Union Budget 2015 - 16: Lacuna lies in lack of reorientation from non-plan to plan expenditure

By Ramesh Rachuri, head, fixed income, Peerless Fund Management Co.

The government has focused on infrastructure capital spending; social safety net for the poor, the disadvantaged, and the middle class; increasing the ease of doing business and enhancing the efficiency of measures; providing a fillip to entrepreneurship; rejigging taxes for more transparencyand better compliance; and focus on manufacturing (by trying to normalise the inverted duty structure) and ''make in India'', which will also generate increased employment.

The government also plans to target subsidies better and prevent leakage through Direct Benefits Transfer.

In return, where the government has taken away is by postponing the goalposts to the medium term fiscal consolidation plan from the earlier 3.6 per cent of GDP, to 3.9 per cent of GDP for the next year, coupled with revenue generation through increased asset sales.

The government has also become more realistic by assuming a tax buoyancy of around 16 per cent, though even this could be tested, depending on the actual growth rate of the economy.

On the inflation front, the government has tried to assure and increase supply of food and agriculture items by targeting Rs8.5 lakh crores for farm credit, supporting MGNREGA and orienting it more towards rural infrastructure.

The additional infrastructure spending of Rs70,000 crores will also help in this regard, as also the implementation of the GST, both, from the perspective of reducing frictional taxes, and also enlarging the indirect tax base. What has been left as a lacuna has been the lack of reorientation from non-plan to plan expenditure, and hence the quality of fiscal consolidation leaves much to be desired.

The share of plan expenditure to total expenditure has shrunk further from 27.83% last year to 26.18%.

The government is also concluding a monetary policy agreement with the RBI, including the setup of the ''Monetary Policy Committee'', as suggested by the Urjit Patel Committee report. The Finance Minister has also announced the setup of a Public Debt Office, handling both, India's external, and internal debt. In addition, the government is also assuming control of some items on the capital account.

Total borrowings requirement for 2015-16 has been budgeted at Rs. 5,55,649 crores. Net market borrowings (adjusted for repurchases/ switches in2015-16) of Rs. 4,56,405 crore has been budgeted to finance 82.1 per cent of gross fiscal deficit versus 86.8 per cent of gross fiscal deficit in the previous year.

This reduction is due to switches with banks, by issueing longer term securities and buying back extremely short term securities. In FY 2015-16 further provision of `50,000 crores
has been made to undertake buyback / switch operation of shorter tenor government securities with longer tenors government securities.

The Budget Estimates 2015-16 for external debt is also kept higher at Rs. 11,173 crore, with the government toying with the idea of issuing sovereign bonds in the international market, and reducing its cost of debt, as borrowing abroad is much cheaper currently.

The bringing in of big NBFCs under SARFEASI is also positive from a credit recovery perspective.