Union Budget 2017-18: Broader Analysis

Budget is an obligation of GoI under article 112, 113, 114(3) and 110(a) of Constitution.
This year the budget has seen three major changes: Rail Budget is merged with the Union
Budget; presentation of Budget is preponed by a month; and it has done away with
Plan/Non-Plan distinction in its expenditures.
Two major policy changes that precede the budget: Demonetization and passing of GST
bill.
At global front, de-globalization tendencies in US and Europe, rising crude oil prices and
slow global recovery adds substantially to uncertainty in Indian economy.
On the back of it, this years Budget has been presented with an agenda of TEC India (i.e.
Transform, Energise and Clean India).
To foster the agenda of TEC India, ten distinct themes have been proposed to be focused
upon. These themes mainly targeted the farmers, rural population, youth, poor and
underprivileged, infrastructure, financial sector, digital economy, public service, fiscal
management and tax administration.

Current Macro Trends:

The CSO projects Indias GDP growth (Advance Estimate) for 2016-17 to be 7.1%.
However, this estimate does not capture demonetization impact.
According to analysts, the GDP could have contracted by 1 to 2% due to demonetization.
Following good monsoon, agriculture sector may witness buoyant growth while service
sector is expected to grow at 9%.
Industrial sector appears to register a modest growth of 5.2%. Inflation based on CPI is
3.4% well below the line stipulated by RBI.
On banking front, following demonetization, with increase in bank deposits, banks have
passed on the interest rate cuts on loans/deposits. This is expected to result in higher credit
demand and, hence higher growth.
Currently, investments (GCFC) growth is negative at -0.2% is cause of concern.

Main Highlights of the Budget:

After undertaking many reforms last year, such as Bankruptcy Code, Flexible Inflation
Targeting & Monetary Policy Committee, Aadhar act, GST etc., this year, the budget brings
in some more policy changes in various sectors.
A. Traditional Sectors:
The difficulties for farmers can be divided into three stages. Pre-harvest, harvest and
post-harvest stage.

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 Pre-harvest issues are related to credit, fertilisers and irrigation.
Harvesting issues include the drought or flood situation and the insurance cover from
these.
Post-harvest risks related to marketing, price risk and transportation.
Current budget signifies a major boost for interrelated sectors viz. horticulture and
dairy sectors by significantly increasing the allocation. A balanced synthesis has
been put in the budget by focusing on agrarian community as well as helping the
consumers in Urban areas.
The agriculture sector is projected to register a healthy growth rate of 4.1% from the
drought reduced growth rate of 2% in 2015-16.
The Budget also gives a push to market reforms in agriculture, increases funding for
crop insurance and sets a higher target for farm credit.
It has also charged the apex rural bank, NABARD, with the task of implementing
schemes to improve access to irrigation and develop the dairy sector.
To accelerate the agricultural growth, credit sector has received the highest priority in
the Budget 2017-18. The allocation for FY 2017-18 is targeted at Rs 10 lakh crore,
signifying an increase of Rs 1 lakh crore.
Govt. has announced various initiatives in agriculture during the past two years with
the resolve of doubling the farmers income in the next five years. These schemes
include the Pradhan Mantri Krishi Sinchai Yojana, Pradhan Mantri Fasal Bima
Yojana, and e-NAM. Land Title digitalization, Rural Electrification, and Rural Optical
Fibre Cable Lining, Soil Health Cards etc. are few initiatives.
Union budget proposes to create a dedicated micro-irrigation fund of Rs 5000 crore
with NABARD, which is a welcome move as over 54% of 141 million hectares of net
cultivated area in India does not have the required infrastructure for irrigation.
The coverage of e-NAM is proposed to be expanded from current 250 markets to
585 APMCs. About 69 agricultural and horticultural commodities including fruits and
vegetables have been notified for trading under e-NAM.
The budget also stipulates that a model law on contract farming would be prepared
and circulated among the states for adoption to integrate farmers who grow fruits and
vegetables with agro-processing units for ensuring better price realization and
reduction of post-harvest loss.
For the flagship crop insurance scheme, PMFBY, there has been a remarkable
increase in budget provision. The targeted coverage under the PMFBY for the
budget year 2017-18 will be 40% of the cropped area under insurance, and to take it
further up to 50% in next budget.

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 The Soil Health Card Scheme would be further strengthened with the setting up of
mini labs for soil testing in all the 648 Krishi Vigyan Kendra across India.
A sum of Rs 2,000 crore has been allocated as corpus for a new fund, the Dairy and
Infrastructure Development Fund, to be established under NABARD.
Spend More In Rural areas: While addressing the need of agrarian communities,
the govt. is focusing on poverty alleviation as well.
o The govt. will undertake Mission Antyodaya to bring 1 crore households out
of poverty and to make 50,000 Gram Panchayats poverty free by 2019.
o This mission will work with a focused micro plan for sustainable livelihood foe
every deprived household. A comoposite index for poverty free Gram
Panchayats would be developed to monitor the progress from the baseline.
o MGNREGA is being reoriented to support the resolve to double farmers
income.
o Budget also talks about strategies for imparting new skills to the people in
rural areas, mason training for about 5 lakh persons by 2022.
o A programme of human resource reforms for results will be launched to
address the issue of lack of human resources in Panchayati Raj.
o A number of Mahila Shakti Kendra are to be set up at village level to provide
one stop convergent support services for empowering rural women.
B. Infrastructure:
Poor infrastructure has been a major issue for private investment as well as foreign
investment in India.
The budget 2017-18 is heavily focused on infrastructure sector with an aim of efficiency,
productivity and quality of life.
To achieve these goals, a total allocation of Rs. 3, 96,135 crore has been made which is
18.45% of the total budgetary allocation (14% higher than previous budget).
Transport 61% of the total infrastructure budget was allocated to transportation sector
as a whole (rail, roads, shipping, and airports).
a. Roads
o 27% of the total allocation of transport sector has been allocated to road sector.
o The amount will be spent on various on going projects and programmes with the new
target of a total of 2,000 kms of coastal connectivity roads which have been identified for
construction and development.
o Also, the total length of roads, including those under PMGSY, built from 2014-15 till the
current year is about 1,40,000 kms which is significantly higher than previous three
years.

