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Union Budget 2016-17

by Dr. Shekhar Shah, Director, NCAER

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Union Budget 2016-17
5-Institute Budget Seminar
New Delhi, 5 March, 2016
Shekhar Shah
NCAER
1
•Rural
Agriculture & Farm
Non-agricultural rural sector
•Infrastructure
•Industry
Sectors covered here
2
• First budget pillar - Agriculture and Farmers’ Welfare: 2X farm income 2021-22
• Second budget pillar - Rural Sector: boost employment & infrastructure
• Rural expenditure boost - in absolute and percentage terms
Powering the Rural Economy
0
20000
40000
60000
80000
100000
120000
140000
2012-13 2013-14 2014-15 2015-16 2016-17
Amount(inRs.Crores)
Total Allocations to MoA and MoRD*
Total allocation to Ministry of Agriculture
Total to Ministry of Rural Development
MoA+MoRD
0
1
2
3
4
5
6
7
8
2012-13 2013-14 2014-15 2015-16 2016-17
Percentage
Allocations as percentage of total budgeted
expenditure
Allocation to MoA as % of total expenditure
Allocation to MoRD as % of total expenditure
Total allocation to rural sector as % of total expenditure
4.4%
*MoA: Ministry of Agriculture; MoRD: Ministry of Rural Development
6.7%
2.2%
3
• Aim: to double farm incomes by 2022, three PM speeches in Karnataka, MP, UP
• Agriculture, largely ignored in Budget 2015-16, receives a whopping 127%
increase, from Rs 15,809 crores to Rs 35,983 crores, for 2016-17
• A special cess levied exclusively for funding farm initiatives
 Krishi Kalyan cess @0.5% applicable on all taxable services
Agriculture
27931.59
29772.83 31062.94
24909.78
44485.2
0
5000
10000
15000
20000
25000
30000
35000
40000
45000
50000
2012- 13 2 0 1 3 - 1 4 20 1 4 - 1 5 2015- 16 2016- 17
Total allocation to Ministry of Agriculture
1.9
1.8 1.7
1.4
2.2
0
0.5
1
1.5
2
2.5
2012- 13 2013- 14 2014- 15 2015- 16 2016- 17
Allocation as % of total expenditure
Amount(InRs.Crores)
*Total Plan and Non-Plan budget provisions net of receipts and recoveries
Source: Expenditure Budget Volume II
4
• Crop Insurance – second largest allocation in Budget
• Improving farm productivity
Irrigation
Soil fertility
Fertilizers
Organic farming
• Incentives for production
Availability of credit, largest provision (Rs 15,000 crores) for loan subvention
Price incentives
• Marketing of produce – digitising the APMC
• Food security - pulses
Key Farm Proposals in Budget 2016-17
5
Rank Scheme Share
1 Interest Subsidy for Short Term Credit to Farmers 41.7%
2 Pradhan Mantri Fasal Bima Yojna 15.3%
3 Rashtriya Krishi Vikas Yojana 15.0%
4 Pradhan Mantri Krishi Sinchai Yojana 6.5%
5 National Food Security Mission 4.7%
6 National Mission on Sustainable Agriculture 3.1%
Ag. Schemes with Highest Expenditure
Shares planned for 2016-17
6
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Union Budget 2016-17

  • 1. Union Budget 2016-17 5-Institute Budget Seminar New Delhi, 5 March, 2016 Shekhar Shah NCAER 1
  • 2. •Rural Agriculture & Farm Non-agricultural rural sector •Infrastructure •Industry Sectors covered here 2
  • 3. • First budget pillar - Agriculture and Farmers’ Welfare: 2X farm income 2021-22 • Second budget pillar - Rural Sector: boost employment & infrastructure • Rural expenditure boost - in absolute and percentage terms Powering the Rural Economy 0 20000 40000 60000 80000 100000 120000 140000 2012-13 2013-14 2014-15 2015-16 2016-17 Amount(inRs.Crores) Total Allocations to MoA and MoRD* Total allocation to Ministry of Agriculture Total to Ministry of Rural Development MoA+MoRD 0 1 2 3 4 5 6 7 8 2012-13 2013-14 2014-15 2015-16 2016-17 Percentage Allocations as percentage of total budgeted expenditure Allocation to MoA as % of total expenditure Allocation to MoRD as % of total expenditure Total allocation to rural sector as % of total expenditure 4.4% *MoA: Ministry of Agriculture; MoRD: Ministry of Rural Development 6.7% 2.2% 3
