From the trends of economic survey 2015-16, it is clear that this union budget is also going to be a populist one! Please do not startle yourself! Whatever I say is the outcome of the trends of economic survey! While I have confidence on my analysis, I do not have right to pronounce the idea of others as mistaken. This union budget to be introduce in Lok Sabha on February 29, 2016 is going to be a burden on the pockets of general people. I am not swirling nor I do have any intention to do so. I am directly coming to the point. You can see from this economic survey that UPA II is blamed in this survey for the bad performance. While the government has GDP data upto 2014 only and also with the help of IMF and World Bank, the government is just trying to take credits of its newly implemented policies. I am not going to delve into this matter further as being human I could take the view mistaken which I do not want. Most of data used in this Economic Survey is of the period of previous governments and thus this government could not be tested at this juncture at least.
In the state of the economy chapter, it is said that India's consumption growth till 2001 was 5.5%, it was 6.4% from 2002 to 2007 and after that till 2014, it is 7.5%. It is also said that 72% of global growth is attributed by the final consumption from 1991 till 2013. 2007 recession has deep impact till now and except china world is seeing a nosedive in the investment arena. The economic survey is much choosy upon the subject of GDP growth. For the sake of clarity I bring the formula of GDP here;
GDP (Y) = Consumption (C) + Investment (I) + Government Expenditure (G) + Net Export (X-M)
where X is Export and M is import.
I would not like to go much on the formula rather coming back to the discussion the Economic Survey 2015-16 (ES) envisages that the largest chunk is coming from private final consumption. It would constitute almost 60% of total GDP. If we take advance estimate then it could be Rs. 68,10,577 cr. According to the new series estimate, it was Rs. 49,45,926 cr. A whopping difference of Rs. 18,64,650 cr. Can you guess what does it say? Let us guess! This is a clear indication that some sort of social security scheme with longest lock-in period shall come into force. Schemes like Insurance whose benefit shall be reaped after say 20-30 years, a big thrust upon schemes like gold monetization schemes, savings in liquid assets which could easily utilized by the Government of India and this could be Fixed Deposits, Kisan Vikas Patra, PF and like. The ES indicates that the Government consumption has been lowered to nearest of 10% from 11%. This could cut the education grant, health grant and other such welfare schemes and the same could be given to private body of PPP model. The most disturbing part of the survey is fixed capital formation. In 2015-16 it is lowered to 29% from 34% in 2011-12. Fixed capital formation is indicator of business environment in the country. It is lowered generally during the recessionary period. Academically, I can argue that the fixed capital formation constitute the acquisition of fixed assets by business, government and household. Now this is much more complex as Railway announced three new freight corridor and thus we could expect that upto next year government is not going to start its process on new freight corridor. Infrastructure spending by the government is considered good because it saves money in the long run and reduces the Net present value of the government liabilities. But, where the capital formation has lowered, the government shall have to make endeavour to bring ideas for youths employment. We can cheer that the government is going to boost export which it has failed miserably.
Government planned to finance central plan mostly by market borrowings and Public Sector Enterprises (PSEs). Yes, PSEs which is regularly questioned. Again market borrowing shall be a burden upon the general public as the same could be initially funded by Foreign Institutional Investors but later the same could be turned to short term borrowing and the Insurance companies have to subscribe the same as the trend goes. The budgeted estimate reveals that the government borrows Rs. 456405 crores from market and PSEs could contribute Rs. 317889 cr. out of total estimate of Rs. 578382 cr. made NITI Ayog. The government seems to be exerting all its effort on mining which i personally finds a bad idea. 2015-16 Advance estimate has envisaged growth rate of Agriculture a meager 1.1%, mining 6.9%, manufacturing 9.5% and service 9.2%. First revised estimate of 2014-15 is embracing agriculture in negative growth, and mining whopping 10.8%. We should keep quite on manufacturing as it is only 5.5% and Service is 10.6%.
Indian GDP is primarily and mainly contributed by household sectors (45.5%) followed by private sectors (33.9%) in 2011-12. Trend suggest that while contribution of household (44.8%) and public sectors (19.4%) declined in 2014-15, private sectors prospered (35.9%) since 2011-12 till 2014-15. This budget could stimulate the private sectors with tax soaps and other loan waivers. The government could announce major amendment in tax laws for startups and other SMEs and the farmers i.e. agriculture and fishing could be sidelined.
John F Kennedy in his inaugural address dated January 20, 1961 said, "If a free society cannot help the many who are poor, it cannot save the few who are rich." In a nutshell, this budget seems to going to be a corporate presentation where the bottom-line of corporate should be looked after. Expenditure on Social Security Schemes could be lowered and instead of that insurance schemes could be floated under the banner of social security schemes. By doing so, this government could be a limited government instead of an activist government which is a force for public good.
