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Budget Apart from this, it’s imperative to study the

Budget Expectations
2018-19

Introduction:-

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The 2017 Union Budget of India was presented before the
parliament by Mr.Arun Jaitley on 1st Feb, 2017. The optimism of Mr.
Jaitley was evident from his opening speech, backed by the key features of the
Rs.21.47 trillion INR budget.  The agenda
set was “TEC – Transform, Energise & Clean India”. Prior to this, we have
seen the Modi government bringing two major reforms that set the tone for the
budget session – Demontetisation & Goods & Services Tax (GST). In the
last fiscal year, GST has been a major factor in building people’s expectations
about the forthcoming budget along with tax slabs, job creation,
recapitalization of bonds, etc. Apart from this, it’s imperative to study the
schemes/initiatives launched by Mr.Narendra Modi in the last 2 years and the
impact that they have been able to create. This will be a major factor in
carving out our expectatios from the budget to be presented on 1st
Feb, 2018 – the last budget of the 2014-19 Modi government.

Major Schemes/ Initiatives:-

Before we delve deep into the various schemes launched so far
and gauge their progress, let’s scrutinize the total budget size and the
expenditures under each header (Fig. 2). It is evident that this government had
allocated close to 44% of the entire budget to the various schemes, a rise from
40.5% in 2015-16. A glance at Fig. 3 would give us an estimate of the amount of
rupee outflow under “Subsidies & Schemes” which is roughly one-third of the
entire government expenditure.

Now that the financials are established, the stage is set for
analyzing the on-ground performance of the initiatives.

Pradhan Mantri Fasal Bima Yojana: This scheme was launched to ensure
continuity in farming by providing insurance coverage to farmers in case of
failure of the notified crop due to calamities, pests or diseases. This scheme
is facing some problems since its inception:

1.      Unable to cover majority of farmers
due to huge loan amounts of farmers who are currently availing this scheme.
This defeats the purpose as the non-loanee farmers are in greater need of
coverage due to their huge lease rents and high costs of cultivation.

2.      The farmers are not being notified
before the premiums are deducted. The private insurance companies haven’t been
able to perform any better than their government counterparts and almost 58% of
the Rs.17,184 cr allocated has been use to fill their coffers.

 

This year’s budget is likely to increase the allocation to
Rs.13,000 cr. This will ensure that the farmers get full coverage at the
expense of a nominal premium.

 

Pradhan Mantri Gram Sadak Yojana: This scheme
was launched to provide all-weather access to unconnected habitations. The
target to achieve this has been forwarded by 3 years to 2019. But there are
some problems which need to be addressed:

1.      The
government hasn’t spent even 26% of the allocated fund and 60% of works that
have been declared complete have incomplete drainage works. The ones which are
complete aren’t sustainable in nature due to their sub-standard quality

2.      The
coordination and planning among departments is questionable. Roads that were
supposed to be constructed under this scheme were already in place by some
other department under a different scheme. This calls for better monitoring by
the states.

This year’s
budget is likely to see a spending of approx. Rs. 1,00,000 crore on new roads
in LWE areas. Also, an additional Rs.11,000 cr will be allocated to roads in
LWE through in PMGSY.

 

Pradhan Mantri Mudra Yojana: This scheme
was set up to provide funding to non-corporate, non-farm sector income
generating activities of micro and small enterprises of credit limit less than
Rs.10 lakhs.

In
recent times, it has come under purview due to:

1.      MUDRA banks
are already having a number of able competitors – the refinancing agencies.
These agencies have not been able to provide money to the small businesses. So,
focus should have been on restricting these agencies instead of creating a new
agency

2.      Conflict of
interest arising out of financing micro and small businesses while setting down
policies for financing and regulating them at the same time

The
government can do away with Mudra bank and instead, create small banks to
finance small businesses. Since the MFIs have now come under both the RBI as
well as Mudra, so that creates a fresh set of problems. This year’s budget will
see a special focus on improvement of infrastructure and subsidies for the
agriculture and the manufacturing sectors.

MNREGA (Mahatma
Gandhi National Rural Employment Guarantee Act): This scheme is aimed at guaranteeing the “right to work”.
This will enhance livelihood security in rural areas by providing a minimum of
140 days if wage employment to unskilled laborers. A corpus of Rs.48000 cr was
aloocated to this scheme in FY 2017.

1.     
Delays in payment and the number of
working days being only 40% of what was promised earlier; differently abled
people are still unemployed

2.     
Government has been unable to
create enough

demand and to stop corruption which reflects
the lack of proper accountability          mechanisms Also, fakes job cards and
muster rolls are prevalent and the Gram Panchayat,  not the Disctrict Administration, Is taking
decisions

3.     
Labour movement is mitigated and
the poor is suffering from inflation and durable  assets are rarely created.

4.     
Non-uniform allocation of work:
richer sates like Tamil Nadu, AP getting more work but more demand exists in
UP, Bihar

5.     
Skill India & MNREGA cannot
co-exist together

Finance Minister Arun Jaitley may increase allocation for
MNREGA by a fourth to nearly Rs 60,000 crore for the financial year 2018-19, as
a part of the NDA government’s larger plan to focus specifically on the
country’s rural sector, amid concerns over rising agrarian crisis.

