and go budget of NDA government of Narendra Modi in 14-

15. Budget 15-16 eroded the trust deficit, reduced the primary deficit,

budget deficit, revenue deficit and contained fiscal deficit.

The pancha sutra (the five cardinal principles) of Modi Government that

have reasonable space in the Budget initiatives are:

1. Skill India; 2. Digital India; 3. Make in India; 4. Clean India (Swatch

Bharat); and 5. Smart Cities.


Budget 15-16 is a vision document, though long on aspirations and short

on actions that have put at rest the legacy of the UPA government with the

bundling of the centrally sponsored schemes to a double digit from triple

digit with a well thought-out strategy to get India moving once again with a

solid road map. However, the jobless growth and the fiscal mess of the UPA

government were left untouched. While a slew of measures have been

announced to improve the ease of doing business under the overarching

framework of “Make in India,” not much could be noticed in terms of enhancing employment on a sustainable basis.

Economic Survey (Ref: Chart) reveals that the economy grew in 13-14 by

6.9% that has put India in the league of high growth nations in the world

during that year, thanks to the CSO revising the base year from 2005 to

2012. This has at once put on backburner the pre-poll campaign by the

BJP, the main constituent of NDA government, that the UPA government

faulted on growth with a declining growth rate of just 4.7% in 2013-14 from

the average of 8% growth during the first decade of this century. The

fundamentals of the economy are still to improve: the investment rate

showed a decline from 38.2% of GDP in 2012 to 32.3% in FY 2014 and the

savings rate declined from 33.9% to 30.6% correspondingly. The two other

indicators, the forex reserves and current account deficit that were causes

of great worry in the preceding years showed considerable improvement with

the former increasing from $294 bn to $328.7 bn by January 2015 and the

current account deficit declining from 4.7% of GDP in 2013-14 to around


1.9% by December 2014 contingent on declining oil prices and increasing

flows of forex reserves.1 Buoyancy of Indian exports declined with respect to

world growth and negotiation of mega regional trading excluded India. It is

important to recognise that the growth recorded is due to growth in the farm

and services sector. India‟s high growth rates whenever occurred were due

to growth in agriculture and services sector. In future, however, if all the

strategies of “Make in India‟ succeeded, manufacturing sector is expected to be at the steering wheel of growth.

Declining price levels: WPI moderated at 3.496 while CPI moderated at 6.2%

up to December 2014 due to lower oil prices, low stagnation in trade

outcome. While this is the official version, at the field level, inflation is

unabated and this led to cautious approach by the RBI in responding to the

call for substantial reduction in interest rates in its monetary policy

following the Budget presentation. Fiscal deficit is expected to be contained

at 4.1% of GDP.

The Economic Survey 2014-15 recommends the following:

• Revive public investment in short term to complement private investment

as the key driver of growth;

• Enact bankruptcy Law;

• Set up high powered Independent Negotiation Committee;

• Reorientation and restructuring of PPP model to improve viability;

• Stalled projects stock at Rs 8.8 lakh crore or 7% of GDP to be brought

down with effective monitoring;

• Private sector suffered due to credit issues;

• Public sector suffered due to regulatory delays.

India is still a part of world’s fastest growing economies.

Key takeaways:

• Cooperative federalism: States have a greater share in resources. In

line with the recommendations of the 14th Finance Commission the

Budget announced decentralisation of resources under two important

measures: allocation of 42% of resources from the central pool with a

message to the States to devolve the resources down to the nagar palikas

and panchayats in the true spirit of 73rd and 74th Amendments to the

Constitution and reducing the centrally sponsored programmes to just

62.

1 For further detailed analysis the author in ites referen e to his ook India s Gro th ‘esurgen e 5

coauthored with M.S. R. Murty and Singala Subbaiah, BS Publications, Hyderabad.


