NCAS

INTERFACE

February 2017 FOR PRIVATE CIRCULATION

“The legitimate object of government, is to do for a community of people, whatever they need to have

done, but cannot do, at all, or cannot, so well do, for themselves -- in their separate, and individual capacities.”

Abraham Lincoln

IN THIS ISSUE

Union Budget

2017-18: Reading

between the lines

Budget at a Glance

FROM NCAS DESK Proving the nay-sayers wrong, the Finance Minister presented the Union Budget 2017-18 on 1st February – as promised by the PM to the nation. This budget had aroused special interest among many for various reasons. First and foremost, it was being presented on the backdrop of demonetization. The Assembly elections in five states had provided the necessary fuel for speculation about the budget. And on top of everything else, the PM’s address to the nation on the eve of the new year, was taken by many as a little short of the budget speech.

The Union Budget 2017-18 was projected to be distinctive due to a few changes in the budgetary processes – with a stated broad objective of improving the public expenditure management in the country. How far the budget will succeed in doing that remains to be seen, but one thing is very clear - the present dispensation is firmly holding on to the promise of Fiscal Conservatism made under the FRBM Act.

Many tall claims were made, and not so unexpected, by the FM in the Budget Speech. The FM’s speech sent a feel-good message to the demonetization-torn common people – through announcements of increased spending on rural development, agriculture and NREGA, with some relief to income-tax payers in the lower income brackets and MSMEs.

The real question, however, is whether this budget made any substantial departure from its earlier versions – or the departure is only rhetorical and not real! A careful reading of the FM’s Budget Speech and budget documents leaves one with more questions than answers.

In this issue of NCAS interface we attempt to capture the changes in budgetary procedures and also discuss the possible impacts they would cause along with a brief account of composition allocations of allocations made to various sectors of the economy.

Do write to us with your feedback and suggestions at interface@ncasindia.org

In solidarity

Team NCAS

UPCOMING

NCAS Discussion

Paper: A Perfect Recipe

for Hunger

Quarterly Updates on

Health Budget

Expenditure Tracking in

Maharashtra

National Seminar &

Consultation on India’s

development

Cooperation

– Jointly organised by

NCAS & ISDG

Union Budget 2017-18: Reading between the lines

Himani Pathak

Union budget 2017-18 aroused a lot of interest as it was presented on the brink of elections in

five major states and with the background of demonetisation. Besides, the budget also saw

some changes in the budgetary processes, with an aim of improving some flaws in

management of public expenditure. The budget was presented on 1st of February 2017, which

is almost a month earlier than the usual practice. This would expedite the process of

parliamentary approval of the budget before the commencement of the next financial year.

This to some extent will help to avoid the delay of funds in case of various schemes and

programmes. But this measure alone will not work as a magic solution to all the hurdles in

timely release and effective implementation. Certain fundamental reforms in this sphere are

still awaited.

The other major shift introduced in the Budget is that the Plan and Non-Plan classification of

expenditure has been done away with. A notion of plan expenditure being developmental and

non plan being non developmental expenditure had lead to excessive attention to plan

expenditure. The merger is expected to facilitate optimal allocation of resources with a holistic

view of budget outlays for sectors and ministries. The new method of bifurcation of

expenditure into ‘Revenue’ and ‘Capital’ has its own risks. The tendency to promote capital

expenditure and check revenue expenditure can be problematic for social sectors.

Lastly, the budget was announced as a consolidated outcome budget covering all ministries

and departments. The practice of separate presentation of Railway budget was done away

with.

One also needs to look at various phenomena that turned the economic scenario of the

country upside down and hence not only affected but also determined the course of Union

Budget 2017-18. One such phenomenon was demonetisation of high denomination currency

notes in November 2016 announced by the Hon’ble Prime Minister. The Finance Minister in

his budget speech portrayed his move as a one stop solution to development as it will result in

“reduction in corruption, greater digitisation of the economy, increased flow of financial savings

and greater formalisation of the economy, all of which would eventually lead to higher GDP

growth and tax revenues.” However, many have raised their doubts on this move as several

groups engaged in the informal economy have been hit hard. Daily wage labourers, petty

traders as well as small and marginal farmers have gone through partial or complete loss of

work as demonetization hit their mostly cash based transactions/ supply chains.

The budget as well as the economic survey 2016-17 recognises the limits put on the growth of

Indian exports as the global economy seems to have stagnated. In this scenario an

expansionary fiscal policy was expected to maintain the annual GDP (Gross Domestic

Product) growth rate of 7 percent. Yet the budget portrays a picture of contractionary fiscal

policy, which is reflected through the continually declining ratio of expenditure to GDP.

