Published : Friday, 08 January, 2016 10:20 AM
What can be Challenges for Budget 2016-17?
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The financial year 2015-16 is about to end and the Union Finance Ministry must be busy in making the budget for 2016-17 which would be presented in the Parliament on February 29, 2016. Some of the major challenges which government may encounter for the forthcoming budget are as under –
GDP Growth
The year 2015 indicated the revival of GDP growth which is estimated at 7.5%. To reach the targeted growth rate of 8.0% and beyond will remain a challenge in 2016 due to the weak external and internal demand and delay in policy reforms in the domestic sector. The Budget 2016-17 may introduce some small ticket reforms but it would not be able to do wonders. For bigger results, bigger reforms are required. India still lies at staggering 130th position in the Ease of Doing Business Index of the World Bank.
Agriculture Growth
The year 2015 was the rare second consecutive year when country witnessed a drought affecting the agriculture growth. Though agriculture sector was able to clock the growth rate of 1.9% but it was far behind the targeted 4%. For the many past years, agriculture has become the most neglected sector in the economy. The revival of agriculture growth is necessary not only to feed the billion plus population but also to uplift the quality of life of half of the workforce engaged in agricultural activities. The Budget 2016-17 must ensure timely credit to the formers, availability of quality seeds and fertilizers, and direct access to the market to our farmers. The year 2015 saw skyrocketing of the prices of some food items but there was no change in the income of the farmers. Ensuring a minimum income to the farmers while providing food at affordable prices to the poor,as always, will remain challenge to the Budget 2016-17
Manufacturing Sector
In the month of December 2015, the manufacturing sector saw contraction of growth for the first time. The Nikkei India Manufacturing PMI, a composite monthly indicator of manufacturing performance, dipped from 50.3 in November to 49.1 in December. The survey blamed the Chennai floods for the significant decline in the output. Another reason was the continuous depreciation of Rupee increased the import costs and ultimately raising the cost of production. As the US government is expected to increase its Fed Rate, Indian Rupee would further depreciate increasing the woes of Indian manufacturing sector. Arresting the continuous fall of Rupee and revival of manufacturing sector would likely be the most daunting challenge for the budget.
Inflation
Inflation is always a very sensitive issue in India. In the year 2015, the wholesale price index (WPI) inflation rate remained under control primarily due to the weak global crude prices. The WPI inflation in fact stayed in the negative zone for the entire 2015, meaning the wholesale prices actually fell and there was no inflation at all. But situation was different on the front of consumer price index. The consecutive two drought seasons and untimely rains in Rabi 2015 nullified the effect of fall in fuel prices. Nevertheless, except for the few individual commodities like tur dal, mustard oil, prices largely remained under control. But same would not happen in 2016. Budget makers must have already anticipated the ongoing chaos in the Middle East. The revival of tension between Saudi Arabia and Iran has started pushing up the global crude prices. Thus inflation in general and fuel prices in particular may become another headache for the Finance Ministry.
Fiscal Deficit
The fiscal deficit for 2015-16 was budgeted to be 3.9% of the GDP. As 87% of the target was already met by November 2015, exceeding the fiscal deficit target in the current financial year is a possibility. The Fiscal Responsibility and Budget Management (FRBM) Act has stipulated thee government to keep its fiscal deficit well under 3% of the GDP. Though in the budget estimates of 2016-17, government would definitely try to keep the fiscal deficit target under 3.5% of GDP but in the wake of scheduled elections in few state assemblies, it would not be an easy task for the government. A failure on fiscal front would give wrong signals to the market and would also strengthen the inflationary forces.
Infrastructure
Infrastructure is the most important prerequisite for economic growth and development. Increased allocations are expected for this sector in the Budget 2016-17. On the energy front, situation is definitely improved from the past, but 24x7 power supply to villages, as promised by the government, still remains a huge challenge to be met. The capacity expansion of seaports, railway and airports had to precede the high growth anticipated by the government. On telecommunication front, the teledensity reached from 18.3% in 2007 to 79.67% in 2015. Thus telecom sector in India witnessed the unprecedented growth in India. Now the challenge would be to ensure the smooth function of the telecom market.
Balance Of Payment
Though current account deficit remained at comfortable 1.5% of the GDP, both export and imports have witnessed a decline. While the exports declined due to the weak global demand, fall in value of imports was due to the weak oil prices and depreciation of Rupee. The Budget 2016-17 would also have to address the challenge of reviving the export growth by introducing new sops and removing the red tape and other bureaucratic hassles. However, the most significant challenge would remain on labour reforms front which are essential for making India a global manufacturing hub.
Apart from the aforesaid issues, passing of GST bill, increasing the tax GDP ratio, skill enhancement, employment generation, etc., would be the other major challenges encountered by the budget 2016-17.
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