• Rationalisation of subsidies: Rationalisation is euphemism for

reduction of subsidies. There can be no argument against the reduction

of subsidies for the rich and the affordable sections of the population. It

would have been a wiser move had the Finance Minister announced

reduction of all subsidies for all the Parliamentarians, legislators, those

who pay income tax beyond the threshold level of Rs 5 lakh. Instead, his

brush with the farm sector is the most unwelcome move. Fertiliser

subsidies currently enjoyed by the manufacturers should be moved to

the farmer by way of input subsidy after announcing and putting in place

the urea policy that was promised in 2014-15 Budget. When the share of

agriculture in GDP was 25-30 per cent, 10 per cent subsidy for the sector

could be a worry. With 3% share of agriculture in GDP of the US or

Europe, these countries are unwilling to slash their 50-60% subsidies to

the sector. But when the share of agriculture in India‟s GDP has come down to 13 per cent, reordering the ten per cent subsidy to enhance the

capability of the farmer and to provide greater access to markets would

be the right thing to do. Input subsidies should directly reach the farmer

with JAM and extension effort should be intensified through the mobile

technology. Technology should drive agriculture market yards to enable

the farmers through the right price discovery mechanism.

• The subsidy regime to be made more targeted for full protection to the

marginalised, poor and SC/ ST.

• Direct benefit transfer scheme: JAM - Jandhan, Aadhar, Mobile DBT is a

very welcome step and we should hope that the implementation

mechanism would not put the scheme in a jam.

• Investment oriented: There is a saying, „Do a few things efficiently instead of doing many things with a view to disperse the benefits to many

inefficiently.‟ From this perspective, this Budget has a singular focus of

increasing investments for infrastructure. This approach is worthy of

appreciation and rightly the stock markets and investors in India and

abroad gave thumbs up to the Budget on this score. The rating agencies

responded positively putting India on a higher rank.

• Public debt management moves to GOI: This is not a sagacious move.

Hitherto, the RBI has been managing public debt very efficiently. If the

empire and player become one, the game would be one-sided.

Government of India does not have expertise in managing public debt as

much as raising public debt. It has to borrow managerial expertise from

the RBI. This measure is regressive and needs a relook.

• Financial sector reforms: Gold monetization, constituting monetary

policy authority, insurance sector reforms etc. Comments have been

incorporated separately.


Budget aims

• Housing for all;

• With 24-hr power, drinking water, good sanitation and road connectivity;

• 2 crore urban and 4 crore rural houses to fulfill target by 2022;

• One earning member in each family by 2022;

• 20000 un-electrified villages will get connected by 2020;

• Health for all;

• Employment for youth as part of Make in India programme;

• Education for all;

• Broadband network to 2.50 Gram Panchayats;

• Upper primary school within 5 km;

• Start-up entrepreneurs to get adequate funding;

• East and North East to develop on same lines as developed regions.

Farm sector: 15-16 Budget announces

• Paramparagat Krishi Vikas Yojana;

• Pradhanmantri Gram Sinchai Yojana;

• Per drop-More Crop – Micro irrigation gets a slice of allocation - Rs 5,300

crore to support micro irrigation programme;

• Setting up National Agricultural Market Federation.

But Accelerated Irrigation Benefit Scheme has been axed.

The following announcements of 14-15 Budget have no reported

achievements:

• Agri-tech Infrastructure Fund of Rs 100 cr.

• Rs 200 crore provided to open Agriculture Universities in AP and

Rajasthan and Horticulture Universities in Telangana and Haryana.

• Two more Agricultural Research Institutes of excellence in Assam and

Jharkhand with an initial sum of Rs 100 crore.

• Farmer Soil health Cards on mission mode with Rs 100 crore and mobile

soil testing labs with Rs 56 crore additionally across the country.

• National Adaptation Fund of Rs 100 crore to combat climate change with

an initial sum an amount of Rs 100 crore will be set up. There is no

continuity for this initiative in the Budget 15-16.


• Technology driven second green revolution with focus on higher

productivity and including “Protein revolution” will be area of major focus. The focused programme has no implementation agenda.