 

Pradhan Mantri Awaas Yojana – Gramin: It is a social
welfare flagship programme which intends to provide housing for the rural poor
in India. The target set by the government is to complete 1 crore new houses by
31st March, 2019 and half of these are to be completed by 31st
March, 2018. In order to do so, the expectations from the government are as
follows:

1.      Single-window
clearances to prevent procedural hindrances

2.      Merging with
the real estate sector to raise funds for developers, lower the costs assictaed
with projects in generating employement and increasing overall demand

3.      First-time
hoe buyers should be encouraged by lowering/ exempting taxes

4.      Green
buildings to be encouraged by providing better incentives in terms of FSI to
encourage developers; tax rationalization of REITs can benefit the real estate
sector

The
entire valuation of this initiative is estimated to be Rs.81,975 cr out of
which Rs.60,000 cr will come through budgetary allocations and the rest through
NABARD.

 

Make in India: This is a type of
Swadeshi movement which covers 25 sectors of economy which was launched to
encouraged companies to manufacture their products in India. Except for space,
defence and news media, 100% FDI is allowed in all other sectors. But in the
last few years, some issues have come to the fore which need to be addressed:

1.     
Ineffective use of India’s unskilled labour
force and drifting away from India’s comparative advantage towards skill
specialization

2.     
Automation (increased use of robotics) is
likely o create an industrial robotic revolution which will benfit developed economies
like China more than developing ecnomoies like India

3.     
Late reponse to R by Indian companies
due to protectionsit measures like market protected by custom duties. Long-term
competitiveness wil need huge investments in R

4.     
India
has labour laws and organised unions that can hinder smooth expansion. It is
not easy for the Modi government to change laws to make a dramatic impact.

The government is expected to boost
its domestic manufacturing by increasing import duties on power, capital goods
and chemicals. Policies are likely to be implemented that will boost the building
of mobile phones, luxury brands and automobiles. In addition to this, the
government will look forward to create 10 cr jobs by 2020 and train the youth
to imbibe the requisite skills by way of its skill development programmes –
SANKALP & STRIVE. This year’s budget will see an allocation greater than
Rs. 3.96 lakh crores in 2017.

Recapitalization of Banks:-

The state-run
banks lie at the very heart of the Indian economy, but years of slapdash
lending and lack of innovation have resulted in continual losses for these
banks. This ultimately resulted in the Reserve Bank of India’s strict
instructions on accounting for bad loans in 2015. Banks had until March
2017 to clean up their books to be eligible for capital infusions. They
would also have to comply with global capital adequacy ratios.  In order to keep these banks from drowning,
the finance ministry will strictly monitor banks’ lending practices and public
accountability.                                                                                                                                                                                          

To ensure a complete overhaul, the
imminent option is “recapitalization”, which initially started with the
Indradhanush plan. But that was just the starting. The Finance Ministry has recently
pledged Rs.88,000 cr to aid state-owned banks to offset the effect of 7.34
trillion rupees of bad loans that the public-sector banks are currently facing.
The intriguing part about this recapitalization is that the process is to take
place through bond issuances (tenor of 10-15 years), raising money from the
capital market and budgetary allocations. This is a part of the broader 2.11
trillion rupee bank recapitalization plan. In order to ensure the money isn’t
entirely raised from the taxpayer’s, it is imperative for the government to
look at other viable options – disinvestment, for example.

Disinvestments:-

Disinvestment is necessary to finance
the increasing fiscal deficit, large-scale infrastructure development and
encouraging spending by investing in the economy. This will not only reduce the
financial burden on the government but improve competition and market
discipline and encourage wider share of ownership. The government has already
targeted 36 companies for strategic disinvestment. Against the initial target
of Rs.72,500 cr for FY18, the government has already raised Rs.54,337 cr out
which Rs.36,915 cr is going to be added by the end of this month from the
merger of HPCL with ONGC with 51.1% of HPCL’s stake being owned by ONGC. This
goes on to prove that receipt of Rs.1 lakh crore through disinvestment alone is
a realistic target for FY18. The
higher receipt from disinvestment will help the government in sticking to its
fiscal deficit target of 3.2% of the GDP this financial year, which may see
lower collections from the newly introduced goods and services tax (GST).

Corrective Measures:-

 The central bank has taken
various steps for stressed asset resolution-from setting up a database of
large-ticket loan exposures, nudging banks to recognize bad assets through a
review, to its recent directive asking banks to initiate proceedings against 12
large borrowers under the Insolvency and Bankruptcy Code (IBC). RBI hopes that
banks utilize the IBC extensively and file for insolvency proceedings on their
own without awaiting regulatory directions. Along with this,
all loans above Rs 250
crore would be scrutinised by specialised monitoring agencies. Further, each
public sector bank will be required to have a stressed asset management
vertical to ensure stringent recovery follow-up. RBI has  prompt corrective action (PCA) framework—11
out of 21 public sector banks are under this.

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