Feb 29, 2016
The Union Budget 2016 is a tightrope walk for Arun Jaitley, the lawyer-turned-politician in Prime Minister Narendra Modi‘s cabinet. On the one side is the need to increase public spending to support a still-struggling economy and the other side is the need to stick to the fiscal consolidation path.
Above all is Jaitley’s own personal need to prove his skills in handling the finance ministry and the broader economy. The fact is in the last two years at the North Block, Jaitley has been able to attract a significant amount of criticism for mishandling of key issues, including bank recapitalisation.
What is making his task particularly difficult is the fact the Narendra Modi government is going through a rough patch due to the heightening criticism over the rising intolerance. The JNU imbroglio and the Rohith Vemula suicide only aggravated the problem.
Above all this is the two consecutive years of monsoon deficiency, which has pushed the rural economy into a crisis. There is wide expectation that the government will increase the expenditure for various social sector schemes to support the farming community. This is likely to put a drag on the government’s ability to spend for projects.
The there is the high expectations from the difficult-to-please salaried class on tax front.
Here are a few figures to watch out for:
Fiscal deficit: It is the shortfall in the government’s revenues to meet its expenditure. The budget gives out the revised estimate of the deficit for the previous financial year and also the estimate for the next. The number is expressed both in absolute terms and as a percent of GDP. As per the fiscal consolidation roadmap, for the current financial year the deficit has been pegged at 3.9 percent, 2016-17 at 3.5 percent and 2017-18 at 3 percent. Will Jaitley stick to this?
Market borrowing: The government bridges the fiscal gap through market borrowing by issuing borrowing. Gross market borrowing for the current financial year was Rs 6 lakh crore. The higher the deficit the higher the borrowing and the government’s interest expenses.
Plan and non-plan expenditure: Plan expenditure pertains to public spending that comes as part of the current five-year plan. As opposed to this, the non-plan expenditure deals with interest payments, subsidies, defence spending, salaries to government staff, grants to state governments and Union Territories, loans etc. Jaitley had cut the plan expenditure for the current financial year by more than Rs 8,000 crore from the previous year. While cutting non-plan expenditure at a time of rural distress may be politically bad, will he cut the plan expenditure again? That will have direct correlation to the public spending, which is key to industrial recovery. The non-plan expenditure for the current financial year stands at Rs 13.12 lakh crore and plan expenditure at Rs 4.65 lakh crore.