• “Price Stabilisation Fund” of Rs 500 crore - Farmers are yet to find any

reprieve on this count. In fact the Ministry of Agriculture and

Cooperation has put a Draft Policy in January 2015 for comments and

this covers only horticulture sector. Farmers who are covered by the MSP

in farm sector will not be covered by this initiative although the initial

impression was that it would help all farmers. The procurement and

distribution mechanisms in the food sector are set for change as per the

recommendations of Shantakumar Committee. The whole food security

system in the country is getting into a season of uncertainty. Whether it

would usher in order or plunge into chaos, the future only would decide.

In the interregnum, farmers‟ fates hang lose.

• Central Government proposes to work closely with the State

Governments to re-orient their respective APMC Act. There would appear

to be no continuation of this initiative in the Budget 15-16.

Agriculture credit

• “Long Term Rural Credit Fund” to set up for the purpose of providing refinance support to Cooperative and Regional Rural Banks in 14-15

Budget with an initial corpus of Rs 50,000 crore. There is no evidence

of this fund reaching cooperatives. It would have been more sagacious

for the Finance Minister to announce Technology Management Fund to

bring the entire rural cooperative credit system into mainstream banking

and this would have strengthened the financial inclusion efforts and

helped inclusive growth.

• Sum of Rs 200 crore for NABARD‟s Producers Development and Upliftment Corpus (PRODUCE) for building 2,000 producers

organisations over the next two years. The scheme is still in a limbo as

NABARD is yet to sanction even a single scheme under this corpus.

• Rs 50 crore for the development of indigenous cattle breeds and an equal

amount for starting a blue revolution in inland fisheries. No status report

on the utilisation either in the Ministry‟s website or with NABARD.

• Invigorate the warehousing sector and significantly improve post-harvest

lending to farmers.

• Finance 5 lakh joint farming groups of “Bhoomi Heen Kisan” via NABARD – for landless farmers

• New short term credit target is Rs 8.50 lakh crore by 2015-16.


• Corpus of Rural Infrastructure Development Fund (RIDF) to Rs 25,000

cr.

• RIDF has been set up in 1995-96 with the sole objective of giving low

cost fund support to state governments and state-owned corporations for

quick completion of on-going projects relating to medium and minor

irrigation, soil conservation, watershed management and other forms of

rural infrastructure. The evaluation report of IIM, Bangalore of the RIDF

covering the period up to 2007 has clearly mentioned that there is need

for creating RIDF asset management fund as the assets created out of

this fund are languishing for want of proper maintenance. The returns do

not appear commensurate with the investments although compared to

the state governments‟ own projects in these unfinished assets they fared

better. Physical assets were visible but social audit is considered

desirable. There is no evidence of carrying out the improvements in

processes suggested in the evaluation of the project. And yet, year after

year the funds are being allocated from the Budgets. It is time that a

fresh evaluation of the RIDF investments is carried out by an

independent organisation, unconnected with the NABARD or its

associate organisations or organisations in which its Board Directors are

associated.

• Rs 5,000 crore provided for the Warehouse Infrastructure Fund. No

report card.

Infrastructure

Rs 70,000 crore to infrastructure sector: Projects are expected to source

funding from tax-free bonds for projects in rail, road and irrigation.

Public Private Participation (PPP) model for infrastructure development is

expected to be revitalised with the government bearing majority of the risk.

Two aspects are worthy to note in this regard. One, the government

escalating this mode of investment obviously seems to recognise that the

size of private investment capability matches equal to that of the

Government. Second, it is also a tacit recognition that the capacity of the

government to manage such projects is extremely limited. But the evidence

so far in PPP mode of implementation seems to suggest differently.

PPP mode of funding in this country is steeped in scores of scandals ever

since their introduction and billions of rupees have been sunk.

Investigations and recovery of lost money have been subjected to enormous

delays and regulatory interventions also marred the investigation process.

