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What defines a Good Budget?

, March 3, 2015, 0 Comments

overview india union budget 2015 MarketExpress-inThe Budget deals with allocating money towards areas where the government thinks it is essential to spend, and finding out ways such as taxes, to finance it. The Government primarily requires money to spend on social infrastructure (such as schools, hospitals, water, sanitation, etc.), physical infrastructure (such as railways, roads, airports, etc.) and transferring funds to the poor and the deprived, so that distribution of income becomes more equal. Too much unequal income distribution can instigate revolt, and in the case of democracy, can vote a government out of power.

Therefore, a good budget is one that has elements of having something for each sector, particularly the social and infrastructure sectors, and yet able to do this without putting a hole on fiscal deficit. Going by these parameters the Budget-2015 is a good one. Consider this:

To ensure equal distribution of income, the Finance Minister made sure he has sufficient fund for agriculture, and micro, small and medium enterprises (MSME) sectors. It is to be noted, 50 per cent of India’s population still earn their livelihood from the agriculture and allied activities, and yet contribute only 17 per cent of national income. Much of the reason for this low agricultural value addition has to do with dependence of India’s agriculture production on rainfall – more than 50 per cent of agricultural produce depend on good monsoon. So that the farmers do not suffer from volatile agricultural income, Rs. 5,300 crore has been set aside to support Micro Irrigation Programme such as drip water system. Additionally, farmers will also get credit access of Rs 8.5 lakh crore. The budget proposal also talked about a unified national agriculture market, so that price realization is better for the farmers.

Capital market imperfection is a cause of concern for the Indian policymakers. Earlier, during August 2014, government launched Pradhanmantri Jan-Dhan Yojana (PMJDY). The initiative, spearheaded by Prime Minister’s office, has a target to open 100 million bank accounts by January 2015. The target already been achieved. As of January 2015, banks have opened as many as 106.3 million accounts, out of which 63.4 million accounts are opened in rural areas and 4.29 million accounts in urban areas. However, there was still complaint on part of the business community, especially from the MSME sector, about accessibility of credit.

In this budget a proactive step was taken in this direction. Mr Jaitley allocated Rs 20,000 crore for the Micro Units Development Refinance Agency (MUDRA) Bank, meant for giving loan to the MSME sector. He also allocated an additional Rs 1000 crore to boost capital flow for the start-ups by the MSME sector. Presently, there are around 6 crore MSME units in India, out of which 62 per cent are owned by people belonging to SC, ST and OBC castes. Accessibility to finance for these enterprises will give boost to the MSME sector, and will create much needed employment generation. India has a growing young population, with two-third of its population below 35 years. The government does realize that finance is a major challenge for entrepreneurs in the country and announced the creation of a committee with representatives from the Reserve Bank of India, Finance Ministry and Ministry of Micro, Small and Medium Enterprises to examine fund flow to the MSME sector. This is a great step towards financial inclusion.

To give further fillip to the financial sector non-banking financial companies (NBFCs) are brought under SARFAESI Act. The SARFAESI Act was enacted to facilitate banks and financial institutions to realise long-term assets, improve recovery by exercising powers to take possession of securities, and sell them in order to reduce non-performing assets.

So that the poorest in the society has little to complain, in a first-of-its-kind move, Finance Minister attempted to universalize the social security system. In India, around 26.1 per cent of its 1.27 billion population lives below poverty line and 63 million people have been driven into poverty due to high cost of healthcare. Health insurance penetration in India is only around 5 per cent. Finance Minister, Mr Jaitley introduced the Pradhan Mantri Suraksha Bima Yojana, which will offer accident cover of Rs 2 lakh at a premium of just Rs 12 per year, and Pradhan Mantri Jeevan Jyoti Bima Yojana which will offer life cover of Rs 2 lakh for the age group between 18 and 50, at a premium of Rs 330 per year.

Finally, Mr Finance Minister thought about providing India with a world-class infrastructure. There is indication about increased allocation of funds for long term infrastructural development such as roadways, renewable energy, education, and agriculture. Make in India project, that is, incentivising manufacturing in India, will not be possible without having world class roads, ports and railways. Finance minister, Mr Arun Jaitley, has increased allocation of investment in infrastructure by Rs 70,000 crore in FY 2016 over what was allocated during FY 2015.

A national investment and infrastructure fund was announced, with an annual flow of Rs 20,000 crore. Another source of funds for infrastructure will come through the conversion of excise duty on petrol and diesel of Rs 4 a litre into road cess. 100,000 km of roads will be build, and this will connect 28000 villages. Connectivity is an important component for guaranteeing a uniform growth process, and removing supply bottlenecks. A report by McKinsey in 2013 said that an increase in infrastructure investment by 1 per cent of GDP could create an additional 3.4 million direct and indirect jobs in India.