Union Budget 2016-17 – Quick Bites On Economy

Dr. Sanjiv Agarwal, FCA, FCS

The Economy Survey, tabled by Finance Minsiter in the Lok Sabha on 26.02.2016 describes India as a refuge of stability and an outpost of opportunity at a time of global turbulence and volatility. The targeted growth for 2016-17 is pegged at 7-7.5 per cent , put out in the Economic Survey, does not paint a very glowing picture of the economy. After estimating a 7.6 growth for the current fiscal, the numbers are no doubt conservative, because they imply a slowdown next year. The economy grows, but slowly. Yet it is one of the fastest growing economies with growth rate more than double of global rate.

The survey states that India’s macro economy is robust and it is likely to be the fastest growing major economy in the world in 2016. The social infrastructure scenario in the country reflects gaps in access to education, health and housing amenities. Inclusive growth in India requires bridging gaps in educational outcomes and improved health attainments across the population. Economic Survey 2015-16 highlights need for more investment in human capital, expresses concern at declining educational outcomes, emphasizes importance of improving efficiency in delivery of services in the health sector.

Economy Highlights

• Indian economy grows @ 7.6 percent
• Growth driven by domestic demand
• May grow > 7 percent in Financial Year 2017
  • 7.3% as per IMF
  • 7.5% as per Moody’s
  • 7.4% as per OECD
• India on recovery path with lesser exposure to global factors
• Global growth rate slow @ 3.3%
• Focus on transform India
• Tax reforms seen as one of the major pillars of Budget
• Services play a major role in GDP with manufacturing sector still at 17% dispute Make in India
• Tax – GDP ratio at 10.7% in 2016 and pegged at 10.8% in 2017
• Sectors where growth is faster than the economy itself – financial services, communication, hospitality, professional services etc.
• Tax revenue growth in 2016 @17percent, pegged at 11.7% in Financial Year 2017
• For Financial Year 2015-16, revised estimates are higher than budget estimates
• 2016-17 direct tax net loss to be Rs. 1060 crore while indirect tax gain estimated at Rs. 20670 crore with net revenue gain of Rs. 19610 crore
• Additional resources to farming, rural and social sectors is likely to spur domestic demand alongwith 7^th Pay Commissions implementation
• Tax reforms to focus on relief to small tax payers, simplification & rationalization of taxes, additional resources, use of IT, reducing litigation and dispute resolution measure.

Today, India taxes and spends lesser of its GDP when compared to other developed and developing nations, even lesser than China, Brazil or OECD average. Despite this, India is considered a storng economy, given the global economic crises. The other economic indicates are also positive.