The year 2017 commenced with the country still reeling from the effects of demonetisation. The next big bang event was expected to the presentation of the Union Budget on 1 February. Clouds of uncertainty appeared following the death of sitting MP E. Ahamed, but as they say the "show must go on" (especially when it impacts the lives of over 1.27 billion people)—and so it did.
Mr. Jaitley's budget mainly focused on ten broad themes, namely the farming sector, rural population, the youth, poor and underprivileged, infrastructure, the financial sector, digital economy, public services, prudent fiscal management and tax administration.
The share of agriculture and allied sectors is expected to be around 17% of the GVA during 2016-17 at 2011-12 prices as per the CSO's advanced estimates. With as much as over 58% of India's rural households depending on agriculture for their livelihood, it is imperative to focus attention on its growth and development. Also, given the commitment of the previous Union budget to double farmers' income by 2022, a clear strategy to this effect was highly desired this time around.
Given the commitment of the previous Union budget to double farmers' income by 2022, a clear strategy to this effect was highly desired this time around.
While some measures, such as ₹10 lakh crore as credit to farmers, interest waiver, soil testing centres, micro-irrigation fund, and a legislation on contract farming, were announced, most of these have proved to have limited success in the past. In the past, the interest subvention scheme for farmers (introduced in 2006-07) has indeed facilitated the short-term agri credit growth rate to hit an average of 18% per annum. However, this has come with a big cost—rapidly rising financial liability under the scheme. Naturally, this has serious implications for the already stressed banking sector. Hence, a sustainable and more effective solution to providing "easy and affordable access" to credit to farmers (small, marginal and large) continues to be elusive. Moreover, the agri-value chain suffers from some other persistent major issues. These include backward and forward linkages, access to low priced fodder for livestock (which amounts to nearly 80% of input costs for dairy/ poultry industries, etc), affordable transportation facilities (not to mention infrastructure), exploitation by intermediaries and cold storage facilities for perishables, to mention a few.
The Regional Human Development Report for the Asia-Pacific, released by the United Nations Development Programme (UNDP) last year, expects India to be home to nearly 1.1 billion working age people by 2050. Moreover, it expects India to surpass China in terms of population by as early as 2022. Therefore, the risk of India's touted demographic dividend turning into a demographic disaster is much higher if an appropriate plan-of-action is not rolled out soon.
Charged with the further burden of speedy recapitalisation, the banking sector seems to have its hands full and not enough attention in the budget.
In this light, the Labour Bureau's estimates of employment generation for 2016 (with less than 1.5 lakh new jobs created) vis-à-vis the estimate of nearly 12 million joining the labour force annually, is more than disturbing! In addition, demonetisation has already had severe adverse implications for the employment scenario in India. India being a labour-intensive country—with a labour market heavily dominated by the (cash-dependent) unorganised sector—much more than experts' estimate of nearly four lakh jobs are likely to have been lost following demonetisation. For the population which lives hand-to-mouth, this is no mean loss; it is a life and death situation. Increased allocation for MGNREGA (₹48,000 crores) in this fiscal then, is hardly a sufficient compensation or buffer (particularly, given the high rate of rural to urban migration in India).
The banking sector has been long suffering from the rising levels of Non Performing Assets (loans that do not fetch any returns). Bad loans rose from ₹3,40,556 crore in September 2015 to ₹6,68,825 crore in September 2016, nearly doubling. While demonetisation is expected to stall the already slow recovery process, interest subvention and similar schemes shall undoubtedly prove to be excess baggage. Charged with the further burden of speedy recapitalisation, the banking sector seems to have its hands full and not enough attention in the budget.
Riding on the low commodity (mainly crude oil) prices and growing manufacturing and service sectors in the recent years, India's economy emerged as a "bright spot" in an otherwise gloomy world economy. With the fast pace of global developments, most of these advantages are likely to wane in time. Further, in its latest Global Economic Prospects report the World Bank states, "Growth in India is estimated to reach 7% in the financial year 2017... reflecting a modest downgrade to India's expansion." The demonetisation exercise has been cited as one of the major causes for this. Even the IMF has cut India's GDP growth rate estimate for the current fiscal year to 6.6% from an earlier estimate of 7.6%. While these institutions expect India's growth rate to rebound in the following years, increasingly protectionist policies being witnessed worldwide call for a reassessment. Even with regard to the measures announced to govern political funding, several lacunae remain.
All in all, the budget has played it safe and has been rather unremarkable in comparatively remarkable times. In any case, what India needs is not a flood of new programmes but effective, well-monitored, and well-regulated implementation of well-planned schemes.