PPP agreements obviously have been faulty. Accountability and


transparency have been found wanting in most of the special purpose

vehicles (SPV) created. A system imported from the western models without

comparable legal supports has spoilt the broth. The Railway Budget and the

Union Budget heavily depend on this mode of investment as a major source

of funding the infrastructure projects.

• Government proposes to set up 5 ultra mega power projects, each of

4000 MW.

• Rs 75 crore for electric cars manufacturing.

• Renewable energy target for 2022: 100K MW in solar; 60K MW in wind;

10K MW in biomass and 5K MW in small hydro.

• Rs 500 crore for Ultra Mega Solar Power Projects in Rajasthan, Gujarat,

TN, AP and Ladakh.

• Rs 400 crore for solar power driven agricultural pump sets and water

pumping stations.

• Rs 100 crore for developing 1 MW Solar Parks on banks of canals.

• Green Energy Corridor Project to facilitate evacuation of renewable

energy across the country. Continuity in Budget allocations in this

directions seen in 2015-16.

• Atal Innovation Mission to be established to draw on expertise of

entrepreneurs, and researchers to foster scientific innovations; allocation

of Rs 150 crore.

Financial sector

• Forward Markets Commission to be integrated with the Securities &

Exchange Board of India.

• NBFCs registered with RBI and with asset size of Rs 500 crore and above

to be considered as „financial institution‟ under the SARFAESI Act, 2002.

• Permanent establishment standards to be adjusted so that country does

not head to “adverse tax consequences.”

• Mudra Bank announced for start-ups, a game changer.

This new bank is expected to boost credit at low cost a whole lot of small

businesses that provide 106 mn jobs among them – tailors, way side retail

food outlets, mechanics, telephone and mobile repair and servicing units.

These actually account for one-fifth of the economy.

Mudra Bank would have equity of Rs 200 crore to help these micro units.

Manpower statistics hold that every month, 10 mn workers are added to the

work force in this category. Only 4% of the 57.7 mn small businesses are

having access to institutional finance. Nearly a trillion rupees is the credit


prospect if adequate guarantee mechanisms are put in place for proper

credit origination and deployment. The limited impact of the existing micro

finance institutions can be escalated to more productive levels through the

new institution.

The mainstream banks have thus far distanced from this sector due to their

poor reach and unconscionable fear of new NPAs from this sector. Banking

is people oriented and thus far the commercial banks, NABARD, SIDBI in

their long history have left this sector to the private money markets. If

Mudra Bank were to succeed a few essentials need to be kept in mind and a

former leading rural banker, Jaganmohan shared the following thoughts in

the Business Standard response column:

1) Mudra Bank should be having headquarters in a city of less than one

million population.

2) It should recruit all young staff below the age of 25 with graduation in

social sciences or rural management with 75% of them coming from

villages and small towns.

3) The bank should adopt technology from day one.

4) The bank should have some refinance arrangements from the RRBs and

State Cooperative Banks for reaching the last mile connectivity to finance

small businesses.

5) The shortfall of commercial banks‟ lending to MSMEs should be invested in the bonds floated by Mudra Bank on the lines of RIDF window of

NABARD so that Mudra Bank would get access to resources at low cost.

6) Government of India should place the Annual Progress Report on its

performance to Parliament at its winter session to gauge the extent of

inclusion.

• Priority sector redefined to include agro industry and agribusiness with

credit up to Rs 10 crore.

• Priority Sector Lending Certificates will be introduced.

These two measures are a tacit recognition of the fact that the banks are

defaulting on the priority sector targets for agriculture sector. With the

inclusion of agri businesses and agro industry as part of the priority sector

allocation of the overarching 18 per cent of total credit, it is most likely that

both investment and short term credit to farmers per se would further

diminish. Even as it is, credit to farmers is concentrated in just eleven

States and irrigated tracts and least risky commercial crops and urban

agriculture. Lately, horticulture sector and animal husbandry sector got

good slice of it. It is sovereign risk that enhanced the NPAs in this sector

and not farmers‟ unwillingness to repay the loans. Farmers‟ incapacity to repay in times of natural calamities has not been adequately addressed by


the Government and the RBI. The Budget glosses over the issues when it

made announcements that actually are not part of Budget allocations.