NCAS I NTERFACE | FEB 17 | 1

In the year 2016-17 the growth rate of GDP was estimated to be 7.6% which has been

adjusted to 7.1% owing to the slowdown caused by demonetisation. Yet the estimates seem

highly optimistic and unrealistic as the actual bearing of demonetisation on the economy has

been far bigger than what is being painted in the economic survey. The policy makers seem to

have not recognised that the actual results of Goods and Services Tax (GST) will be visible

only after September 2017. This demonstrates that the growth rate of GDP will remain

sluggish in the first two quarters of the next fiscal. Hence a realistic GDP growth rate may fall

in the range of 6% to 6.5%.

On this backdrop the huge increases in the revenue projections for 2017-18 are utterly

questionable. Also, as past experience shows, there is usually a shortfall in actual tax

collections compared to the budget estimates or even the revised estimates. This was

observed in the year 2015-16 too, in the case of direct taxes. Therefore, there is a possibility

that even the projections for 2017-18 (BE), especially in the case of direct taxes, might be on

the higher side. Simultaneously, it’s also important to see how the government raises the

revenues. With a low buoyancy of direct taxes the government will highly depend on revenue

generation from indirect taxes (mainly through GST). In this scenario the question is who will

really bear the burden of government’s pushy revenue targets?

Additionally, it is likely that the projected numbers being on the higher side as this is the first

year that the revenue data provided by the government is based only on the first nine months

of the year. Moreover, a part of the increase in the rate of growth of direct tax collections at

around 35 percent can probably be explained by the notion that demonetised notes were used

to pay advance taxes. If this is indeed so, then it cannot be taken as a basis for projecting tax

collections for the entire year. Even the projections for indirect tax collections could be

questioned. This is because while in the previous year a large part of excise duty collections

were due to windfall provided by higher global oil prices, the slowdown of the economy in the

post-demonetisation period is likely to hamper the tax collections from this source.

Moreover one simply cannot disregard the total revenue forgone in this budget. With the

announcements of a reduction in personal income tax rate from 10% to 5% and a reduction in

tax rate for Micro Small and Medium scale Enterprises (MSMEs) from 30% to 25%, the

government projects to recover a part of revenue forgone from the above through the 10%

surcharge to be levied on annual taxable income between Rs. 50 lakh to Rs. 1 crore and the

already existing 15% surcharge on income above Rs 1crore. The net revenue forgone comes

to a whopping Rs. 20000 crores.

Hence, it is only fair to conclude that the revenue estimates presented in the budget are not

only a cause of concern but also a red signal to the growth rate of GDP, which is already

grappled due to ill effects of demonetisation and a further lack of stimulus in terms of

government’s revenue will only worsen the situation.

NCAS I NTERFACE | FEB 17 | 2

Budget at a Glance

Source: Compiled from Annex to Finance Minister’s Budget speech

Source: Compiled from Annex to Finance Minister’s Budget speech

0 20000 40000 60000 80000 100000 120000

Allocation for the welfare of Scheduled Tribesacross all ministries

Allocation for the welfare of Scheduled Castesacross all ministries

Allocation for the Welfare of Other VulnerableGroups

Allocation under various schemes for thewelfare of women across all ministries

Allocation under various schemes for thewelfare of Children across all ministries

ALLOCATION FOR WELFARE OF SC, ST, OTHER VULNERABLE GROUPS, WOMEN, CHILDREN

BE 2017-2018 RE 2016-2017 BE 2016-2017

Amounts in Rs.Crores

7%

15%

48%

23%

2%5%

Sector wise allocations as percent of total expenditure

Agriculture and Alliedsectors

Rural Development

Infrastructure

Social sectors

Employment Generation,Skill and Livelihood

Scientific Ministries

NCAS I NTERFACE | FEB 17 | 3

UPDATES

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Pashan, Pune – 411 021

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Email : interface@ncasindia.org

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Clockwise from top left –

1. Maharashtra Pre-Budget Consultation, Mumbai: NCAS

facilitated and participated in the consultation and press

conference on demands of civil society groups, constituents

of Jagnyacha Hakkkacha andolan (JHA) from Maharashtra

state budget on 23 January 2017.

2. Advocacy training workshop for Girls Advocacy

Alliance, Hyderabad: An introductory advocacy training

workshop was conducted for the members of the alliance

on 9 & 10 February 2017.In total twenty two participants

from Plan India, Mahita and Bird attended the workshop.

3. Workshop on Understanding Budget, Pune: NCAS

organised an introductory workshop for students and young

activists, with an objective of demystifying the budget

jargon on 31 January 2017. An enthusiastic group of about

seventy participants from different colleges of Pune

attended the workshop.

4. Panel Discussion on Union Government Budget

Analysis, Pune: On 4 February 2017 NCAS organised a

budget response panel discussion to discuss the people’s

response to Union Budget 2017-18. Seven expert panelists

discussed the impacts of budget on social sector, with an

audience of about hundred people.