  • 4. • Aim: to double farm incomes by 2022, three PM speeches in Karnataka, MP, UP • Agriculture, largely ignored in Budget 2015-16, receives a whopping 127% increase, from Rs 15,809 crores to Rs 35,983 crores, for 2016-17 • A special cess levied exclusively for funding farm initiatives  Krishi Kalyan cess @0.5% applicable on all taxable services Agriculture 27931.59 29772.83 31062.94 24909.78 44485.2 0 5000 10000 15000 20000 25000 30000 35000 40000 45000 50000 2012- 13 2 0 1 3 - 1 4 20 1 4 - 1 5 2015- 16 2016- 17 Total allocation to Ministry of Agriculture 1.9 1.8 1.7 1.4 2.2 0 0.5 1 1.5 2 2.5 2012- 13 2013- 14 2014- 15 2015- 16 2016- 17 Allocation as % of total expenditure Amount(InRs.Crores) *Total Plan and Non-Plan budget provisions net of receipts and recoveries Source: Expenditure Budget Volume II 4
  • 5. • Crop Insurance – second largest allocation in Budget • Improving farm productivity Irrigation Soil fertility Fertilizers Organic farming • Incentives for production Availability of credit, largest provision (Rs 15,000 crores) for loan subvention Price incentives • Marketing of produce – digitising the APMC • Food security - pulses Key Farm Proposals in Budget 2016-17 5
  • 6. Rank Scheme Share 1 Interest Subsidy for Short Term Credit to Farmers 41.7% 2 Pradhan Mantri Fasal Bima Yojna 15.3% 3 Rashtriya Krishi Vikas Yojana 15.0% 4 Pradhan Mantri Krishi Sinchai Yojana 6.5% 5 National Food Security Mission 4.7% 6 National Mission on Sustainable Agriculture 3.1% Ag. Schemes with Highest Expenditure Shares planned for 2016-17 6
  • 7. • Focus scheme for government- Pradhan Mantri Fasal Bima Yojana “Path-breaking” Crop Insurance Scheme 2014-15 actual 2015-2016 RE 2016-17 BE Crop insurance 2598.35 2954.65 5501.15 0 1000 2000 3000 4000 5000 6000 Amount(inRs.crores) Expenditure on crop insurance Justification & Implementation Risks Government hopes to address agrarian crisis, largely ignored during its first two years, after two consecutive monsoon failures. Second largest allocation for agriculture. Risks are highly correlated in agriculture: insurance works best when they are not & probability of loss is low (but high at 14- 20%) However the required infrastructure to implement is not in place and unlikely to be in place if there is a third monsoon failure Moral hazard: Subsidising premiums will encourage risk-taking, especially for MSP crops, where this is already suboptimal Second largest allocation for agriculture in Budget 7
  • 8. Interest Subsidy on Short-term Credit • Interest subvention has the largest share in total expenditure, Rs 15,000 cr. • However, this scheme was with Finance Ministry before it was transferred to Ministry of Agriculture in this current budget • Previous year’s allocation for scheme was Rs 13,000 crore • Scheme is reported to be misused by large farmers who borrow at subsidized rates to invest in higher return schemes, or lend to unbanked farmers • There is no clear framework to monitor and evaluate who avails scheme and how it is used, or how it should be modified based on experience 8
  • 9. • Pradhan Mantri Krishi Sinchai Yojana an allocation of Rs 5,717 crores in 4 subcomponents • Accelerated Irrigation Benefits Programme • New long-term NABARD Irrigation Fund Rs 20,000 crores (Rs 12,517 cr this year) • Sustainable ground water management: Rs 6,000 cr. multilateral funding sought • 5 lakh farm ponds and dug wells & 10 lakh compost pits through MGNREGA Irrigation: holds the key, will take time 2015-2016 RE 2016-17 BE Irrigation- Pradhan Mantri Krishi Sinchai Yojana 1550.01 2340.00 0 500 1000 1500 2000 2500 Amount(inRs.crores) Pradhan Mantri Krishi Sinchai Yojana* *Per Drop More Crop scheme; Overall allocation among 4 sub-schemes is Rs 5717 crores, including Water Resources Ministry 9
  • 10. Soil Fertility Soil Health Card Scheme: • Target: to cover all 14 crore farm holdings by March 2017 • Allocation: Rs 368 crore 2014-15 actual 2015-2016 RE 2016-17 BE National Project on Soil Health & Fertility 92.76 141.82 368.30 0 50 100 150 200 250 300 350 400 Amount(inRs.Crores) National Project on Soil Health & Fertility 10