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o A specific programme for development of multi-modal logistics parks, together with multi-
modal transport facilities will be drawn up and implemented.
o The pace of construction of PMGSY roads has been accelerated to almost double and
reach 133 km per day in 2016-17 as against an average of 73 km during 2011-14. The
govt. has taken up task of connecting habitations with more than 100 persons in LWE
affected blocks.
o The major focus of network expansion has been to improve connectivity rather than to
increase network capacity. Bigger hurdles in this are: timeliness in awarding contracts,
difficulties in acquiring land and securing environmental clearances and the persistent
shortages in construction capacity.
o Increased focus is required in the provision of service roads to cater for local motorized
and non-motorised traffic and social requirements of pedestrian/cattle underpasses.
o Also roads should not be seen in isolation but as part of an integrated multi-modal
system of transport.
b. Airports
o The budget allocation increased for airport sector which needs to be further increased as
this sector is always have the needs and the capacity of absorbing the huge amount of
money.
o The budget 2017-18 targets that the selected airports in tier 2 cities will be taken up for
operation and maintenance in the PPP mode. Also, the Airport Authority of India Act will
be amaneded to enable effective monetization of land assets.
o The modernization component is missing in the budget. Also, the govt. must decide clear
and stable rules governing the foreign ownership and operation of domestic airlines.
c. Shipping-
o Indian ports are highly constrained for capacity and are likely to remain so in the near
future.
o Port usage was at an average of 80% in 2011-12. Four out of the 12 Major Ports had
utilization rates above 100 per cent.
o Inland Water Transport, which is one of the most environment friendly modes, is
showing a decline in budgetary allocation.
o This is mainly due to the reason that the volume of cargo moved through inland water
transport remain very low, confined clearly to the movement of iron ore in Goa and
fertilizer raw material in the West Coast region.
Communication

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o The current spectrum auction has removed spectrum scarcity in the country and will give
a major fillip to mobile broadband and Digital India for the benefit of people living in rural
and remote areas.
o A total allocation of Rs. 26,687 crore has been proposed for the year 2017-18, which is
higher than the previous one.
o A scheme which is a project of national importance is called Bharat Net, a highly
scalable network infrastructure accessible on a non-discriminatory basis, to provide on
demand, affordable broadband connectivity for all households and on demand capacity
to all institutions to realise the vision of digital India.
o This would be the worlds largest rural broadband connectivity project using optical fibre.
o By the end of 2017-18, high speed broadband connectivity will be available in more than
1,50,000 Gram Panchayats, with wi-fi hotspots and access to digital services at low
tariffs.
o In addition, a DigiGaon initiative will be launched to provide tele-medicine, education and
skills through digital technology.
Energy:
a. Power
o The govt. is on the way to achieving 100% village electrification by 1st march 2018. An
increased allocation has been proposed under Deendayal Upadhyaya Gram Jyoti
Yojana in 2017-18.
o In solar energy, it is now proposed to take up the second phase of Solar Park
development for additional 20,000 MW capacity.
o An eco-system is also being created to make India a global hub for electronics
manufacturing by exponentially increasing the allocation for incentive schemes like M-
SIPS and EDF.
b. Oil & Natural Gas
o To strengthen the Energy sector, the govt. has decided to set up Strategic Crude Oil
Reserves. In the first phase, 3 such Reserve facilities have been set up.
o In 2nd phase, two more locations have been proposed namely Chandikhole in Odisha
and Bikaner in Rajasthan. This will increase the strategic reserve capacity to 15.33
MMT.
o Compared to previous year, the outlay proposed has been reduced for this sector.
Though, the allocation in the centrally sponsored scheme namely LPG connections to
poor household has been raised.
Water & Sanitation

