Budget 2016: It's time to create a long lasting impact

The immediate priority of finance minister of India is to improve GDP growth and employment rates while keeping the targets of fiscal consolidation (3.5% of GDP in 2016-17) under control. Based on past few quarters’ results of corporate sector, we see demand hasn’t yet picked up. One of the main reasons is lack of rural demand, low rise in urban consumption and high food inflation. Based on this we think our finance minister should focus on sectors which could have a large scale impact to revive the economy while providing enough employment to receive the benefits of India’s demographic dividend. These sectors include Agriculture, Infrastructure and Healthcare sector.

1. Agriculture & Rural economy
Indian Agriculture sectors contributes around 17% to overall GDP, however, 49% of India's workforce is dependent on it. Overall GDP growth rate is round 7.5% while Agri-growth stutters around 1.7% (Down from 4% AGR in 11th Plan). Drought in last two years has made the situation worse by pushing marginalised farmers and agricultural labourers to the brink, leading to massive agrarian distress.

· The Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS) has been successful in providing employment to India’s rural poor and improve their livelihoods. A study NCAER found that the MGNREGS “has reduced poverty overall by up to 32% and has prevented 14 million people from falling into poverty.” Budget allocated should be increased to Rs. 40,000 cr from current allocation of Rs.34, 699 cr as the current allocation is not sufficient to cover the increased demand. Govt. needs to make it demand-driven programme i.e. allocating resources to states and districts based on poverty level & exposure to drought. Making state & local bodies accountable by monitoring KPIs (Employment level, Assets etc).

· Reliable, faster and effective rural electrification by investing & promoting renewable energy sources (bio-gas, solar, wind etc.) under an integrated rural electrification framework.

· Crop insurance schemes in India covers merely 23% of farmers. Pradhan Mantri Fasal Beema Yojna (PMFBY) needs to employ technology and innovation in crop insurance by assessing farm-level damage through satellites & drones, linking farmer’s farm to Aadhar number and transferring the amount directly to account. Out of total sown area of 141 million hectare only 45% (65 million hectare) is covered under irrigation. Pradhan Mantri Krishi Sinchai Yojana (PMKSY), launched in 2015, needs to achieve convergence of investments by Integration of water source, distribution and farm level applications. Using MSP as insurance mechanism rather than structural tool.

· National Agriculture Market instead of current Mandi system, which suffers from cartelization of intermediaries’ problem, to enable farmers to discover the true price of their product.

2. Infrastructure Sector
Investment in infrastructure must give a boost to rail, road, irrigation and ports. Infrastructure has a high multiplier effect and goes a long way in creating sustainable GDP growth. Ports will help boost up trade and rail &road will push activity within the country. Sufficient funds to be allocation to meet NHAI target of 30km/day. Tax incentives for multi cargo ports with handling capacity of more than 100 MTPA will boost India’s exports. Withdrawal of minimum alternate tax in a calibrated manner must be done. Government should privatize managing of smaller airports and modernization of atleast 400 railway stations should be done in next year. Further atleast 30GW of renewable energy capacity can be established majorly through wind and solar. Accelerated depreciation benefit should be extended to wind sector apart from solar.

3. Healthcare Sector
In healthcare government should increase allocation to public healthcare by increasing it to 2% of GDP from current 1%. There must be tax holidays given to the pharma sector and the sunset clause on weighted deductions must be extended as India has the potential to become pharmacy of the world. These deductions on R&D will go a long way on propelling innovation in pharma. Universal health insurance should be carried out through Jan Dhan-Aadhar-Mobile which will benefit patients and increase access thus helps us materialize our demographic dividend.

The article has been written by Devendra Meel and Sahil Makkar.

(Devendra is a first year PGP student at IIM Bangalore. He has served on the program management & strategy team of RIL's 4G venture. He holds a degree in electronics & communication engineering, and takes strong interest in economics, governance & political issues, reading and cricket)

(Sahil is a first year PGP student from IIM Bangalore. Prior to this he has worked two years in R&D division of Samsung. He is a graduate in Electrical engineering from IIT Bhubaneswar. He is an avid follower of cricket and has interest in economics and finance)