  • 11. Promoting Organic Farming • Aim: To increase crop yields in rain fed areas- 55% of the country’s arable land • Parmparagat Krishi Vikas Yojana- Aim: to bring 5 lakh acres under organic farming over a three year period • Promoting organic farming in North-East region Focus is on value addition so that organic produce grown in these parts find domestic and export markets 11
  • 12. Promoting Organic Farming • While allocations under Parmparagat Krishi Vikas Yojana have increased, allocation for Organic Farming/Value Chain Development for NE region has decreased 2015-2016 RE 2016-17 BE Paramparagat Krishi Vikas Yojana 249.6 297.00 220 230 240 250 260 270 280 290 300 310 Amount(inRs.Crores) Paramparagat Krishi Vikas Yojana 2015-2016 RE 2016-17 BE National Project on Organic Farming / Value Chain Development for North East Region 125 114.76 108 110 112 114 116 118 120 122 124 126 Amount(inRs.crores) National Project on Organic Farming / Value Chain Development for North East Region 12
  • 13. • Availability of credit Target for agricultural credit in 2016-17: Rs. 9 lakh crore Rs. 15,000 crore in BE 2016-17 towards interest subvention • Price incentives Incentives for production 13
  • 14. Agricultural Marketing Reform • Unified Agriculture Marketing Scheme a common e-market platform will be deployed in selected 585 regulated wholesale markets, requiring states to amend APMC: 12 states have already done so • 100% FDI allowed through FIP Board to market food products produced and manufactured in India 14
  • 15. • Rs 500 crores under National Food Security Mission for procurement of pulses • The number of districts covered increased to 622 Food Security 2014-15 actual 2015-2016 RE 2016-17 BE Food security 1872.74 1136.61 1705.86 0 200 400 600 800 1000 1200 1400 1600 1800 2000 InRs.crores Food security 15
  • 16. • Allocation of Rs. 38,500 crore for MGNREGS in 2016-17 • Targeted Delivery of Subsidies, Benefits and Services using Aadhaar framework • Rs. 19,000 crore PM Gram Sadak Yojna, with states share, total Rs 27,000 crores • Increase in allocation to Gram Panchayats: Rs 80 lakhs for gram panchayat • Launch of new restructured scheme: Rashtriya Gram Swaraj Abhiyan- aimed at developing governance capabilities of panchayats • 300 RURBAN clusters to provide infrastructure amenities, market access for farmers, and skill development opportunities for youth • National Digital Land Record Modernisation Programme to be implemented as a Central sector scheme [incentive framework] Non-Agriculture Rural Sector 16
  • 17. • There is no differentiation in schemes between small farmers and large farmers • Missing: Rationalisation of fertilizer subsidy Price of urea very low relative to neighbouring countries, smuggling A significant chunk of subsidized urea still diverted for industrial use DBT in fertilizer subsidy will reduce leakages, but the effect will be very small, since being introduced on pilot basis • Missing: rationalization of food subsidy • Together, food and fertiliser subsidies eat up more than 2 lakh crore, and pending 1 lakh crore – when will reforms start? Already late in political cycle? Developmental Concerns 17
  • 18. The second biggest focus of budget • Reviving PPP Model of infrastructure development • Boosting transportation Infrastructure 18
  • 19. • Kelkar Committee on Revisiting and Revitalising PPP Mode of Infrastructure Development recently submitted its recommendations. • Two Kelkar Committee recommendations implemented: Disputes resolution bill to streamline institutional arrangements for resolving infrastructure contract disputes Guidelines for renegotiation of PPP Concession Agreements to be issued • Additional measures: A new credit rating system for infrastructure projects to be developed. This will help in improving accuracy in pricing of loans to the sector. Reviving PPP Mode of Infrastructure Development If implemented, these measures will help immensely in kick-starting stalled projects and in increasing attractiveness of Indian infrastructure sector 19