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 o Swachh Bharat Mission (Gramin) has made tremendous progress in promoting safe
sanitation and ending open defecation.
o Sanitation coverage in rural India has gone up from 42% in October 2014 to about 60%.
Open Defecation Free villages are now being given priority for piped water supply.
o To further boost this mission, it is proposed to provide safe drinking water to over 28,000
arsenic and fluoride affected habitations in the next four years. This will be a sub-mission
of the National Rural Drinking Water Programme.
C. Budget and Macro Economics:
There were expectations that the govt. would stick to 3% fiscal deficit as per the existing
FRBM rule.
While it is not clear what is the new FRBM committees recommended to fiscal path, to
revive investments, the Budget has marginally deviated from its fiscal deficit target and
pegged at 3.2% (against the target of 3%).
Revenue deficit has been brought down to 1.9%(from 2.3%) while capital expenditure
increased to 1.3% (from 1.1%). This is expansionary and consistent with the fiscal
consolidation.
However, the FRBM committee have suggested the medium term debt path of 60%
(Centre 40%, State 20%) by 2023.
D. Policies for Revenue Mobilization
Following GST and Demonetisation, it is expected that the tax compliance will increase.
It can be seen in Budget numbers which assumes tax revenue buoyancy of over 1.4%.
On the direct taxes side, as economic survey pointed out, only 7 out of 100 people are
tax payers. To increase the tax base, the Budget does contain some changes on tax
front.
o Reduction in the personal income tax rate from 10% to 5% for the slab Rs. 2.5 lakh to
Rs. 5 lakh.
o Income tax filing is to be made easier with the introduction of simple one page form to be
filed as Income tax return, for individuals having taxable income up to 5 lakh other than
business income.
o Levying of a surcharge of 10% of tax payable on those with annual income between Rs.
50 lakh and Rs 1 crore.
Changes have been made in other direct taxes as well:
o The corporate income tax rate for MSME with annual turnover up to Rs 50 crore has
been reduced by 5 percentage point to 25%.

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 o Changes have been made in the provisions foe Long Term Capital Gains (LTCG) with
respect to land and building (holding period for immovable property has been reduced to
2 years from 3 years, base year also changed)
Revenue Projection and Tax-GDP Ratio:
o Budget 2017-18 projects significant increase in revenue with tax revenues increasing by
more than rs. 2.00,000 crore.
o A large part of projected increase in tax revenues is to come from direct taxes, with
personal income tax accounting for the bulk of the increase.
o Gross Central Taxto-GDP ratio is estimated to cross the 11%mark, even the direct tax-
to-GDP ratio is set to be highest in many years.
o Few concerns regarding lack of progressivity in Indian tax system remains the same.
Indias tax structure is highly regressive as two-third of total tax collected being
accounted for by indirect taxes.
o However, the gap between direct tax-to-GDP ratio and indirect tax-to-GDP ratio has
been reducing in the last couple of years.
o Also, there are reasons to believe that the revenue projections may be unduly optimistic
as the impact of demonetization in terms of slowing down of GDP growth is not yet clear.
o The projections for indirect taxes are less ambitious particularly in the case of union
excise duty, as collections expected from this source is much lower than GDP growth
rate.
o This may be on account of the fact that in the previous year a large part of excise duty
collections were partly due to windfall provided by higher global oil prices.
Despite optimistic projections, poor tax administration poses a challenge to its
realization. Also there is severe manpower shortage in the income tax department.
E. Banking Crisis and NPA issues:
Due to twin balance-sheet crisis especially in the banking sector, India has not been able
to attract much of the private investment.
Although, demonetization has helped in mobilizing the cheap money, there were
expectations that Budget could help the bank in recapitalization.
Compared to last budget (Rs. 25000 crore was allocated), this budget has allocated just
Rs. 10,000 crore for that purpose. This is despite sharp jump in the NPAs in public
sector banks.
Many others measures have been taken in he past to address this issue. These are:
Bankruptcy Code, Debt Recovery Tribunals, amendments in SARFESI Act, Bank Board
Bureau and the Indradhanush Scheme.

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F. Demonetisation and Budget:
According to the Economic Survey estimates, the adverse impact on GDP of
demonetization is in the range of 0.25 to 1 per cent (Many reports are showing the
decline in automobile sector as well as in real estate sector).
On the other hand, despite slowdown in GDP growth, tax revenues appear to have
increased substantially.
One explanation for this could be after demonetization tax base seems to have widened
as tax avoidance and evasion have come down due to increased use of electronic
transactions.
As an additional measures, the budget proposed to tax any cash transaction greater
than Rs 3 lakh. In longer run, it will promote higher usage of non-cash payments and tax
compliance would get better.
G. Budget and Digital Economy:
To shift the economy from cash to less cash system, we need to develop robust
payment infrastructure. In this area India faces three challenges: Cyber Security, Digital
Infrastructure and Cost of Digital Transactions.
Cyber Security: The Budget proposed a Computer Emergency Response Team for our
financial sector (CERT-Fin).
Digital Infrastructure: Budget renews its focus on programmes such as BharatNet,
DigiGaon, Modified Special Incentive Package Scheme (M-SIPS) by increasing
allocations.
In order to achieve inclusive growth, the Budget tries to focus more on the labour
intensive sectors such as housing, tourism, roads and other infrastructure.
However, to achieve the much needed structural transformation that is also
expansionary, there is a need for policy reforms on other aspects such as land and
labour. The Budget barely mentions these issues.

RAIL BUDGET IN NEW AVATAR

The rail budget was merged with the general budget, breaking the 93 years old tradition of
presenting separate railways budget.
Based upon the recommendations of Acworth Committee, the finances of Railways were
separated in 1924 by a Separation Convention.
In the post-independence era, Railways was carrying 75% of public transport and 90% of
freight. Hence, the need for continuing with a separate budget looked justified.

