Union Budget 2016-17

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Union Budget 2016-17 5-Institute Budget Seminar New Delhi, 5 March, 2016 Shekhar Shah NCAER 1

Transcript of Union Budget 2016-17

Union Budget 2016-17

5-Institute Budget Seminar New Delhi, 5 March, 2016

Shekhar Shah NCAER

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• Rural

Agriculture & Farm

Non-agricultural rural sector

• Infrastructure

• Industry

Sectors covered here

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• 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

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Total Allocations to MoA and MoRD*

Total allocation to Ministry of Agriculture

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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

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• 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

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*Total Plan and Non-Plan budget provisions net of receipts and recoveries Source: Expenditure Budget Volume II

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• 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

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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

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• Focus scheme for government- Pradhan Mantri Fasal Bima Yojana

“Path-breaking” Crop Insurance Scheme

2014-15 actual 2015-2016 RE 2016-17 BECrop insurance 2598.35 2954.65 5501.15

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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

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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

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• 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 BEIrrigation- Pradhan Mantri

Krishi Sinchai Yojana 1550.01 2340.00

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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

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 BENational Project on Soil

Health & Fertility 92.76 141.82 368.30

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National Project on Soil Health & Fertility

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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

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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 BEParamparagat Krishi

Vikas Yojana 249.6 297.00

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Paramparagat Krishi Vikas Yojana

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Organic Farming / ValueChain Development for

North East Region

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National Project on Organic Farming / Value Chain Development for North East Region

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• 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

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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

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• 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 BEFood security 1872.74 1136.61 1705.86

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Food security

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• 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

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• 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

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The second biggest focus of budget

• Reviving PPP Model of infrastructure development

• Boosting transportation

Infrastructure

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• 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

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• 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

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• 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

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• 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

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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

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• 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

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• 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

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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

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• 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

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• 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

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