Priority sector lending certificate is an innovative instrument, no doubt. This

would incentivise the banks defaulting on priority sector targets. If Mudra

Bank is active, these instruments can be a good source of liquidity if they

are tradable in the short term.

• Comprehensive regulatory mechanism through a separate institutional

and legal facilitation to improve ease of doing business.

• Amendment to FEMA Act in consultation with RBI for effective capital

control policy will be introduced.

• Indian Financial Code will be shortly introduced.

• Gold Monetisation Scheme; Sovereign Gold Bond, as an alternative to

purchasing metal gold.

• Developing Indian gold coin with Ashoka Pillar in the centre.

• Effectiveness of these instruments would depend upon the rules that are

framed for their introduction. If there is a mechanism that provides for

withdrawal of gold ornaments for festivals and redeposit with adequate

insurance and pricing mechanisms the schemes could make a head way.

Institutions that administer these schemes should have capabilities to

assess the quality of gold. Valuation risks are likely to increase.

• Atal Pension Yojana, to provide a defined pension, depending on the

contribution, and its period with matching 50% contribution from the

government.

• Pradhan Mantri Suraksha Bhima Yojana to cover accidental death risk of

2 lakh for a premium of Rs 12 / yr.

• Pending Insurance Laws Amendment Bill to be enacted soon.

• The regulatory gap under the Prize Chits and Money Circulation Scheme

(Banking) Act, 1978, will be bridged.

• Special small savings instrument to cater to the requirements of

educating and marriage of the girl child introduced.

• National Savings Certificate with insurance cover to provide additional

benefits for small savers.

• In the PPF Scheme, annual ceiling will be enhanced to Rs 1.5 lakh p.a.

from Rs 1 lakh.

• International Finance Centre in Gujarat will be set up.

• Bank Investment Company to fund capitalisation of PSBs and Bank

Board Bureau (P.J. Nayak committee) will be set up. This would


streamline the provision of capital to the PSBs and enhance corporate

governance efficiency.

• Forward Markets Commission is proposed to be merged with SEBI by

amending the SEBI Act.

• Public Debt Management Agency (PDMA) to bring India‟s external and domestic debt under one roof.

Education

School education

• Primary schools to cover 5 km radius : 80000 primary schools will be up

graded to upper primary and middle schools;

Higher education

• AIIMS in Jammu and Kashmir, Punjab, Tamil Nadu, Himachal Pradesh,

Bihar and Assam.

• IIT in Karnataka; Indian School of Mines in Dhanbad to be upgraded to

IIT.

• PG institute of Horticulture in Amritsar.

• Kerala to have University of Disability Studies.

• Centre of film production, animation and gaming to come up in

Arunachal Pradesh.

• IIM for Jammu and Kashmir and Andhra Pradesh.

While access and infrastructure improvement are issues that might get

addressed with these measures, the quality of teaching that is at its low ebb

missed the attention.

Teacher training needs huge investments right from primary to higher

education concurrent with the changes in the methods of teaching, the

curriculum and the books.

What we have missed out during the last six decades is teaching in history

and geography, ethics, culture, civic and social consciousness in a highly

divisive society and inculcation of a spirit of nationalism.

We do not have teachers who can teach these subjects not with just passing

out of schools with decent marks but absorbing the embedded values for

building better India.

If these issues are not addressed with a sense of urgency accompanies by

suitable Budget allocations, the young India on which we have lot of hopes


could just end up in a digital India in search of outsourced jobs. This would

spell disaster to the future.

Information technology

• Pan India programme “Digital India” to with an outlay of Rs 500 crore

launched in 14-15 but the progress and further initiative in 15-16 in the

same direction announced with broadband connectivity to all the village

panchayats.

• Programme for promoting “Good Governance” to be launched. A sum of Rs 100 crore provided.

• No status report but further initiatives to take the Digital India forward.