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 Today in contrast, this share has been reduced to 15% and 30% respectively. Hence this
conscious decision was taken to look at the issue.
Rail budget was absorbed in General Budget under Infrastructure category. The budget has
ensured that the financial autonomy of Indian Railways is not hampered with and the
freedom enjoyed so far is retained.
The present budget mandates Railways to focus on 4 major areas like
(i) Passenger Safety
(ii) Capital and developmental works
(iii) Cleanliness
(iv) Finance and Accounting Reforms

Passenger Safety:

Due to inadequate generation of internal financial resources, a separate investment window

for upgrading safety was much needed.
Past effort of similar type was made in 2001 when Special Railway Safety Fund was
created. It was targeted to wipe out accumulated areas of over aged assets, especially in
safety related areas such as tracks, bridges, rolling stock etc.
The present budget recognized the compelling need for addressing the safety concerns
afresh and announced the setting up of Rashtriya Rail Sanraksha Kosh (RRSK) with a
corpus of 1 lakh crore over 5 years. The govt. will provide the seed capital and the Railways
will arrange the balance resources from their own revenues and other sources.
Govt. will lay down clear- cut guidelines and timelines for implementing various safety works
to be funded from this Kosh(fund).
This could mean complete replacement of Integral Coach Factory (ICF) design coaches by
modern Linke-Hofmann-Busch (LHB) design coaches, induction of automated technology
for detecting rail cracks in advance, replacement of over stressed bridges, bringing in safer
signaling systems and replacing over aged Route Relay Interlocking systems.
This budget has outlined complete elimination of unmanned level crossing by 2020. The
safety initiative is also likely to witness measures for improving fire retardancy in materials
used for coach interiors like foam.
The funding of RRSK has been done both from revenue and capital expenditure.

Capital and Developmental Works:

The plan outlay in the current budget has been enhanced considerably (131,000 crore) with
a strong emphasis on raising extra budgetary resources ae well.

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 The merger of the Rail Budget also extinguished the dividend liability of the Indian Railways,
resulting in extra availability of Rs. 10,000 crores approx. This shall be a recurring benefit
year after year.
Budget targeted commissioning of 3500 Km of railway line in 2017-18 with a major thrust on
electrification.
Station Redevelopment programme has been launched. A beginning has already been
made at Habibganj, near Bhopal and at Gandhinagar. 500 stations will be made differently-
abled friendly by providing lifts and escalators.
It is proposed to feed about 7000 stations with solar power in medium term.
Steps will also be taken to launch dedicated trains for tourism and pilgrimage.

Cleanliness:

Cleanliness has been strong focus area under the Swachh Bharat Abhiyan on Indian
Railways. This effort is now visible on the platform and in the trains.
SMS based Clean My Coach Service has gained popularity.
The budget now proposes to introduce Coach Mitra facility, a single window interface to
register all coach related requirements.
The budget proposes to fit all coaches with bio-toilets by 2019.
The Budget outlines that pilot plans for environment friendly disposal of toilet waste and
conversion of biodegradable waste into energy are being set up at New Delhi and Jaipur
Railway Stations.

Finance and Accounting Reform:

Accrual based financial statement will be rolled out by March 2019. Under the accrual basis
of accounting, revenues are reported on the income statement when they are earned.
Under the cash basis of accounting revenues are reported on the income statement when
the cash is received.
A key advantage of accrual basis is that it matches revenues with related expenses, so that
the complete impact of a business transaction can be seen within a single reporting period.
This will enable Railways to calculate, more accurately, the value of each service they
provide.
To promote digital habit in passengers, service charge on e-tickets booked through IRCTC
has been withdrawn. The shares of three railways PSUs IRFC, IRCON, IRCTC are
proposed to be listed in Stock exchange.

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 The operating ratio has been targeted at 94.6% which is slightly less than the operating ratio
of 94.9% of RE 2016-17. This is a challenging task as the operating ratio at the end of
December 2016 was 109.6%.
The budget outlines that the tariff of the Railways would be fixed taking into consideration
costs, quality of service, social obligation and competition from other form of transport.

Mobility overview:
Improvement of mobility in Railways systems is indicated by net tonne kilometer and passenger
kilometers which have been targeted in the budget. Also, Financial resources have adequately
backed the four areas of Budget. The rail budget in the new avatar is poised to take a big lead in
improving services of Indian Railways the growth engine of the country.

Assessing the Changes in structure and Processes

The union budget for 2017-18 has shown continuity in terms of the overall policy trajectory
which is of fiscal consolidation. However, on the budget processes front, it came with
number of changes.
It has merged Rail Budget with the general budget, discontinued the Plan and Non-Plan
classification in Union Governments Expenditure Budget, and advanced the date of the
budget presentation by a month.

Merging Rail Budget with General Budget:

It has been argued that this merger of budgets would allow the Railways to boost economic
growth.
Some have voiced concern that the merger is a mere cosmetic change; it was more
important to implement the decade old recommendation of the Rakesh Mohan Committee
for restructuring the Railways.
The core question that has haunted IR is whether it is a commercial organization, or does it
perform a social objective?
The Committee had opined opined reform and modernization of Indias Rail system was
needed urgently; spinning off non-core activities, restructuring what remains along business
lines and commercial accounting performance management systems should be adopted.