  • 20. • Achieving infrastructure outlays depends significantly on off-budget resource raising initiatives National Investment and Infrastructure Fund Tax-free infrastructure bonds • Lack of push to PPP India (3PI) for analytical, negotiation, and legal capacity building for infrastructure PPPs Concerns 20
  • 21. • Roads and highways: 85% of stalled road projects have been put back on track Allocation of Rs. 55,000 crore in the Budget for Roads and Highways • Airports: Government is drawing up an action plan for revival of 160 underserved airports Boosting Transportation 21
  • 22. • Under this category, the budget’s focus has been on increasing domestic value addition through: Supporting small businesses Promoting growth in real estate sector Boosting construction sector Incentivising oil and gas exploration in India • The government has focused on its role as an enabler by taking steps towards easing tax compliance and reducing tax litigation Industry 22
  • 23. Presumptive taxation scheme: • Budget has increased turnover limit to Rs. 2 crores to avail scheme • Earlier the turnover limit was Rs. 1 crore • Professionals opting for the scheme are not required to maintain books of account and get the accounts audited • Currently about 33 lakh small business people avail of this benefit • Increase in the turnover limit would reduce the compliance burden of the small taxpayers • Some start-ups might also gain from this revised turnover limit Relief to MSMEs 23
  • 24. • Three-year tax holiday for start-ups set up during April 2016 to March 2019 • Capital gains will not be taxed if invested in regulated/notified Fund of Funds • Special patent regime with 10% rate of tax on income from patents developed and registered in India. • Increase target of Pradhan Mantri Mudra Yojana to Rs. 1,80,000 crore Benefits for Start-Ups 24
  • 25. • Boosting demand for housing: Rs 50,000 deduction on interest on loans for first-time home buyers for loans upto Rs. 35 lakh • Incentivising supply of affordable housing: 100 per cent deduction for profit on development of affordable housing • Facilitate investments in Real Estate Investment Trusts: REITs exempt from Dividend Distribution Tax. • This will also give a boost to construction sector- second largest employer Boosting Real Estate Sector 25
  • 26. Little focus on external sector: • Import-substituting adjustments of customs duties Increase in customs duty on manufactured imports, decrease in duty for some inputs Protectionism: Increase in Basic Customs Duty on aluminium and its products Should India focus on integrating into global value chains? Will it get left behind? • Negligible steps taken to address India’s poor export sector performance • India is at a risk of being left out mega-trading blocs: TPP, APEC, FTAAP • No steps taken towards raising quality standards to prepare for TPP regime, or even join APEC Industry & Manufacturing Concerns 26
  • 27. • No serious attempt at addressing exemptions • Budgeted capital expenditure 1.6% relative to GDP less than FY16 expenditure: 1.8% of GDP • Factor market reforms kept on backburner Goods and Services Tax Land Acquisition Act A comprehensive national labour law Industry & Manufacturing Concerns 27
  • 28. • A budget with focus on domestic value creation • Aims to address important sectors of domestic economy: Rural sector: through small positive steps. However the infrastructure surrounding big schemes- interest subvention and crop insurance needs to be strengthened to achieve the expected results Industry: primarily through steps to enhance infrastructure • Decision to stay on the fiscal consolidation path commendable • However, external sector has been ignored • Factor market reforms remain out of discussion, left to states The big picture: Direction right, steps small 28