Action Taken Report – No indication

• Retrospective legislation keeping in mind the impact of each such

measure on the economy and the overall investment climate.

• A stable and predictable taxation regime. Still to be seen.

• Legislative and administrative changes to sort out pending tax demands

of more than Rs 4 lakh crore under dispute and litigation.

• Dispute resolution mechanism introduced 15-16.

• Resident taxpayers enabled to obtain on advance ruling in respect of

their income-tax liability above a defined threshold.

• Measures for strengthening the Authority for Advance Rulings have been

introduced.

• Income-tax Settlement Commission scope to be enlarged.

• National Academy for Customs & Excise at Hindupur in Andhra Pradesh.

Yet to be established.

• New Urea Policy to be formulated. Not yet done.

• Introduction of GST to be given thrust. (Increasing VAT to 14% from

12.36% in 15-16 Budget as a precursor to GST of 16-17 per cent and

promise held for introduction in April 2016.)

• High level committee to interact with trade & industry on regular basis to

ascertain areas requiring clarity in tax laws is to be set up.

• Convergence with International Financial Reporting Standard (IFRS) by

adoption of the new Indian Accounting Standards (2nd AS) by Indian

Companies. (This might be part of the Indian Financial Code now

announced.)

• Setting up of Expenditure Management Commission to look into

expenditure reforms. Set up but recommendations not announced yet.


Economic initiatives of 14-15 echoed in 15-16 Budget:

Encourages FDI selectively in sectors

• The composite cap of foreign investment to be raised to 49% with full

Indian management and control through the FIPB route.

• The composite cap in the insurance sector to be increased up to 49%

from 26% with full Indian management and control through the FIPB

route.

• Requirement of the built up area and capital conditions for FDI to be

reduced from 50,000 sq mtrs to 20,000 sq mtrs and from $10 mn to $5

mn respectively for development of smart cities.

• E-commerce platforms for manufacturing units to sell in retail.

Smart Cities

• A sum of Rs 7,060 crore is provided in the current fiscal for the project of

developing “one hundred Smart Cities‟ - Allocations don‟t match aspirations even in this Budget.

• It is time that the FM thinks of creating smart villages and lay out a plan

of action integrating the Swatch Bharat, Safe drinking water, rural

infrastructure and digital connectivity.

Tourism

• Development schemes for churches and convents in old Goa; Hampi,

Elephanta caves, Forests of Rajasthan, Leh palace, Varanasi, Jallianwala

Bagh, Qutb Shahi tombs at Hyderabad to be under the new toursim

scheme.

• Visa on Arrival for 150 countries.

Real estate

• Incentives for Real Estate Investment Trusts (REITS). Complete pass

through for the purpose of taxation. Clarity is yet to emerge.

• A modified REITS type structure for infrastructure projects as the

Infrastructure Investment Trusts (INVITS). Yet to be active.

• A REIT is a pooled investment entity registered with SEBI, just like a

mutual fund with investment primarily in real estate of completed and

revenue-generating properties. The rental received from these properties

will be distributed among investors as dividend. Real estate is a big ticket

investment with a huge chunk of money getting locked in buying a

property.


• The advantage of REIT is availability of exposure to real estate with a

smaller ticket size as well as diversification of investment by REIT. It has

been mandated that at least 90% of the value of the REIT assets shall be

in completed revenue generating properties. In order to provide flexibility,

it has been allowed to invest the remaining 10% in other assets as

specified in the proposed regulations, e.g. developmental properties,

listed or unlisted debt of companies, mortgage backed securities, equity

shares of companies deriving not less than 75% revenue from real estate

activities, government securities, money market or cash. This is a huge

window of opportunity for growth of the realty sector in future.

• These two instruments to attract long term finance from foreign and

domestic sources including the NRIs.

MSME sector

• Skill India to be launched with an emphasis on employability and

entrepreneur skills.

