THE BUDGET is remarkable in the sense that despite challenging times, it decided to jump for fiscal prudence by sticking to the 3.5 per cent deficit target.
Additionally, Rs 6 lakh borrowing number was an even bigger surprise for the bond market. However, bank recapitalisation numbers could be an ongoing exercise, as our internal estimates suggest that this number for the entire banking sector could be at least an additional Rs 1 lakh crore over and above the Rs 70,000 crore envisaged over the next couple of years.
The budget has provided the correct solution to revive the agricultural sector. Among other things, the proposal to move away from a regime of input through better targeting towards marginal and small farmers is a step in the right direction. In particular, the idea to push fertiliser subsidy on a pilot basis through the DBT could be a game changer. With global fertiliser prices having corrected substantially in the last two years, the timing was opportune to carry out this reform and the government has done just that.
The plan to set up a national agriculture market will achieve the twin objectives of lifting farm income and moderating farm produce prices. The enormity of this exercise, with a Rs 27,000 crore fund, is significant as there are 2,477 principal regulated markets based on geography called Agriculture Produce Market Committee. Plans to provide soil health cards and increased outlay on irrigation are other additional incentives provided for in the budget.
There are special incentives for the MSME sector like incentivising the small businessmen. For example, the existing presumptive income scheme under Section 44AD of the Income Tax Act is quite popular among small businessmen who declare their income at 8 per cent of the total turnover or gross receipts of the previous year. Keeping in view the popularity of the scheme and its impact on ease of doing business, the existing limit of Rs 1 crore has been increased to Rs 2 crore.
Additionally, we expect that the MUDRA scheme with a scaled-up disbursement target of Rs 1,80,000 crore in FY ’17 (Rs 70,000 crore in FY ’16) on a conservative basis could provide employment to around 3.5 crore individuals.
The Stand Up India Scheme will ensure coverage of skilled/ semi-skilled entrepreneurs in different geographies across the country. The banks are already in the process of identifying the prospective borrowers (SC/ ST/ women) for the scheme to be launched on April 1.
The new hybrid annuity concession agreements on road hold a promising future and the impetus given to develop inland waterways, roadways and small airports will avoid the excess of coastal dependent growth model of China at the initial stage.
To get more investment in ARCs, the budget proposed to provide a complete pass through of income-tax to securitisation trusts, including trusts of ARCs. Overall, the FDI move can benefit banks, in case ARCs are able to leverage this move. Broad-basing of investors eligible to invest in ARC trust instruments is also a positive factor.
To sum up, in the present scenario, the focus of the government should be “fiscal consolidation” rather than “fiscal austerity”. The rigidity in fixing the fiscal deficit numbers have to be moulded in such a way that the policy adopted is credible yet gives the scope for adjusting to the context present in the economy. In this respect, the fixing of a fiscal range rather than an exact fiscal number presents an ingenious solution. The budget also acknowledges this fact and there is a proposal to set up a committee to review the implementation of the FRBM Act. In a highly uncertain situation, the assumption of one number and one solution being sacrosanct appears unreasonable.