Ending Plan and Non-Plan Classification:

Plan expenditure referred to the spending on programmes and schemes of the Govt.
detailed under Five year Plan. It includes all kinds of expenditure on programmes and
schemes whether on Recurring or Capital Expenditure heads.

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 For example, expenditure on teachers salary under Sarva Siksha Abhiyan, constituted Plan
Revenue Expenditure, and that on construction of school buildings was Plan Capital
Expenditure.
Non-Plan expenditure referred to the expenditure on all those functions or services by the
government, which fell outside the purview of FYP. For instance, Governments expenditure
on interest payments, subsidies, salary and pension payments, police, defence, and
maintenance of assets or infrastructure across sectors constituted the Non-Plan Budget.
Funds to the Rural development Ministry for building roads under the Pradhan Mantri Gram
Sadak Yojana were reported as Plan expenditure, but their maintenance belonged to Non-
plan budget.
The bifurcation had given rise to a misleading notion that Plan expenditure was
developmental and Non-plan was non-developmental. This has led to an excessive focus on
plan expenditure, with a corresponding neglect of items such as maintenance that was
classified as Non-Plan; and neglect of Non-Plan spending requirements caused an acute
shortage of regular cadre staff across sectors in most states.
The bifurcation had also resulted in fragmentation of resources available for budgeting and
made it difficult to ascertain the overall cost of delivering a service.
It is hoped that by clubbing these two, resource allocation would be easier; this will also help
link outlays to outcomes in better way.
Untill now, allocations for Dalits were reported in the Budget following the Scheduled Caste
Sub-Plan (SCSP) strategy which earmarked 16.6% of the plan outlays for Dalits.
This years budget presents Allocations for Welfare of Scheduled Castes under statement
10A, but it is unclear what parameters have been used for reporting these allocations. It is
important that new norms be developed under SCSP by relevant ministries.
Different States might not follow the new budgeting practice. Hence, it is necessary for the
Union Govt. to ensure that those states that decide to continue with these segments in their
next budgets do not face difficulties.
Excessive focus on Capital and Revenue classification of expenditure could be
problematic for important social sectors like education and health, where large proportions
of govt. spending are reported as Revenue expenditure.
In new planning framework, the role and importance of planning especially at the sub-
national level should not be undermined. Hence, the District Planning Committee should be
strengthened to support bottom up planning.

Advancing of Budget Presentation by a Month:

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 Until 2000, we had followed the British era practice of presenting the Union Budget at 5 pm;
it was changed to 11 pm subsequently.
This year the Union Budget was presented on February 1, a month in advance.
The effect of this would be that the process of getting all legislative approval for the same
can get completed before the beginning of the new fiscal, thereby helping various ministries
to ensure that funds in central programmes and schemes start getting released to the State
in the first quarter itself.
Also, it would do away with the need to withdraw the money from consolidated fund of India
through Vote Of Account.
However, there are some inherent challenges. One of the disadvantages of moving the
Budget preparation to 1st February is lack of availability of comprehensive revenue and
expenditure data.
The data on GDP and sectoral growth in the economy, used for this years budget
formulation is likely to be based only on the first two quarters of the financial year 2016-17.
Also, there is less likely that the House of the Parliament and Standing Committee will get
adequate time to deliberate on the budget.

Consolidated Outcome Budget:

The Budget speech announced presenting of a consolidated Outcome Budget covering all
ministries and departments for the first time. It is aimed at strengthening the focus on results
from public expenditure especially in the development programmes and schemes.
Creation of this document will provide crucial information regarding the use of public money
in achieving the desired results.

Other Steps to strengthen Budgeting:

Changes in budgetary processes are aimed at improving the public expenditure

management. But these steps alone will not yield the desired result.
There is need to strengthen the District planning Committee.
Accessing disaggregated information about govt. expenditure in social sector programmes
continues to be a challenge at the district level.
Publishing such information in timely and accessible manner can strengthen public
monitoring of fund utilization in development schemes.

SWOT Analysis of the Indian Economy

The Economic Survey of India analyzes the basic Strengths, Weaknesses, Opportunities
and threats.

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Strengths:

Despite gloomy global economic environment, Indian economy presents a bright spot with
its impressive performance. Survey predicts a growth rate of 6.5% to 6.75% during 2016-17.
The Monetary Policy Committee (MPC) estimates it to be around 7% making the country a
fastest growing major economy.
Inflation rate is 4 to 5% and declining and relative prices in economy have considerably
stabilized.
Current Account Deficit is less than 1% of GDP and dollar-rupee exchange rates are
relatively stable.
External debt is within the safe limits and the Country is on the path of fiscal consolidation.
FDI reforms have been able to attract huge chunk of foreign investment and Forex reserves
have grown to $360 billion by December 2016.
Successful demonetization is likely to yield long term benefits of reducing corruption,
increasing household saving and widen the tax base.
Passing of GST act will further increase the competitiveness of goods and services.
Indias share in the world manufacturing exports is rising.
Internal mobility of goods given by the interstate trade in India is about 54% of GDP or about
1.7 times the international trade.
In terms of commitment to climate change, India has outperformed most of the other
countries.
India has a favourable demography.
A very extensive network and infrastructure is created in the country by JAM trinity to reach
the targeted groups.
There is convergence of health outcomes like life expectancy and fertility rates across the
states over the time.
India has been a well acknowledged democracy at all levels with reasonably developed
institutions and large public participation. It has potential to grow at 8 to 10% in medium to
long term.

