does the indian budget delivers budget... · 2015. 5. 13. · 2015-16 budget : sabka saath, sabka...
TRANSCRIPT
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DOES THE INDIAN BUDGET DELIVER ?
Ajay Chhibber
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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
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CAN ELEPHANT’S FLY
India’s Sweet Spot :
Accelerating Growth,
Declining Inflation,
Lower Fiscal and External Deficit and
Bigger Forex Reserves
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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
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NEW GDP NUMBERS HAVE DELIVERED A “DOOSRA”
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ITS NOT THE SHIFT TO GDP-MPTHAT MATTERED
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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
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INDIA EXPERIENCED RELATIVELY A HIGH INFLATION DURING 2008-13, BUT SINCE DEC 2013 IT IS DECLINING
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HUGE REAL EXCHANGE RATE APPRECIATION
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COMPETITIVENESS DECLINED SIGNIFICANTLY. CURRENTLY INDIA IS THE LOWEST AMONG BRICS.
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INDIA’S RANKING IN THE WORLD BANK'S 'EASE OF DOING BUSINESS' INDEX HAS ALSO DECLINED.
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ON FDI INFLOWS, INDIA STILL HAS A LONG WAY TO GO TO CATCH UP WITH PERFORMANCE OF OTHER EMERGING COUNTRIES.
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INDIA SHARE MARKET AND FOREX RISING RAPIDLY
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INDIA’S CURRENT ACCOUNT TO GDP IMPROVED : BUT DID GOLD SMUGGLING INCREASE ?
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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?
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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
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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
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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 ?
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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
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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
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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
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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?
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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.
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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
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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
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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 ?
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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
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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
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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
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CAN THE ELEPHANT RUN ?
GDP-MP Growth in 2015-16 projected 8.4 %;
Faster than China;
Double digit to come ??
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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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