Budget 2016 is good, well balanced

Sunil Godhwani, Chairman & MD, Religare Enterprises

Overall the Budget is a good and well balanced one. The narrative is structured and elaborate and has attempted to do everything by ticking almost all the right boxes. It balances economic growth and fiscal consolidation concerns around inflation, and hence sustainability of the economic growth path. The other big pluses would be items which were expected but did not get announced i.e. no increase in service tax and no increase in the holding period for long term capital gains.

The FM has done a commendable job to project a fiscal deficit ratio of 3.5 percent of GDP, along with a market borrowing number (Rs 4.2 trillion) significantly lower than was feared by the bond market. The overall focus seems to be more on rural and farm sector – on expected lines. This gels well with the hypothesis that rural demand is a necessary condition to boost overall aggregate demand in the Indian economy and invigorate private investment. Though the key will be implementation, like all Budgets in India, this budget too saw announcements of several good schemes and programs, mostly focusing on the rural side of the economy, social sector and infrastructure. Rural electrification for all by 2018, significant increase in allocation for road sector and a major jump in Railways planned investment, despite a decline in headline central govt. capital expenditure, shows that the govt. is focusing more on extra budgetary sources of financing of capital expenditures. However, the concern is that in case the revenue targets are not met, the cut may be on capital expenditure, because of very little elbow room on revenue expenditure cuts. Strategic sale target of INR 200 billion in FY'17, in addition to Rs 360 billion of divestment is a bit too optimistic. A few of the assumptions do appear to be unconvincing on the revenue side, namely the Rs 990 billion non-tax revenue budgeted from telecom sector, implying about Rs 400 billion (0.26 percent of GDP) from spectrum sales given the balance sheet of telecom players, and the more than 18 percent budgeted increase in income tax growth (FY16 budgeted was 23 percent, and we got 12.5 percent. Perhaps, assumption of mopping up extra revenue from VDIS scheme… About Rs 100 billion amounting to 0.07 percent of GDP). On the expenditure side, headline capital expenditure does suffer on account of the fiscal consolidation – only 3.9 percent increase budgeted for FY17 vs 22.8 percent budgeted in FY16 and revised down to 20.9 percent Y-o-Y."