Weaknesses:

GST implementation is likely to suffer from sub-optimal design and too complicated a
structure for efficiency gains.
Ideological and philosophical confusion regarding the roles of the public and private sectors
has led to the unwanted delay in allowing exits, disinvestments etc.
Out of several essential public services, delivery of health and education does not provide
any good replicable model across states.

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 Private investment is low and exports are no longer growing at higher rates.
The corporate sector and commercial banks are caught simultaneously with their respective
stressed balance sheets. Growing NPAs are posing a threat to the economy.
The fiscal deficits in the state govt. budget have been rising of late.
Heavy reliance on high growth rate of income to reduce the debt-GDP ratio rather than
reducing the primary deficit has not yielded the desired result.
The ratio of working age population to non-working age population in India will reach its
maximum value of around 1.7 by 2020. This is substantially less than corresponding
maximum values in other BRICS countries, implying lower demographic dividend in India.
Investment and savings rates have been declining. Income and consumption inequalities
across states are increasing.

Opportunities:

Reform the bankruptcy laws for exits of corporations to release locked up resources.
Strengthen legal basis for Aadhar cards and allow inter-operability to encourage
digitalization payments for efficient functioning of govt. schemes to achieve inclusion and
equity..
Focus on Competitive and cooperative federalism
Rising Dollar on accounts of developments in the US economy could compel the Chinese
economy to reduce its exports and rebalance in favour of domestic consumption. This would
have positive spillover effects on India and the rest of the world.
Higher growth prospects in advanced countries like US and Germany can lead to revival of
exports from developing countries like India.
After BREXIT, India has opportunity of renegotiating free trade agreements with UK and
Europe for the benefit of India.
Unfavourable stance of US on regional trade will once again promote multilateralism, which
would be in Indias favor.
The peninsular States have more elderly population compared to hinterland States. The
demographic differences indicate opportunities for greater labour mobility to achieve higher
growth.
The demographic dividend in Peninsular states would reach the peak around 2020, but the
hinterland states would reach its peak only around 2040. Thus the demographic dividend
would be enjoyed by country over a much longer duration than most other countries.
There is an opportunity to create a Public Sector Asset Rehabilitation Agency to address the
twin balance sheet problem.

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Threats:

International rating agencies have not been consistent in upgrading their ratings of different
countries. India seems to be on receiving end in this regard.
Competitive populism in the federal democracy can damage fiscal discipline and
governance standards.
International political order and environment are fast changing towards isolation and
protectionism.
International oil prices are on the rise and so also the commodity prices.
As a consequence of developments in US economy, global interests rates and inflation rates
in the advanced countries are on the way to strengthen. This can have adverse impact on
Indias capital inflow and investment climate.
If rising dollar on account of developments in the US economy results in the dollar induced
depreciation in Yuan, it may lead to substantial structural transformation and disruptions in
China that can have adverse spillover effects on Indian trade and investments.
The world exports to-GDP ratio has been declining for the last 6 years. Indias
competitiveness in the world market is seriously threatened by emerging countries such as
Vietnam, Bangladesh and Philippines.
In terms of the real effective exchange rate (REER), the Indian currency is appreciating
against other currencies and hence is losing the competitive advantage.
Indias demographic advantage is likely to recede soon.

Conclusion:
The survey 2016-17 has attempted a very exhaustive review of the Strengths, Weaknesses,
Opportunities and Threats for the Indian economy and has suggested some specific reforms
and actions to tackle challenges and address weaknesses.
A Budget for the Youth

India by 2022 could surpass China and become the first major democracy in history to be
home to over 1.5 billion people. Currently, more than 60% of Indias population is below the
age of 35 and by 2020, and by 2020, the average age of Indian will be about 29 years
compared to 37 for China and 48 for Japan.
Keeping this is mind; the Budget 2017-18 has announced schemes for the empowerment of
youths.
Budget has introduced a system of measuring annual learning outcomes in school and
provided for an Innovation Fund for Secondary Education which proposes to encourage
local innovation.
This is expected to ensure universal access, gender parity and quality improvement.

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 Government has put systems in place to develop SWAYAM platform, by leveraging IT and
plans to launch it with at least 350 online courses. This would enable anyone to virtually
attend courses in addition to liberally subscribing to lifelong learning.
The Budget also proposes a National Testing Agency to be set-up as an autonomous and
self-sustained premier testing organization to conduct all entrance examinations for higher
education institutions. This will mitigate the pressure and stress that the children and the
parents undergo in making themselves able enough to file through a maze of applications.
For Vocational education, budget reinforces many ideas into action and has extended the
Pradhan Mantri Kaushal Kendras to more than 600 districts across the country.
It further proposes to set up 100 India International Skills Centres across the country and to
launch SANKALP Skill Acquisition and Knowledge Awareness for Livelihood Promotion
programme.
The announcement to Strengthen Skills for Industrial Value Enhancement (STRIVE) in
2017-18 needs to be seamlessly integrated with the MSME sector for maximum benefits.

