No Goalposts Changed, But Seeking the Same Goals
Budgetary focus on the bottom of the pyramid aligns with Jan Dhan, financial inclusion and broadband
This year’s Budgethasmaintainedalogicalcontinuity from the previous year’s and also with ongoing announcements. Hence, the focus on agriculture has continued with emphasis on agri-lending,agricultureinsuranceandimplementation of core banking solutions in Primary Agriculture Credit Societies (PACS) with an aim to double the farm income.
Most of the announcements were unanticipated.Themeasuretotackleblackmoney—suchas cappingthecashtransitionlimitto ₹ 3lakh—and reforms in political funding — such as reduction in minimum cash donation to political parties to ₹ 2,000andnovelideaslikeelectoralbonds—were in the surprise list. These measures are nonetheless a continuation of demonetisation.
The capping of cash transactions will help the banks reduce cash intensity. This, in turn, will help in freeing up manpower at branches for undertaking more value-added services.
For the banking sector, the thrust to digital economy will help banks expand their digital footprint as well as to meet the additional 10 lakh new point-ofsale terminals target by March 2017. The agriculture lending target has been substantially revised to ₹ 10 lakh crore supported by further provisions for agriculture insurance.
Itisimportanttocreatecreditabsorptioncapacity rather than to just enhance lending targets. This can done by supporting infrastructure creation in rural areas, which the Budget aims at doing. The draft Bill to curtail the menace of illicit deposit schemes is also a welcome move after the successof theJanDhanYojana.Affordablehousing will be classified as infrastructure, which is expected to give this sector a boost.
The Budget has proposed to create a Payments Regulatory Board in the Reserve Bank of India by replacing the existing Board for Regulation and Supervision of Payment and Settlement Systems. This is welcome, given that payments function and banking function in new digital environment have been completely unbundled.
The Budget has provided ₹ 10,000 crore for recapitalisation of banks in 2017-18. But what is reassuring is the FM’s statement that more will be given if required. The abolishing of the Foreign Investment Promotion Board is a welcome move as it removes another hurdle in movement of inward FDI. This will boost the foreign investors’ confidence to invest in India.
The Budget has chalked a clear fiscal path for theyearsaheadandwiththeproposedchangesin personal income tax at the lowest slab, the target of 3.2% of the GDP may be achieved if new reforms like GST kick in within the stipulated date.
There has been a thrust on quality of expenditureasisevidentfromgeo-taggingof MGNREGA assets and using space technology to plan its works, in line with GoI’s emphasis of extracting maximum value from government expenditure.
With the merger of the railway budget with the Union Budget, the Indian Railways has become central to the government’s policy on infrastructure investment, kicking off an investment cycle and generating second-order employment.
This viability of the Railways has been kept in mind as it has been stated that fares will be determined on the service provided as well as the cost of competing modes of transport. Accordingly, rural road, air connectivity to Tier-2 towns and shipping have also been touched on in this Budget. We hope that high-speed broadband connectivity on optical fibre will be available in more than 1,50,000 gram panchayats by 2018. Without this, the digital economy won’t flourish.
Overall, the Budget has not changed the goalpost set in the previous one. It has added new targets. But on careful examination, they all appear to be prudent and reasonable. Given the macroeconomic environment, at home and abroad, the Budget has achieved a delicate balancing act.
Recapitalisation of banks will boost their lending capacity as well as their ability to raise new capital