Budget 2015-16: Getting public sector to revive investments, says CRISIL

Union Budget 2015-16 analysis by CRISIL:

Realistic fiscal targets, but slippage possible in disinvestment: The government has stuck to a realistic target of fiscal deficit at 3.9 percent of GDP for 2015-16 as opposed to the Finance Commission’s recommendation of 3.6 percent. It has managed to increase allocation for capital expenditure (to go up by 25.5 percent to Rs 2,41,400 crore) because of the headroom created from savings in oil subsidies and hike in excise duties on petrol and diesel. As a share of GDP, capital expenditure will increase from 1.5 percent in 2014-15 to 1.7 percent in 2015-16. Even though tax collection targets look achievable, there are chances of slippage in capital (disinvestment) receipts, which might bloat the fiscal deficit to 4.2 percent in the absence of any expenditure cut.

Getting public sector to revive investments: The budget lays focus on public investments, which will have large spillovers on growth if implemented effectively. Despite pressure on fiscal consolidation, enough room has been created for infrastructure spending through the government’s own resources and by nudging PSUs to invest more. Focus clearly is on four sectors -- roads, railways, power and rural development. This emphasis on strengthening transportation infrastructure will also boost manufacturing. Overall, the budget is growth-enhancing as it supports a mild pick-up in public investments, which can draw in private investments over time.

Fiscal federalism is an enabler: The government has raised states’ share in total divisible pool of tax revenues to 42 percent from 32 percent as per the recommendation of the 14th Finance Commission, recording the biggest-ever increase in vertical tax devolution. This not only increases the pool of resources available to the states but also raises flexibility to help states design, implement and finance programmes according to their specific needs. Total transfers from the centre to the states have increased from 4.5 percent of GDP in 2013-14, 5.5 percent in 2014-15 to 6.0 percent in 2015-16.

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