Budget 2016 – Bottom up Approach

The falling oil prices has helped the government save about USD 1.7 billion in subsidy bills which is major boost to India’s finances. The direct benefit scheme for LPG subsidy, that transfers subsidies directly to beneficiaries through bank accounts, could help the government save about USD2.3 billion every year. Recently economic survey had revealed that India’s rich feed off subsidies worth over Rs. 1 lakh crore a year that are meant for the poor. So did budget consider all the factors. 

The BIG Question was….will priority be given to Growth or Fiscal Deficit?

People used to big bang announcements will be disappointed. Well in one line this is a social transformative budget which provides roadmap for fiscal consolidation. The thrust has been on three main areas Rural, Agriculture & Social sector.

The target for fiscal deficit 2016/17 has been retained at 3.5% of GDP. This is positive for bond market & banking in general. Also will give comfort to the central bank (RBI) for further reducing interest rate by at least 25 basis point. There was no change in income tax slab.

Healthcare

1. Health insurance of up to Rs. 1 lakh per family; top up of Rs. 35,000 for people above 60 years. 3,000 stores to be opened for generic drugs
2. National dialysis service programme under PPP model
3. To Provide Rs 130,000/year health’s cover for senior citizens

Impact - A great budget for health sector. This is big relief to BPL families leading towards social security which will provide inclusive coverage. Only thing will be seen is how strictly things are monitored & implemented

Agriculture, Rural & Infrastructure

1. 5,542 villages have been electrified
2. Rs. 38,500 crore for MNREGA. This is highest ever for the rural employment scheme
3. Rs. 2.87 lakh crore for gram panchayats
4. Agricultural credit target of Rs. 9 lakh crore
5. Direct Benefit Transfer for fertiliser subsidy
6. Government to allocate Rs 5,500 crore for crop insurance scheme
7. Two schemes for digital literacy for rural India to cover 6 crore households in the next three
8. Finance minister has allocated Rs.19,000 crore for the rural roads programme under the Pradhan Mantri Gram Sadak Yojana
9. LPG connection for women members of rural homes
10. Pumping of close to 2.18 Lakh Crore in Railways & Road combined is again a big thumbs up
11. 2000 Km state Highways to be converted into National Highways

Impact – A lot of action has happened here. Government plans to reorganize agricultural policy to double farmer income in five years. The above measures should bring more money to the farming community where almost 70% of the population is residing. This will also boost spending as well

Auto Sector

1. 1 % service charge on purchase of luxury cars over Rs. 10 lakh and in-cash purchase of goods and services over Rs. 2 lakh
2. 4% high capacity tax for SUVs

Banking Sector

Rs. 25,000 crore for recapitalisation of public sector banks. General insurance companies owned by the govt to be listed in stock exchanges

Impact: There is lot of emphasis on dispute resolution. The changes in SARAFESI act proposed to help Asset Reconstruction Cos to do better are welcome move. The Securities Appellate Tribunal takes up appeals filed against orders issued by financial market regulators like Sebi and IRDA. Currently, there is only one bench of SAT at Mumbai. An increase in the number of bench will make it easier for entities to file appeals and also bring down the number of pending case.

Others:

Income Tax Relief Announced For Small Taxpayers:

1. FM raised the deduction limit under Section 87A of the Income Tax Act from Rs. 2,000 to Rs. 5,000 per annum
2. Relief for taxpayers who do not own a house and don't get house rent allowance from employers
3. Additional deduction of Rs.50,000 on interest paid by first-time home buyers on home loans of up to Rs. 35 lakh, provided the house value doesn't exceed Rs. 50 lakh

Impact: Exemptions provided on housing loan interest for first time home buyers and affordable housing would provide a boost the stressed residential sectors.

Previous budget was modeled on top down approach where focus was on, investment driven growth. However this budget believes that growth will be driven by lower strata. Empowering of agriculture & farmers will ultimately lead to domino effect which should ultimately lead to growth of economy. Hope the bottom up approach works.