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Report on Union Budget Analysis 2016

Subject: Operations Research


Submitted By: Lakshmi Narayan Sharma
Roll No.: 121415672070
M.B.A, I B

Union Budget 2016 Analysis


The 85th annual budget presented by Finance Minister of India Arun Jaitley
can be called a growth oriented one putting major thrust on Agriculture and
infrastructure. The government with its proposals showed its intent to stick to the
roadmap for fiscal consolidation with next years fiscal deficit target at 3.5 per cent
of the GDP, but that remains a herculean task in the face of an additional burden on
account of the recommendations of the 7th Central Pay Commission and the
implementation of Defence OROP.
Government as expected tried to maintain a balance between the sagging
rural growth and high expectations of the industry. Also there were lots of social
reforms like massive mission to provide LPG connection to poor households, a
new health protection scheme, increased outlay for infrastructure, Rs 2.87 Lakh
crore Grant in Aid to Gram Panchayats and Municipalities, setting up of 1500
Multi Skill Training Institutes and incentives for jobs creation.
Union Finance Minister presented the Union Budget of 2016 and said Indian
economic growth was extraordinarily high. We converted difficulties and
challenges into opportunity," he added.
He mentioned that growth has accelerated to 7.6% in 2015-16
notwithstanding contraction of global exports.
"Our external situation is robust, CAD has declined to $14.4 billion this
year, will be 1.4% of GDP at the end of fiscal," he added.
Jaitley, presenting the government's aim of doubling farmers' income by
2022, allotted Rs 36,000 crore for the farm sector while raising the agri-credit

target to Rs 9 lakh crore for the next fiscal. He also allocated Rs 15,000 crore for
interest subvention on the farm credit, Rs 5,500 crore for the new crop insurance
scheme and Rs 500 crore to boost pulses output.
To develop roads and highways, he allotted Rs 1 lakh crore and said that the govt
will approve the construction of 1 lakh km roads by 2016-17.
Jaitley while speaking about resolving the deadlock over GST said, the government
will reach out to Congress.
"As far as GST is concerned, every political party claims to be in favour of
it. The Congress party had put some conditions. I think one condition still remains
there. I will try to talk to them in the remaining of the Budget session of
Parliament, and try to move ahead with the GST bill", Jaitley said in a post budget
Hackathon.
The BE 2015-16 envisaged a tax to GDP ratio of 10.3 per cent, non-debt
receipts to GDP ratio of 8.7 per cent and total expenditure to GDP ratio of 12.6 per
cent. The envisaged growth for gross tax revenue was 15.8 per cent over Revised
Estimates (RE) 2014-15. The total expenditure in BE 2015-16 was estimated to
increase by 5.7 per cent over RE 2014-15. At the end of December 2105, there was
a significant shortfall in non-debt capital receipts, mainly on account of the
shortfall in disinvestment receipts, as only Rs 12866 crore of the budgeted amount
of Rs 69,500 crore was realized. Major subsidies decreased by 1.7 per cent during
April-December 2015, as compared to April- December 2014 due to a decline in
petroleum subsidy by Rs 22,545 crore, as compared to the corresponding period in
2014-15, due to fuel pricing reforms and steep decline in the global prices of
petroleum products. Fiscal deficit at 87.9 per cent of BE in the year 2015-16

(April-December) was higher than the five year average of 82.3 per cent, but lower
than the corresponding figure of 100.2 per cent in the previous year.
GDP Growth:
Indian economy as per the Advance Estimates released by the Central
Statistics Office, is estimated to register a growth rate of 7.6 per cent in 2015-16,
higher than growth of 7.2 per cent achieved in 2014-15. From the demand angle,
the growth in private final consumption expenditure at 7.6 per cent in 2015-16 has
been the major driver of growth. The growth of fixed investment improved from
4.9 per cent in 2014-15 to 5.3 per cent in 2015-16. The exports and imports are
both estimated to decline by 6.3 per cent in 2015-16, the former mainly on account
of subdued global demand and the latter largely reflecting the decline in
international petroleum prices.
Prices:
The headline inflation, based on the CPI (combined) series, dipped to 4.9
per cent during 2015-16 (April-January), as against 5.9 per cent in the year 201415. Food inflation measured in terms of Consumer Food Price Index (CFPI)
declined to 4.8 per cent during 2015-16 (April-January), as compared to 6.4 per
cent in 2014-15. The CPI-based core inflation (non-food, non-fuel) also remained
range-bound, inching up from 4.2 per cent in March 2015 to 4.7 per cent in
January 2016. The decline in core inflation was largely on account of the decline in
the inflation in housing (rent), transport, communication, education and other
services.

