ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

Budget 2016–17Subscribe to Budget 2016–17

Evolving Centre–State Financial Relations

After the Fourteenth Finance Commission award, aggregate transfers as a percentage of gross domestic product has increased, while grants as a percentage of GDP has declined. The centre is resorting to cess and surcharges that are not shared with the states. This would mean denial of revenue to states, which goes against the spirit of the Constitution. Further, the states have a reduced untied fi scal space, with the union’s share in Centrally Sponsored Schemes in 2016–17 (BE) being reduced. Finally, in the absence of plan transfers, post 2017–18, the focus should be to develop a framework for non-fi nance commission grants to states which is predictable and certain.

Lacking in Substance

Budget 2016-17 was presented after the Economic Survey recognised weaknesses in the Indian economy and raised hopes that the government would usher in major changes to enthuse the private sector to invest and grow once again. The dire situation of the rural sector was sought to be addressed through measures to alleviate suffering. Indeed, the slew of announcements sound impressive but, in reality, are quite modest.

From LPG Connections to Use

The Pradhan Mantri Ujjwala Yojana, to provide concessional LPG connections, is a step in the right direction but much more needs to be done by 2019 and beyond to ensure homes in India cook using modern fuels. This article explores the issues of providing connections, subsidy provisioning and ensuring sustained use of LPG and other modern fuels, so as to displace solid fuels from Indian kitchens. It also highlights the need for planning for increased demand and addressing institutional gaps to ensure that the benefits of modern fuel adoption, especially health benefits, are realised.

Rural Push in Budget 2016-17

Budget 2016-17 recognises that the rural economy is in crisis; however, it fails to address this with sufficient targeted rural spending. A perusal of budget documents reveals exaggerated expenditure claims, achieved through reclassification of budget heads. There has been an enduring neglect of agriculture, which is further exacerbated by this year's reduced subsidies for fertiliser and food. This will induce further vulnerabilities in the rural economy.

Beyond Fiscal Prudence and Consolidation

Since sustainable deficit could be different than the numeric fiscal rule, a review of the Fiscal Responsibility and Budget Management Act is timely and important. However, such a review should bear in mind that macro-stabilisation is a central function and the burden of fiscal adjustment should squarely fall on the union government keeping state debt and deficits withinFRBM limits. Maintaining the higher tax to gross domestic product ratio of last year will be key for fiscal prudence in 2016-17.

Budget without Heft

Budget 2016-17 correctly recognises that the economy is facing a demand slowdown but fails to back this up with necessary expenditure to boost aggregate demand. Guided by its programme of fiscal consolidation, the government has almost frozen public investment in order to achieve the targeted deficit for 2016-17. While its proclamation to improve ordinary lives is welcome, a rearrangement of deep-rooted structures of public expenditure in India is required to achieve this.

No Respite for Public Health

Health allocations in Budget 2016-17, which show a modest increase in nominal terms, must be viewed against the virtual stagnation of allocations since 2010-11, and the major cuts of 2015-16. Meanwhile, state governments' investments in health grew steadily. The centre has only prioritised initiatives that stimulate private health sector growth. This approach will have immediate adverse effects on availability and quality of public health services and will cause impoverishment due to healthcare costs, compromising economic growth in the long run.
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