GENERAL AFFAIRS

1. Affirming that the economy is right on track, Finance Minister Arun Jaitley presented the Union Budget for 2016-
17. The 85th annual budget can be called a growth oriented one putting major thrust on Agriculture and
infrastructure. The government with its proposals showed its intent to stick to the roadmap for fiscal consolidation
with next year’s fiscal deficit target at 3.5 per cent of the GDP, but that remains a herculean task in the face of an
additional burden on account of the recommendations of the 7th Central Pay Commission and the implementation
of Defence OROP.
Government as expected tried to maintain a balance between the sagging rural growth and high expectations of
the industry. Also there were lots of social reforms like massive mission to provide LPG connection to poor
households, a new health protection scheme, increased outlay for infrastructure, Rs 2.87 Lakh crore Grant in Aid
to Gram Panchayats and Municipalities, setting up of 1500 Multi Skill Training Institutes and incentives for jobs
creation.
The BE 2015-16 envisaged a tax to GDP ratio of 10.3 per cent, non-debt receipts to GDP ratio of 8.7 per cent and
total expenditure to GDP ratio of 12.6 per cent. The envisaged growth for gross tax revenue was 15.8 per cent
over Revised Estimates (RE) 2014-15. The total expenditure in BE 2015-16 was estimated to increase by 5.7 per
cent over RE 2014-15. At the end of December 2105, there was a significant shortfall in non-debt capital receipts,
mainly on account of the shortfall in disinvestment receipts, as only Rs 12866 crore of the budgeted amount of Rs
69,500 crore was realized. Major subsidies decreased by 1.7 per cent during April-December 2015, as compared to
April- December 2014 due to a decline in petroleum subsidy by Rs 22,545 crore, as compared to the
corresponding period in 2014-15, due to fuel pricing reforms and steep decline in the global prices of petroleum
products. Fiscal deficit at 87.9 per cent of BE in the year 2015-16 (April-December) was higher than the five year
average of 82.3 per cent, but lower than the corresponding figure of 100.2 per cent in the previous year.
GDP Growth: Indian economy as per the Advance Estimates released by the Central Statistics Office, is estimated
to register a growth rate of 7.6 per cent in 2015-16, higher than growth of 7.2 per cent achieved in 2014-15. From
the demand angle, the growth in private final consumption expenditure at 7.6 per cent in 2015-16 has been the
major driver of growth. The growth of fixed investment improved from 4.9 per cent in 2014-15 to 5.3 per cent in
2015-16. The exports and imports are both estimated to decline by 6.3 per cent in 2015-16, the former mainly on
account of subdued global demand and the latter largely reflecting the decline in international petroleum prices.
Prices: The headline inflation, based on the CPI (combined) series, dipped to 4.9 per cent during 2015-16 (April-
January), as against 5.9 per cent in the year 2014-15. Food inflation measured in terms of Consumer Food Price
Index (CFPI) declined to 4.8 per cent during 2015-16 (April-January), as compared to 6.4 per cent in 2014-15.
The CPI-based core inflation (non-food, non-fuel) also remained range-bound, inching up from 4.2 per cent in
March 2015 to 4.7 per cent in January 2016. The decline in core inflation was largely on account of the decline in
the inflation in housing (rent), transport, communication, education and other services.
Industry and Services: Growth in IIP in April-December 2015 was 3.1 per cent, higher as compared to 2.6 per
cent in same time period last year. As per the sectoral classification of IIP, electricity sector grew by 4.5 per cent,
manufacturing by 3.1 per cent and mining by 2.3 per cent during April-December 2015-16. In 2015-16, as per the
advance estimates, the services sector accounting for 53.3 per cent of India’s gross value added at current basic
prices, is estimated to grow at 9.2 per cent (at constant prices). Among the service sector activities, the sectors
Union Budget 2016

