Deep Analysis of Union Budget: Context, Broad themes and Vision behind the budget. Hits and Misses? Will it work?

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Union Budget 2016
VistaMind Education

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What will we cover?
 Economic Overview
 Context for the Policy decisions
 Vision and Objective:
 How various parts fit together
 What could go wrong?

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Overview
 GDP Growth
 Expected to be 7.4% and between 8.1 to 8.5%
 Fiscal Deficit on course for FY 16 at 3.9% and then 3.5%
 Current Account Deficit under control, Forex Reserves High
 Global Economy down: Imports & Exports down TD@106.8Bn
 FDI up by 40%, Forex Reserves at 350 Bn record high
 Infrastructure projects stalled, slowly being unclogged
 Bank balance sheets in trouble, NPA’s at a record high
 Industrial growth very slow
 Private sector lacks funds/desire to invest
 LPG PAHAL scheme reduction in leakages down by 24%
 Record addition in Power Generation & Coal production

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Context for Budget 2016
 Global economic slowdown
 Commodity prices at major low
 Two big bills
 OROP
 Seventh Pay commission
 Industrial growth very slow
 IIP at 3.1% compared to 2.6% last year
 Infrastructure clogged with stalled projects
 Banks in deep trouble
 High NPAs & Restructured loans
 Rural distress
 2 successive droughts
 Farm productivity is key to growth without inflation

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Target Areas
 Subsidy reform
 Leakages very high in Fertilizer, Kerosene etc
 DBT based JAM Trilogy
 Power sector Mess
 Electricity Discoms accumulated losses at 3.8 lakh crore
 Banking sector mess
 Why 25 banks?
 Will government keep bailing out banks?
 Exit policy
 Rule of the market: Productive Efficient firms survive & Grow
 Privatization
 PSU’s accumulated losses: 1.04 lakh Crore (13-14 fig)
 Why should government run Telco’s, Airlines, Steel plants etc

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Theme 1: Fiscal Consolidation
 High Fiscal Deficit
 Higher Borrowings
 Inflation  High Interest rates
 Poor International Ratings
 Need for Public Investment
 Fiscal Deficit
 2015-16 at 3.9%, 2016-17 to 3.5%
 Achieved through rise in indirect taxes (Excise on Oil sector)
 2016-17 FD depends on Revenue assumptions holding

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Theme 2: Infrastructure
 Infrastructure Vs Subsidies and Schemes
 2.18 lakh Crore direct investment
 Roads, Railways, and Irrigation
 Solving the Infrastructure traffic jam
 Higher pace of highway construction
 Power generation, Village electrification, coal production
 JAM approach to subsidies
 JDY – Aadhar Card – Mobile Transfers
 Successful experiment in LPG Reduction in leakages by 24%
 Fertilizers next?
 The Power sector Mess
 UDAY scheme

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Theme 3: Tax Reforms
 Amnesty Scheme
 5.5 Lakh crore locked in Tax litigation
 Pay 45% Tax and get immunity
 Upto 10 lakhs, pay arrears without penalty or interests
 Tax dispute settlement
 Increases revenues, Unclogs legal system
 Tax reform
 Tax on super rich.
 Taxes on Diesel & Luxury Cars
 Additional 10% tax on dividends above 10 lakhs
 All Savings schemes brought to standard platform
 Regulatory Environment
 New Bankruptcy code to create exit policy

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Theme 4: Agriculture & Rural
 Aid transfer to Gram Panchayats at 2.87 lakh crore
 Massive 228% increase
 Crop Insurance & Farm Interest subvention
 Rs 5500 Cr
 NREGA highest ever allocation
 Rural Electrification, Massive push for Rural gas connections
 Irrigation
 Increase in irrigated land : 28.5 lakh hectares
 Focus on ground water recharging: 6000 Cr
 Unified Agri mrket
 585 regulated wholesale markets
 States to ammend APMC acts

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Theme 5: Banking reforms
 Banks in deep trouble
 180,000 Crore to 400,000 Crore
 Bankruptcy code, New ARCs
 Too little too late?
 11,200 Cr to 25,000 Cr allocation
 Indradhanush: Banking reforms
 Bank Boards Commission: Vinod Rai.
 Will appoint directors and key posts
 Implement Banking reforms
 Where will the rest of the money come from?
 IDBI: Signals willingness to dilute stake below 50%
 Why do we need 25 PSU banks?

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The Verdict
 A thoughtful and well Intentioned budget
 Under severe constraints
 But will it be enough?
 Implementation is the key
 Irrigation & Farm productivity: Difficult execution
 Soil Health Cards – Sustainable Irrigation – Crop insrance
 Scientific fertilizer usage – Change crop usage patterns – Free Agri markets
 Inshallah!
 God, Global Economy & GST
 Will Oil prices stay low?
 Subsidy reforms
 DBT is the key
 Biometric authentication at Subsidy POS
 Targeted Subsidies minimizing leakages & administration costs!
 Key misses
 Banking reforms
 Privatization

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The Verdict
 Fiscal Consolidation
 Non tax receipts (Spectrum, Disinvestment, Tax amnesty)
 Low FD  Low Inflation  RBI cuts rates Pvt investment boost
 The Banking Mess
 25,000 Cr is nowhere near enough
 Consolidation of banks, Privatization
 Tentative & Timid steps?
 Corporate tax reforms
 Eliminate exemptions & Reduce Tax rate has not happened
 Govt to pay 8.33% EPF for 3 years
 Small Incentive to generate employment
 Where is the Big bang reform?
 Fear of electoral backlash
 Legislation struck in RS