Industry and Services:


Growth in IIP in April-December 2015 was 3.1 per cent, higher as
compared to 2.6 per cent in same time period last year. As per the sectoral
classification of IIP, electricity sector grew by 4.5 per cent, manufacturing by 3.1
per cent and mining by 2.3 per cent during April-December 2015-16. In 2015-16,
as per the advance estimates, the services sector accounting for 53.3 per cent of
Indias gross value added at current basic prices, is estimated to grow at 9.2 per
cent (at constant prices). Among the service sector activities, the sectors like: trade,
hotels, transport, communication and services; and, financial, real estate and
professional services are estimated to register robust growth rates in 2015-16.
External sector:
The value of Indias merchandise exports (customs basis) declined by 1.3
per cent to $ 310.3 billion in 2014-15. In 2015-16 (AprilJanuary), the growth of
exports declined by 17.6 per cent ($ 217.7 billion vis--vis $ 264.3 billion in the
corresponding period of the previous year). Imports declined by 0.5 per cent to $
448.0 billion in 2014-15. Imports for 2015-16 (April-January) were valued at $
324.5 billion, 15.5 per cent lower as compared to $ 383.9 billion in the
corresponding period of the previous year. Imports of petroleum, oil and lubricants
(POL) declined by 41.4 per cent in 2015-16 (April January) to $ 73.1 billion, as
compared to $ 124.8 billion in the corresponding period of previous year, mainly
due to the decline in international crude oil prices. Non-POL imports for 2015-16
(April-January) declined by 3.0 per cent to $ 251.4 billion, as compared to $ 259.1
billion in the corresponding period of the previous year. Based on the Balance of

Payments (BoP) data available for the first six months of 2015-16, the trade deficit
on BoP basis was $ 71.6 billion in AprilSeptember 2015 as compared to $ 74.7
billion in April-September 2014. Buoyant remittances (private transfers)
supplemented the lower crude oil prices in reducing the current account deficit, and
lower but the significant capital flows -resulted in a sizeable capital account
surplus. This resulted in increase in the stock of foreign exchange reserves, which
stood at $ 350.3 billion at end September, 2015.
Money and Banking:
Liquidity conditions were generally tight during the first quarter (Q1) of
2015-16, mainly due to restrained government spending. In the second quarter
(Q2) of financial year (FY) 2015-16, however, liquidity conditions eased
significantly as public expenditure picked up and deposits exceeded credit
substantially. In the third quarter (Q3) of FY 2015-16, liquidity conditions
tightened mainly due to the festive season currency demand.
The slowdown in the growth in the balance sheets of banks witnessed since
2011-12 continued during 2015-16 as well. The moderation in the growth of assets
of the SCBs was mainly attributed to tepid growth in loans and advances (below 10
per cent). The decline in credit growth reflected the slowdown in industrial credit
off take, poor growth of earnings reported by the corporate sector and risk aversion
on the part of banks owing to rising non-performing assets. The total number of
banking outlets increased from 553,713 at the end-March 2015 to 567,530 at endSeptember 2015.
Outlook

The third budget of the Finance Minister Arun Jaitley looked giving priority
to the fiscal discipline and highlighted the growth pillars of the Indian economy in
Agriculture, Rural, Social sector, Skills, Ease of Doing Business and Tax and
Compliance reforms. While, there was focus on rural economy, infrastructure
spending, social welfare schemes and digital initiatives. Rationalization of
indirect tax and duty structures for various sectors such as IT hardware, defence,
mineral and petrochemical, aviation too was incorporated in the budget. The
Finance Minister said that the government will undertake three major schemes to
help the weaker sections. He said the Pradhan Mantri Fasal Bima Yojana has
already been announced. The farmer will pay a nominal amount of insurance
premium and get the highest ever compensation in the event of any loss suffered.
Sh. Jaitley announced a health insurance scheme which will protect one-third of
Indias population against hospitalization expenditure. He also announced that the
Government is launching a new initiative to ensure that the BPL families are
provided with a cooking gas connection, supported by a Government subsidy.
There were some disappointments as well as surprises, while the
implementation of the crucial pay commission proposals remained unclear, the
allocation for bank capitalisation of Rs 25,000 crore was the major disappointment,
especially when Economic Survey had identified the need of Rs 1,80,000 crores.
However, focus on rural economy is important, especially in light of global
economic situation. The budget stated that in light of the encouraging performance
of the economy in the first three quarters of 2015-16, marked by pickup in
economic growth, lower inflation, manageable current account deficit, high foreign
exchange reserves, buoyant tax revenues, increasing foreign direct investment
flows along with the governments push to reforms in crucial areas including

banking, infrastructure, power, taxation, etc., the near term prospects for the
economy looks bright.

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