Budget 2016 - A roadmap to success: Kumar Mangalam Birla

By Kumar Mangalam Birla, Chairman, Aditya Birla Group

BusinessWorld
11 March 2016

The third Union Budget of the NDA government is set against a challenging backd;rop. The global economy is going through a protracted slowdown, and financial markets have been edgy. The increasing recourse to quantitative easing by global central banks and the resulting negative interest rates represent uncharted territory and new uncertainties. Crude oil and commodity prices are also at new lows.

In this troubled world, India’s economy stands out for its relatively robust performance. The 7.6 per cent GDP growth puts it at the top of the growth league. Inflation has been contained. The current account deficit is down from over 6 per cent of GDP three years ago to 1.6 per cent of GDP. FDI inflows are buoyant, and foreign exchange reserves are at $352 billion.

However, there are stubborn problems lurking. Two years of successive below-par monsoons have slowed agricultural output, and caused distress in rural areas. Capital investments are not reviving. Exports are on the decline and the Indian Rupee has depreciated significantly. The public sector banks are faced with a huge legacy of non-performing assets that are finally being brought to book.

Given such a backd;rop, there was a challenge for the Finance Minister to stick to the fiscal correction path, while also providing for an appropriate fiscal impetus to growth. He has achieved this admirable balance. The fiscal deficit target of 3.9 per cent of GDP for the current year and 3.5 per cent of GDP for FY16-17 remains intact. Moreover, the quality of the deficit has improved, with the revenue deficit declining from 2.8 per cent of GDP last year to 2.5 per cent in the current year. The fiscal prudence could well set the stage for the RBI to cut interest rates, and thereby spur demand and investment. That would help to put India back on to a virtuous economic cycle of low inflation and declining interest rates that play out into higher demand and more investment.

The Budget is pragmatic and marks a clear continuation along the pace of economic reforms. It strikes the right balance between stoking growth and fiscal consolidation. It addresses the issues of the farm sector and low-income groups. It addresses critical areas such as income security, health, education, social welfare, job creation, infrastructure and ease of doing business. There are positive initiatives aimed at unclogging and simplifying the system of tax administration. What is noteworthy is that the Budget looks beyond merely numbers and takes a broader approach, factoring in the real concerns of the diverse constituencies that constitute the real India.

A highlight of the Budget is the sharply stepped up priority on the farm and rural sectors. The FM has spelt out the overarching objective of doubling the income of farmers in the next five years. This is a bold and desirable target. A slew of measures have been announced towards that end, including optimal use of water resources, augmenting groundwater resources on a sustainable basis, conserving soil fertility, setting up a dedicated long-term fund for irrigation under NABARD, improving fertiliser efficiency, increasing the production of pulses, extending the coverage of organic farming, and providing better connectivity between farmers and markets, including online platforms.

For the broader rural economy, there are initiatives such as additional funding for gram panchayats and municipalities, development of 300 rural-urban clusters, modernisation of land records and promotion of digital literacy. The FM has set a target of 100 per cent rural electrification by 2018. The Budget seeks to provide cooking gas connection to 5 crore poor rural households over the next three years. It also lays the foundation for health-related initiatives such as insurance for catastrophic illnesses, increasing the supply of generic drugs and dialysis treatment. There will also be a significant step-up in outlays for road construction in rural areas.

In totality, these broad-ranging initiatives represent a comprehensive development package. These will surely do much to uplift what is the core constituency of our country. This will bring about greater equity, and more sustainable and higher quality growth.

The Budget has several measures in the areas of education and job creation. This includes providing support to 20 institutions of higher education, both public and private, to achieve world-class excellence in teaching and research. An innovative step is the proposal to set up a Higher Education Financing Agency with an initial capital of Rs 1,000 crore. There are also major initiatives by way of setting up 1,500 multi-skill training institutes, providing entrepreneurship training and establishing model career centres.

The Budget seeks to encourage states to rework the shops and establishment laws so that small retail outlets can work around the clock, thereby creating more jobs. The subsidising of EPF contributions at the rate of 8.33 per cent for 3 years, for new recruits up to a certain income threshold, will help to spur job creation in the organised sector. The Budget’s emphasis on infrastructure development is apposite and timely. The outlays for roads and railways have been significantly stepped up which in turn will have huge multiplier effects. Market-based incentives will be given for deep sea oil exploration and drilling. The development of ports, national waterways and underserved airports will be accelerated.

In addition, there are several measures to enhance the ease of doing business, and strengthening of the financial sector. 100 per cent FDI is being permitted in the marketing of processed foods made in India, a move that could well lead to 100 per cent FDI in multi-brand food retailing. The Motor Vehicle Act is sought to be amended to permit private entrepreneurs to operate buses for local passenger transport. The reworking of the PPP framework will unlock and put on track many projects whose implementation has been stalled. Measures are also being taken to ease the bankruptcy process, promote retail participation in the G-Sec market, and broaden the spread of ATMs and post offices. Asset Reconstruction Firms are also getting a push by allowing sponsors full ownership.

It also seeks to bring about a more equitable and less discretionary tax system, which is more taxpayer-friendly. There are welcome provisions aimed at settling tax disputes and easing tax administration. The threshold up to which presumptive taxation applies has been doubled. A start has been made in bringing down the corporate tax rate, at least for new as well as smaller manufacturing units. The Budget has addressed deftly the compulsions of growth, fiscal prudence, equity and inclusiveness.