Improving Productivity And Employment Growth

The primary objective of government of India is industrial growth and employment creation.
Unskilled and semi-skilled work force and agriculture, comprises underemployment.
Product diversification, and large scale adoption of new technologies can result in
employment gains.
Labour is the only input, in the era of contractualization, which is extremely fluid, compared
to other inputs.
The union budget has made the highest allocation to MNREGA so that employment
opportunities are created.
Allocation of PMs employment generation and credit support schemes has been stepped up
by 3 times.
PMEGP is a credit linked subsidy programme which combines Rural Employment
Generation Programme (REGP) and Pradhan Mantri Rozgar Yojana (PMRY). The ministry
of Micro, Small and Medium Enterprises (MoMSME) administers it and is implemented by
Khadi Village Industries Commission (KVIC).
The programme to go digital has increased digital transactions which enables small and
micro enterprises to access formal credit.
Digitizations help in consolidation, facilitating collection of taxes, and improve the financial
viability and performance of the industries of the sector concerned.

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 The small firms with a turnover of 50 crore or less will have to pay a lower tax. More than 90
percent of the FDIs are promoted by the automatic mode as the Foreign Investment
Promotion Board has been abolished.
Trade openness, agglomeration economies, infrastructure and ICT and innovation are the
four major determinants of Total Factor Productivity Growth (TFPG).
Public infrastructure is a crucial factor in enhancing productivity and technical efficiency
through complementary relationship with other factors of production and external economies
of scale. Poor employability of the labor force is a major constraint to investment and
employment growth.
Allocation for infrastructure has been large. This will generate employment as building of
massive infrastructure requires manpower. A new metro rail policy is expected to be
announced which will open up new job opportunities for the youth.

Budget 2017-18: Measures for Growth and Employment Generation

1. STRIVE- Skill Strengthening for Industrial Value Enchantment will focus on improving the
quality and market relevance of vocational training provided in it and strengthens the
apprenticeship programmes through industry cluster approach.
2. Special scheme for creating employment in leather and footwear industries to be
implemented like textile sector.
3. Five special tourism zones to be set up. Incredible India 2.0 campaign to be launched
across the world.
4. Pradhan Mantri Kaushal Kendras to be extended all over the country which is expected to
help those of our youth who seek job opportunities outside the country.
5. SANKALP- Skill Acquisition and Knowledge Awareness for Livelihood Promotion is to be
launched which is expected to provide market relevant training to 3.5 crore youth.
6. To give a boost to Start-ups, relaxation to the condition that the holding of the original
promoter/promoters is given. The profit linked deduction available to the start-ups for 3
years out of 5 years is being changed to 3 years out of 7 years.
The budget is more agriculture and rural centric. To help modernize the labor intensive
goods industries, to enable the units to manufacture quality products which in turn, generate
export demand, and to help them to expand and contribute to both growth and employment.

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Transforming The Real Estate Sector

This budget is chosen to be investment-led growth over demand-led growth in the Indian
economy.
The budget has pumped up the investment/supply side of the economy with nearly all the
resources at its disposal. The belief is that such projects will create enough demand for
affiliated sectors which will create a chain reaction of higher economic activity.
Real estate sector has emerged as one of the most important contributors to the Indian
economy. A slowdown is seen post demonetization.
Housing for all by 2022 mission has identified 305 cities and towns under Pradhan Mantri
Awas Yojana, which targets to build 2 crore homes for the urban poor by 2022.

Budget 2017 is based on the following ten themes with a goal to Transform, Energize and
Clean India.

1. Farmers: double the income in 5 years.

2. Rural population: providing employment and basic infrastructure.
3. Youth: energizing them through education, skills and jobs.
4. Poor and underprivileged: strengthening the system of social security and affordable
housing.
5. Infrastructure for efficiency, productivity, and quality of life.
6. Financial sector: growth and stability through stronger institutions.
7. Digital economy for speed, accountability and transparency.
8. Public services: effective governance and efficient service delivery through peoples
participation.
9. Prudent fiscal management to ensure optimal deployment of resources and preserve
financial stability.
10. Tax administration: honoring the honest.

Affordable Housing Sector: Infrastructure Status

It would positively impact the real estate sector; also low cost housing through Pradhan
Mantri Awas Yojana will be constructed.
The criteria for low cost housing has been changed to carpet area of 30/60 sq meters from
built-up area of 30/60 sq meters.

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Immovable Assets Reduced Holding Period

The budget 2017-18 has lowered the holding period for gains to qualify as long-term in the
case of immovable property to 2 years from 3 years. This will reduce the tax burden of
people selling properties after 2 years and promote investment in the real estate sector.

Refinancing Individual Housing Loans:

The demonetization drive has resulted surplus cash within the banks, thereby allowing major
banks to lower their lending rates. This will act as a lure to home buyers. The refinancing
scheme from the National Housing Bank (NHB) will improve the sentiment of current
homeowners.

Capital Gains Tax Liability Changed:

The budget proposes to change the prevalent practice and has clarified that the landowner
entering into a joint development agreement for the development of the property, shall be
subject to capital gains tax upon completion of the project.

Land pooling mechanism for new state capital of Andhra Pradesh :

It is implemented without the use of the Land Acquisition Act. This reduces land related
disputes and increases the speed of the development.

India has a huge demographic advantage in terms of the young population and it is of
paramount importance to create jobs for them. Housing is a labor-intensive industry, with
linkages to other sectors aiding in job creation.