2. like: trade, hotels, transport, communication and services; and, financial, real estate and professional services are
estimated to register robust growth rates in 2015-16.
External sector: The value of India’s merchandise exports (customs basis) declined by 1.3 per cent to $ 310.3
billion in 2014-15. In 2015-16 (April-January), the growth of exports declined by 17.6 per cent ($ 217.7 billion vis-
à-vis $ 264.3 billion in the corresponding period of the previous year). Imports declined by 0.5 per cent to $ 448.0
billion in 2014-15. Imports for 2015-16 (April-January) were valued at $ 324.5 billion, 15.5 per cent lower as
compared to $ 383.9 billion in the corresponding period of the previous year. Imports of petroleum, oil and
lubricants (POL) declined by 41.4 per cent in 2015-16 (April-January) to $ 73.1 billion, as compared to $ 124.8
billion in the corresponding period of previous year, mainly due to the decline in international crude oil prices.
Non-POL imports for 2015-16 (April-January) declined by 3.0 per cent to $ 251.4 billion, as compared to $ 259.1
billion in the corresponding period of the previous year. Based on the Balance of Payments (BoP) data available for
the first six months of 2015-16, the trade deficit on BoP basis was $ 71.6 billion in April-September 2015 as
compared to $ 74.7 billion in April-September 2014. Buoyant remittances (private transfers) supplemented the
lower crude oil prices in reducing the current account deficit, and lower but the significant capital flows -resulted in
a sizeable capital account surplus. This resulted in increase in the stock of foreign exchange reserves, which stood
at $ 350.3 billion at end September, 2015.
Money and Banking: Liquidity conditions were generally tight during the first quarter (Q1) of 2015-16, mainly due
to restrained government spending. In the second quarter (Q2) of financial year (FY) 2015-16, however, liquidity
conditions eased significantly as public expenditure picked up and deposits exceeded credit substantially. In the
third quarter (Q3) of FY 2015-16, liquidity conditions tightened mainly due to the festive season currency demand.
The slowdown in the growth in the balance sheets of banks witnessed since 2011-12 continued during 2015-16 as
well. The moderation in the growth of assets of the SCBs was mainly attributed to tepid growth in loans and
advances (below 10 per cent). The decline in credit growth reflected the slowdown in industrial credit off take,
poor growth of earnings reported by the corporate sector and risk aversion on the part of banks owing to rising
non-performing assets. The total number of banking outlets increased from 553,713 at the end-March 2015 to
567,530 at end-September 2015.
Outlook
The third budget of the Finance Minister Arun Jaitley looked giving priority to the fiscal discipline and highlighted
the growth pillars of the Indian economy in Agriculture, Rural, Social sector, Skills, Ease of Doing Business and Tax
and Compliance reforms. While, there was focus on rural economy, infrastructure spending, social welfare
schemes and ‘digital’ initiatives. Rationalization of indirect tax and duty structures for various sectors such as IT
hardware, defence, mineral and petrochemical, aviation too was incorporated in the budget. The Finance Minister
said that the government will undertake three major schemes to help the weaker sections. He said the Pradhan
Mantri Fasal Bima Yojana has already been announced. The farmer will pay a nominal amount of insurance
premium and get the highest ever compensation in the event of any loss suffered. Sh. Jaitley announced a health
insurance scheme which will protect one-third of India’s population against hospitalization expenditure. He also
announced that the Government is launching a new initiative to ensure that the BPL families are provided with a
cooking gas connection, supported by a Government subsidy.
There were some disappointments as well as surprises, while the implementation of the crucial pay commission
proposals remained unclear, the allocation for bank capitalisation of Rs 25,000 crore was the major
disappointment, especially when Economic Survey had identified the need of Rs 1,80,000 crores. However, focus
on rural economy is important, especially in light of global economic situation. The budget stated that in light of

3. the encouraging performance of the economy in the first three quarters of 2015-16, marked by pickup in economic
growth, lower inflation, manageable current account deficit, high foreign exchange reserves, buoyant tax
revenues, increasing foreign direct investment flows along with the government’s push to reforms in crucial areas
including banking, infrastructure, power, taxation, etc., the near term prospects for the economy looks bright.

4. Chief Minister K Chandrasekhar Rao and Maharashtra Chief Minister Devendra Fadnavis scripted a new history by
signing five MoUs in Mumbai on construction of irrigation projects. ending decades of discord between the two
States on utilisation of water in the river Godavari and its tributaries.
As per the MoUs, the neighbouring states will build Medigadda barrage on the Godavari River, Tummadi Hatti on
the Pranahita and Chanaka-Korata and two other barrages on the Penganga. Of the five barrages, Maharashtra will
build projects at Rajapet and Penpahad while Telangana will build the remaining three projects.
The MoUs are believed to be historic as unlike other warring states both the states have reached to certain
conclusion after sharing their views and studying each others’ objections on several key issues such as height of
barrages and their storage capacity.
The five MoUs:-
Kaleswaram, a barrage at Rajapet on Penganga
Barrage between Chankha and Kovata
Barrage at Penpahad
Barrage at Tammadihatti on Pranahita
Barrage at Medigadda
The MoUs allow Telangana to take up the projects across Godavari and its tributaries on condition that there
should be minimal or no submergence of villages in Maharashtra. The projects are expected to benefit both the
states, particularly drought prone Telangana.
The Kaleswaram project, new avatar of Pranahita-Chavella lift irrigation project, will come up Kannepalli village in
Karimnagar district. It is aimed at irrigating 45,000 acres as well as drinking water to over 60 villages. Lower
Penganga project on Penganga river, which is tributary of Godavari, will irrigate about 2,38,000 acres in
Maharashtra and about 40,000 acres in Telangana.
The Lendi project coming up across the River Manjira, which is tributary to Godavari, is envisaged to irrigate
38,820 acres in Nanded district of Maharashtra and 27,710 acres in Nizamabad district ofTelangana.
Both the states have agreed to constitute an interstate board for joint irrigation projects to take decisions by
mutual understanding for irrigation projects such as Lendi, Pranhita and Lower Painganga.
On the circumstances that led to the MoU, the Maharashtra Chief Minister said efforts were on between
Maharashtra and the then combined Andhra Pradesh States for an agreement on Godavari waters since October
1975. Mr. Chandrasekhar Rao explained how they had been working for over an year including conducting a LiDAR
(Light Detection and Ranging) survey for identifying locations to tap water of Godavari and its tributaries to
minimise submergence in Maharashtra so that disputes could be avoided.
Maharashtra, Telangana sign Godavari Pact