• Fund of Funds with a corpus of Rs 10,000 crore for providing equity

through venture capital funds, quasi equity, soft loans and other risk

capital for new startups

• Corpus of Rs 200 crore to be set up to establish Technology Centre

Network.

• Rs 50 crore is provided to set up a Trade Facilitation Centre and a Crafts

Museum to develop and promote handloom products and carry forward

the rich tradition of handlooms of Varanasi.

• Textile Mega Clusters: Rs 500 crore at Varanasi, Bareilly, Lucknow,

Surat, Kutch, Bhagalpur and Mysore.

• Rs 20 crore to set up a Hastkala Academy for the preservation, revival,

and documentation of the handloom/handicraft sector in PPP mode in

Delhi.

• Rs 50 crore for starting a Pashmina Promotion Programme (P-3) and

development of other crafts of Jammu & Kashmir.

• No report card on any of these initiatives. Budget announced that all the

skill development programmes functioning in 32 corridors would be

brought under one umbrella.

• Committee to study the flow of credit with mandate to submit report

within 3 months.

• Definition of SMEs to be modified to enable higher investments including

FDIs.


• Programme to facilitate forward and backward linkages with multiple

value chain of manufacturing and service delivery to be put in place.

• Entrepreneur friendly legal bankruptcy framework will be developed for

SMEs for easy exit.

• A nationwide “District level Incubation and Accelerator Programme” to be taken up for incubation of new ideas and necessary support for

accelerating entrepreneurship.

Nine months have passed and the Committee‟s Report is still awaited.

• Electronic Trade Receivables Discounting System (TReDS) financing of

trade receivables of MSMEs, from corporate and other buyers, through

multiple financiers announced to improve liquidity among the MSMEs.

• Atal Innovation Mission (AIM) will be an innovation promotion platform

involving academics, entrepreneurs, and researchers and draw upon

national and international experiences to foster a culture of innovation,

R&D and scientific research in India.

Job orientation in the Budget is missing.

Defence

• Grant of Rs 2,46,726 crore; an increase of 9.87 per cent over the

previous year.

• Emphasis on Make in India for rapid production of defence equipment.

Welfare schemes

• JAM trinity (Jan Dhan Yojana, Aadhaar and Mobile) to boost quality of

life.

• MUDRA bank to refinance micro finance orgs, to motivate first generation

SC/ST entrepreneurs.

• Housing for everyone by 2020.

• Government to contribute 50% of premium for Atal Pension Yojana every

year.

• Government to use Rs 9,000 crore unclaimed capital in PPF/ EPF for

Senior Nationals Fund.

Fiscal measures

• Abolition of Wealth Tax.

• Additional 2% surcharge for super rich with earnings of above Rs 1 crore.

• No amendment in tax slabs.


• Total exemption of up to Rs 4,44,200 for certain sections of population

and not for every taxpayer.

• Service tax surged to 14 per cent.

• Tax-free bonds for schemes in rail, road & irrigation.

• Atal Innovation Mission allocated Rs 150 crore.

• Rate of corporate tax to be reduced to 25% over next four years. The

proposal is icing on the cake. Budget is for a year and the FM should

have been forthright by mentioning that the corporate tax would be

reduced during the current year by just 3%.

• 100% exemption for contribution to Swachch Bharat, apart from CSR.

• Service tax increased to14 per cent.

S.S. Tarapore has said, in a recent article that it is a basic tenet of public

finance that indirect taxes are regressive. In the Budget for 2015-16, the

direct tax proposals result in a loss of Rs 8,315 crore of revenue while the

measures relating to indirect taxes result in an additional yield of Rs 23,383

crore.

This is a trend for many years which accentuates the regressive nature of

the Indian tax system. He also mentions that the exemption of dividends

from tax in the hands of recipients and the withdrawal of estate duty etc.

would make the Indian direct tax regime one of the mildest in the world.

Skill building

While it is laudable that all the skill building interventions of various

departments are brought under one umbrella, lot more needs to be

done both in short and long run.