Growth in Health Budget 2017-18

Health allocation in the union budget 2017-18 is increased by 27 percent which turns out to
be the highest ever growth in the last 15 years.

Budget Allocations: A Closer Look

Nearly 59 percent of the health budget gets transferred to states/UTs under centrally
sponsored schemes, namely, National Health Mission and national health protection
scheme.
Setting up of Pradhan Mantri Swasthya Suraksha Yojana, this deals with setting up of AIIMS
like institutions and up gradation of medical collleges.
The shortage of medical personnel, especially of specialist doctors, creation of human
resource for health is high on the governments agenda.

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When More is Less:

Higher expectations from this budget is mainly due to two reasons, one is Indias track
record of low public health spending and second, the absence of any announcement relating
to the national health protection schemes well as unclear funding of some of the new
programs announced recently.

Low Public Health Spending in India:

Government health spending in India comes out poorly in comparison to its peer countries.
The central government spends only 1/3rd of total government health spending.
This means that majority (2/3rd) comes from states. States have an important role to play in
increasing government health spending in India.
To get the states spend significantly, delivery of health services must improve, which
requires an architectural correction to make the system responsive to the needs of the
population due to a shift in the disease burden, and better management and higher
accountability of the delivery system.
This architectural correction in turn requires highest political commitment strong leadership
and vision in each state.

National Health Protection Scheme (NHPS):

NHPS was expected to be announced in this budget which would not only provide for higher
financial protection against hospitalization costs but also bring larger popukation under its
fold. However, it was not announced.
Also funding for some of the new schemes announced recently is not very clear. For
example - a scheme of cash transfer of rs. 6000 to an expectant mother for promoting
institutional delivery, elimination of Kala-Azar and Filariasis by 2017 etc.
Further, the govt. has announced transforming of health sub-centres across the country into
Health and Wellness Centres. Neither any timeline has been set for so, nor any funding
been committed.
The amendment of the Drugs and Cosmetics Rules to ensure availability of drugs at
reasonable prices and to promote generic drugs, and regulations of medical devices doesnt
have much budgetary implication.

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Weaker Sections : Welfare and Development

The overall approach of the budget optimistic towards rural areas, infrastructure and poverty
alleviation. It is based on the principle of TEC India meaning Transform, Energize and
Clean India.
The budget expects transforming the quality of the governance which has a direct bearing
on the quality life of the people. It aims energizing the vulnerable sections of the society.
To unleash true potential and improve quality of life some of the social groups like
scheduled castes, scheduled tribes, women, children, and minorities need special focus and
attention their socio-economic empowerment requires a significant increase in the budget
allocation. To achieve this:
Allocation for the welfare of the scheduled castes and scheduled tribes has been increased
up to 35 percent and 33 percent respectively.
Allocation for the gender budget is increased by 25 percent.
Allocation for the children and minorities are increased both by approximately 9 percent.
Various schemes like Pradhan Mantri Fasal Bima Yojana (83 percent hike), Pradhan Mantri
Krishi Sinchai Yojana (45 percent hike), Swach Bharat Mission-Rural (39 percent hike) and
Pradhan Mantri Kaushal Vikas Yojana have 51 percent hike in their allocation.
Interest Subsidy For Short Term Credit To Farmers is a new scheme to be launched in
2017-18 having allocation of 1200 crore for the scheduled tribes.
Lack of education is the major reason of backwardness of SCs and STs. Poor economic
condition of the families lead to higher dropouts rate of SCs students.
However, this will be controlled by the significant increase in the allocation on scholarship
schemes for the students from the weaker sections in the budget.
Distance of schools from home is also a cause for dropout, especially the girls children. For
this purpose, allocation of Rs. 155 crore is done in 2017-18, construction of hostels for boys
and girls from SC communities.
Post matric scholarship and research scholarships are other initiatives for promoting higher
education.
The government is also intending to promote Tribal Research Iinstitute as primary and
effective sources of inputs for formulation of policies and programmes for tribal
development.
The divyangs also have special focus of the government.

The initiatives taken to increase employment are:

Stand-Up India: inculcating entrepreneurship skills among scheduled castes and scheduled
tribes.

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 Launching of the next phase of Skill strengthening fir Industrial Value Enchantment
(STRIVE), to improve the quality and market relevant vocational training in ITIs through
industry cluster approach.
SANKALP (Skill Acquisition and Knowledge Awareness for Livelihood Promotion
programme ) will be launched in 2017-18.

Some other initiatives for the marginalized sections of the society in the budget are as below :

Introduction to Aadhar based Smart Cards for senior citizens containing their health details.
To undertake the Mission Antyodaya to bring one crore households out of poverty by 2019
and to make 50,000 gram panchayats poverty-free by 2019 on the occasion of 150th birth
anniversary of Mahatma Gandhi.
Pradhan Mantri Mudra Yojana, with priority lending to dalits, tribals, backward classes,
minorities and women to start small scale businesses/enterprises.

In overall, the focus of budget 2017-18 is on all basic and priority areas like education,
affordable housing, developing skills, financial assistance etc. With focus on an effective
mechanism for output and outcome monitoring, the weak and the vulnerable sections of society
can expect a substantive improvement in the quality of their life.

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