March 10, 2016: Backdrop of Budget 2016-17 and Doubling Farm incomes in 5 years

March 10, 2016: Backdrop of Budget 2016-17 and Doubling Farm incomes in 5 years

General Studies: Daily Capsule

Curtain Raiser –News Update (March 10, 2016)

Backdrop of Budget 2016-17 and Doubling Farm incomes in 5 years:

Backdrop of Budget 2016-17	--- domestic economy confronted with adverse global environment --- agriculture sector reeling from two successive years of drought --- slow down in manufacturing sector
Overall state of economy	Universal feeling that the economy was in a vulnerable state
General Approach to Budget Design	--- Expansionary budget designed to stimulate aggregate demand --- Budget keeping the fiscal deficit in control
The Budget 2016-17	--- embraces fiscal prudence (fiscal deficit to be 3.5 % of GDP for 2016-17) but not at the cost of a cut in government expenditure ---  significant increase in the allocation to agriculture and rural development, as well as infrastructure

Optimism behind achieving the fiscal prudence and increased government expenditure:

Basic assumptions on achieving both, the fiscal prudence and increased government expenditure

--- steep fall in crude oil price, and not passing savings achieved on the import bill to consumers --- optimism (… significant increase in revenue from personal savings …. Divestment and the strategic sale of public sector enterprises will fetch the exchequer the sum of Rs. 56,000 crore (unreasonable as revised estimate for 2015-16 is less than half this figure) …. Hopes to exploit non-budgetary sources of financing infrastructure projects (…. Some infrastructure projects will be funded through public-private partnerships) …. National Investment and Infrastructure Fund (NIIF) allocated Rs. 4,000 crore, hoping NIIF can leverage this to raise additional funds through the bond market …. Approved market borrowings of around Rs. 30,000 crore for several financial intermediaries

Fallout of public borrowings

Public borrowings will crowd out private borrowing if overall credit scenario is not satisfactory

The target of doubling farm incomes within five years: how realistic?

Annual growth required to achieve doubling of farm incomes within five years	Around 14 percent
Challenge	Agriculture Output in India during any five-year period has not even touched half this level
How to meet the challenge?	Magic wand needed to achieve this miraculous feet of 14 per cent growth in Agricultural Output
What if double Agricultural output achieved?	Who will buy double the current volume of agriculture output given the low income elasticity of demand for agricultural output?

Indirect Taxes are also supposed to serve an allocative purpose: Taxes on diesel cars have been increased in order to discourage their use.

 Source: Good economics is good politics by Bhaskar Dutta, March 10, 2016, The Hindu