5. The Cabinet Committee on Economic Affairs, chaired by the Prime Minister Narendra Modi, has approved Pradhan
Mantri Ujjwala Yojana - Scheme for Providing Free LPG connections to Women from BPL Households. Under the
scheme, Rs 8000 crore has been earmarked for providing five crore LPG connections to BPL households. The
Scheme provides a financial support of Rs 1600 for each LPG connection to the BPL households. The identification
of eligible BPL families will be made in consultation with the State Governments and the Union Territories. This
Scheme would be implemented over three years, namely, the FY 2016-17, 2017-18 and 2018-19.
This is the first time in the history of the country that the Ministry of Petroleum and Natural Gas would implement
a welfare scheme benefitting crores of women belonging to the poorest households.
In our country, the poor have limited access to cooking gas (LPG). The spread of LPG cylinders has been
predominantly in the urban and semi-urban areas with the coverage mostly in middle class and affluent
households. But there are serious health hazards associated with cooking based on fossil fuels. According to WHO
estimates, about 5 lakh deaths in India alone due to unclean cooking fuels. Most of these premature deaths were
due to non-communicable diseases such as heart disease, stroke, chronic obstructive pulmonary disease and lung
cancer. Indoor air pollution is also responsible for a significant number of acute respiratory illnesses in young
children. According to experts, having an open fire in the kitchen is like burning 400 cigarettes an hour.
Providing LPG connections to BPL households will ensure universal coverage of cooking gas in the country. This
measure will empower women and protect their health. It will reduce drudgery and the time spent on cooking. It
will also provide employment for rural youth in the supply chain of cooking gas.
In this direction, Finance Minister in Budget speech on 29.2.2016 had announced a budgetary provision of Rs.
2000 crore for 2016-17 to provide deposit free LPG connections to 1.5 crore women belonging to the Below
Poverty Line (BPL) families. Further, the Budget announced that the Scheme will be continued for two more years
to cover 5 crore households.
CCEA approved Pradhan Mantri Ujjwala Yojana

6. Nepal joined Turkey, Armenia, Azerbaijan, Cambodia, and Sri Lanka as one of the Shanghai Cooperation
Organization’s (SCO) so-called “Dialogue Partners.” Nepali Foreign Minister Kamal Thapa signed a memorandum of
understanding formalizing dialogue partner status for Kathmandu with the SCO’s secretary-general, Rashid
Olimov, in Beijing.
Nepal had first sought dialogue partner status with the SCO back in 2007 and again in 2015, at the 15th SCO
Summit, which was held in Ufa, Russia. The SCO contains several categories of membership, including full member
states, acceding states, observer states, dialogue partners, and guest attendees. China, Kazakhstan, Kyrgyzstan,
Russia, Tajikistan, and Uzbekistan are current members. India and Pakistan are slated to become members later
this year, pending the successful conclusion of accession talks. Afghanistan, Mongolia, Belarus, and Iran are
current observers.
Thapa, speaking at the ceremony in Beijing, noted that Nepal would “adhere to the principles, values and
objectives” of the SCO. According to Xinhua, Nepal’s position as a dialogue partner within the SCO will allow it to
participate in a range of SCO activities. Olimov suggested that Nepal’s accession would benefit other SCO member
states and lead to mutually beneficial cooperation. Neither Thapa nor Olimov specified what SCO initiatives Nepal
would be immediately involved in. Dialogue partner status affords limited say in the activities of the SCO and was
established in 2008 to encourage states with an interest in the SCO’s mission to participate in the organization’s
activities and summits without necessarily committing to full membership.
The SCO coordinates among its members of issues of economic and political significance in Eurasia, and has over
the years developed competency in counter-terrorism and military collaboration as well. Though some
commentary has suggested that the organization is something like an eastern counterbalance to the North Atlantic
Treaty Organization (NATO), it is not a collective security organization. Founded in 1996, the organization was
originally envisaged as a means to increase connectivity and dialogue between Russia, three former Soviet
satellite states, namely Kazakhstan, Kyrgyzstan, and Tajikistan, and China. The SCO today has relations with other
major supranational organizations, including the Association of Southeast Asian Nations (ASEAN), the
Commonwealth of Independent States (CIS), the European Union (EU), and the Organization of Islamic
Cooperation (OIC).
Nepal became Dialogue Partner of Shanghai Cooperation
Organisation