Although a slew of skill building measures have been announced, these fall

short of practical wisdom. When the primary technology institutions and the

polytechnics failed to generate for years the quality of mechanics, welders,

electricians, carpenters, masons, potters and artisans that the medium and

large industry required, with six to twelve week on the job skills how can

new quality skills be generated, particularly in the rural areas?

Today the urban carpenter, mason, electrician are on an average daily wage

ranging from Rs 400-500 depending on the supply-demand factors.

Education, training, retraining, coaching, mentoring and handholding are

the key components in skill building. These have both institutional and on-

site interventions. Monitorable investments in all these areas from the

National Skill Development Corporation are very important constituents of


this area that went unattended in the Budget vision. In fine, this Budget is

not an accounting document of revenues and expenditure so much as the

vision and road map of the Prime Minister Narendra Modi to keep the Nation

First and Make in India the best. It however falls short of action agenda. In

fact, it is time that the Prime Minister looks at making regulatory impact

assessment as part of every law taken to Parliament for ensuring better

accountability of the law makers to the subjects of law and for ensuring

transparency and good governance. In the words of the Finance Minister;

“The credibility of the Indian economy has been re-established. The world is

predicting that it is India‟s chance to fly.” As mentioned in the beginning of this paper, it is the baby step towards cooperative federalism and

decentralised planning and allocation of resources.

Part two - Budget nomenclature

• Annual Financial Statement: Government‟s receipts and expenditure presented to the Parliament – Consolidated Fund; Contingency Fund;

and Public Account

• Consolidated Fund: Summation of all revenues, money borrowed and

receipts from loans it has given. All State expenditure is given from this

fund.

• Contingency Fund: Any urgent and unforeseen expenditure is met from

this Fund and is at the disposal of the President of India.

• Public Account: It is a collection of deposits like the Public Provident

Fund.

• Consolidated Fund is split into revenue and capital budgets.

• Revenue Budget consists of all revenue account; Capital budget or

capital account includes non-revenue receipts and expenditure.

• Revenue Account: All receipts like taxes and expenditure like salaries,

subsidies, interest payments that do not involve creation of any assets.

Capital account: Receipts from liquidating (selling) assets or shares of a

public sector company and spending to create assets and lending to receive

interest. A Central Plan is the Government‟s expenditure that includes a

five-year road map. This is met both from budget and non-budgetary

sources (State owned enterprises) Government‟s support to the Central Plan is known as Budget support.

Plan expenditure: It is the amount the centre sets aside to States and UTs

split into revenue and capital components in addition to the Budget

support.


Non-Plan expenditure: All those bills the government has to pay under the

„revenue expenditure‟: interest payments, subsidies, salaries, defense and pension. Most of the capital expenditure goes for Defence.

• Fiscal deficit: Living beyond the means. Non-borrowed receipts-

(revenue receipts+ loan repayments+ miscellaneous capital receipts,

primarily disinvestment proceeds) falling short of expenditure. The

excess of total expenditure over total non-borrowed receipts is called

fiscal deficit.

• Revenue deficit: Ideally all revenue expenditure must be met from

revenue receipts. Where it falls short, it has to raise a debt from the

public.

• Primary deficit: Fiscal deficit-interest payments on earlier borrowings. If

this is growing it means that our fiscal strength is bad.

• Current account deficit: Deficit arising from balance of payments current

assets.

• FRBM Act, 2003, specifies that revenue expenditure shall be met fully

out of revenue receipts only. Any borrowing should be done only to meet

capital expenditure. The Act also mandates 3% fiscal deficit after 2008-

09 in order to maintain fiscal stability. The global financial crisis and our

economy‟s meltdown forced us to abandon this fiscal discipline in 2008-

09.

(Dr B. Yerram Raju is Risk Management Consultant, Hyderabad.)

Long on aspirations and short on action - A monograph on the Union Budget 2015-16 - B. Yerram Raju

Economy & Finance

Transcript of Long on aspirations and short on action - A monograph on the Union Budget 2015-16 - B. Yerram Raju