Budget 2016: Expectations on Government Expenditure and Investment…

The big worry for the coming budget is the sanctity of the fiscal deficit. With the pressures of OROP and the Seventh Central Pay Commission (SCPC), the fiscal deficit is likely to take a hit of nearly 0.5%. It is going to be really hard to maintain the fiscal deficit at 3.5% of GDP. The big question is should the government focus on fiscal prudence or on spending more to push growth in the economy. The broad expectation from most of the economists, analysts and the general public is that the government will spend more in this budget to create demand through higher income effect.

Give more spending power to the people…

The big expectation in this budget is that more money would be put at the disposal of people in rural and urban India. Some of the key expectations on these lines are:

  • Raising the personal tax limits and reintroducing Standard Deduction to put more money into the hands of the people.
  • Make the exemptions like Section 24 and Section 80C more realistic in tune with the changing times. These limits call for an expansion to more real levels.
  • Spend more on rural projects so that rural incomes can be increased. Average rural incomes are already 35% below the average urban incomes and that anomaly needs to be rectified.
  • Focus on rural employment generation programs like MNREGA to bring back rural incomes and demand to the 2011 levels.
  • Spend heavily on infrastructure creation so that the spill over effects can be felt across rural and urban centres.

Big Push to Infrastructure…

When the first report on infrastructure was prepared by the Dr. Rakesh Mohan Committee in 1997, it had estimated an investment of $200 billion over 10 years. That requirement has already gone up to $1.2 trillion in the next 10 years. India operates on a GDP base of $2 trillion per annum. On that base it is growing at 7.4% per annum. Better world class infrastructure can spurt the GDP growth rate by another 2%. That alone implies an accretion of $40 billion worth of income per year. Its wealth impact will be huge. Also higher quality infrastructure will be instrumental in reducing the cost of doing business in India.

Spend more on primary health and primary education…

India spends lower than many developing countries on primary health and primary education as a percentage of GDP. Over the last few years we have seen expenditure on primary education and primary health curtailed due to budgetary constraints. The major expectation in this budget is that these expenditures are replenished to their original levels. Spending on primary health and primary education is more of an investment on the future of the nation and India cannot afford to be lax about it. In fact, the government should go ahead and guarantee a specific percentage of GDP earmarked for primary health and primary education and that discipline will have to be maintained irrespective of which government comes to power.

Focus on exports and imports… 

This is one area that has not received adequate attention over the last few years. Take the case of exports. The monthly exports have been falling for 14 months in succession. The situation is manageable because imports are also falling due to weak oil prices. This is the time the government comes up with a big push for the next big export potential. The last major thrust was on export of software in the late 1990s. After that, there has never been a concerted effort to push exports in a particular sector with potential. The time to focus on that is now. With oil likely to remain low for quite some time to come, it gives enough room for the government to focus on pushing its export basket.

The government also needs to focus on the quality of imports. Monthly of gold in excess of $2-3 billion is hardly justified. It does not make sense wasting precious foreign exchange to fund unproductive gold. The budget 2016 should take the harsh step to impose curbs if required so that foreign exchange is conserved.

To sum it up, the budget 2016 needs to focus on infrastructure and spending power of people. The longer term benefits of these will be huge.

Find latest news and updates Union Budget 2016 here.

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