Speech of Arun Jaitley, Minister of Finance
February 1, 2017
On this auspicious day of Vasant Panchami, I rise to present the Budget for 2017-18. Spring is a season of optimism. I extend my warm greetings to everyone on this occasion.
2. Madam Speaker, our Government was elected amidst huge expectations of the people. The underlying theme of countless expectations was good governance. The expectations included burning issues like inflation and price rise, corruption in day to day transactions and crony capitalism. There was also expectation for a major change in the way the country’s natural resources were allocated, processed and deployed.
3. In the last two and half years, it has been our mission to bring a Transformative Shift in the way our country is governed. We have moved
from a discretionary administration to a policy and system based administration;
from favouritism to transparency and objectivity in decision making;
from blanket and loose entitlements to targeted delivery; and
from informal economy to formal economy.
Inflation, which was in double digits, has been controlled; sluggish growth has been replaced by high growth; and a massive war against black money has been launched. We have worked tirelessly on all these fronts and feel encouraged by the unstinted support of the people to our initiatives. The Government is now seen as a trusted custodian of public money. I take this opportunity to express our gratitude to the people of India for their strong support.
4. We shall continue to undertake many more measures to ensure that the fruits of growth reach the farmers, the workers, the poor, the scheduled castes and scheduled tribes, women and other vulnerable sections of our society. Our focus will be on energising our youth to reap the benefits of growth and employment.
5. Madam Speaker, I am presenting this Budget when the world economy faces considerable uncertainty, in the aftermath of major economic and political developments during the last one year. Nevertheless, the International Monetary Fund (IMF) estimates that world GDP will grow by 3.1% in 2016 and 3.4% in 2017. The advanced economies are expected to increase their growth from 1.6% to 1.9% and the emerging economies from 4.1% to 4.5%. As per current indications, macro-economic policy is expected to be more expansionary in certain large economies. Growth in a number of emerging economies is expected to recover in 2017, after relatively poor performance in 2016. These are positive signs and point to an optimistic outlook for the next year.
6. There are, however, three major challenges for emerging economies. First, the current monetary policy stance of the US Federal Reserve, to increase the policy rates more than once in 2017, may lead to lower capital inflows and higher outflows from the emerging economies. Second, the uncertainty around commodity prices, especially that of crude oil, has implications for the fiscal situation of emerging economies. It is however expected that increase, if any, in oil prices would get tempered by quick response from producers of shale gas and oil. This would have a sobering impact on prices of crude and petroleum. Third, in several parts of the world, there are signs of increasing retreat from globalisation of goods, services and people, as pressures for protectionism are building up. These developments have the potential to affect exports from a number of emerging markets, including India.
7. Amidst all these developments, India stands out as a bright spot in the world economic landscape. India’s macro-economic stability continues to be the foundation of economic success. CPI inflation declined from 6% in July 2016 to 3.4% in December, 2016 and is expected to remain within RBI’s mandated range of 2% to 6%. Favourable price developments reflect prudent macro-economic management, resulting in higher agricultural production, especially in pulses. India’s Current Account Deficit declined from about 1% of GDP last year to 0.3% of GDP in the first half of 2016-17. Foreign Direct Investment (FDI) increased from ` 1,07,000 crores in the first half of last year to ` 1,45,000 crores in the first half of 2016-17. This marks an increase by 36%, despite 5% reduction in global FDI inflows. Foreign exchange reserves have reached 361 billion US Dollars as on 20th January, 2017, which represents a comfortable cover for about 12 months of imports.
8. The Government has also continued on the steady path of fiscal consolidation, without compromising on the public investment requirements of the economy. Externally, the economy successfully weathered a number of shocks, the redemption of FCNR deposits, volatility from the US elections and the Fed rate hike. According to IMF forecast, India is expected to be one of the fastest growing major economies in 2017.
9. A number of global reports and assessments, over the last two years, have shown that India has considerably improved its policies, practices and economic profile. These are reflected in Doing Business Report of the World Bank; World Investment Report 2016 of UNCTAD; Global Competitiveness Report of 2015-16 and 2016-17 of the World Economic Forum; and several other Reports. India has become the sixth largest manufacturing country in the world, up from ninth previously. We are seen as an engine of global growth.
10. In the last one year, our country has witnessed historic and impactful economic reforms and policy making. In fact, India was one of the very few economies undertaking transformational reforms. There were two tectonic policy initiatives, namely, passage of the Constitution Amendment Bill for Goods and Services Tax and the progress for its implementation ; and demonetisation of high denomination bank notes. The advantages of GST for our economy in terms of spurring growth, competitiveness, indirect tax simplification and greater transparency have already been extensively discussed in both Houses of Parliament. I thank all Members of both the Houses for having passed the Constitution Amendment unanimously. I also thank the State Governments for resolving all relevant issues in the GST Council.
11. Demonetisation of high denomination bank notes was in continuation of a series of measures taken by our Government during the last two years. It is a bold and decisive measure. For several decades, tax evasion for many has become a way of life. This compromises the larger public interest and creates unjust enrichment in favour of the tax evader, to the detriment of the poor and deprived. This has bred a parallel economy which is unacceptable for an inclusive society. Demonetisation seeks to create a new ‘normal’ wherein the GDP would be bigger, cleaner and real. This exercise is part of our Government’s resolve to eliminate corruption, black money, counterfeit currency and terror funding. Like all reforms, this measure is obviously disruptive, as it seeks to change the retrograde status quo. Drop in economic activity, if any, on account of the currency squeeze during the remonetisation period is expected to have only a transient impact on the economy. I am reminded here of what the Father of the Nation, Mahatma Gandhi, had said: “A right cause never fails”.
12. Demonetisation has strong potential to generate long-term benefits in terms of reduced corruption, greater digitisation of the economy, increased flow of financial savings and greater formalisation of the economy, all of which would eventually lead to higher GDP growth and tax revenues. Demonetisation helps to transfer resources from the tax evaders to the Government, which can use these resources for the welfare of the poor and the deprived. There is early evidence of an increased capacity of Banks to lend at reduced interest rates and a huge shift towards digitisation among all sections of society. We firmly believe that demonetisation and GST which were built on the third transformational achievement of our Government, namely, the JAM vision, will have an epoch making impact on our economy and the lives of our people.
13. Madam Speaker, we are at an important turning point in the path of our growth and development.
14. The pace of remonetisation has picked up and will soon reach comfortable levels. The effects of demonetisation are not expected to spill over into the next year. Thus IMF, even while revising India’s GDP forecast for 2016 downwards, has projected a GDP growth of 7.2% and 7.7% in 2017 and 2018 respectively. The World Bank, however, is more optimistic and has projected a GDP growth of 7% in 2016-17, 7.6% in 2017-18 and 7.8% in 2018-19. This pick up in our economy is premised upon our policy and determination to continue with economic reforms; increase in public investment in infrastructure and development projects; and export growth in the context of the expected rebound in world economy. The surplus liquidity in the banking system, created by demonetisation, will lower borrowing costs and increase the access to credit. This will boost economic activity, with multiplier effects.
15. The announcements made by Honourable Prime Minister on 31st December, 2016 address many of the key concerns of our economy at this juncture, such as, housing for the poor; relief to farmers; credit support to MSMEs; encouragement to digital transactions; assistance to pregnant women and senior citizens; and priority to dalits, tribals, backward classes and women under the Mudra Yojana.
16. My overall approach, while preparing this Budget, has been to spend more in rural areas, infrastructure and poverty alleviation and yet maintain the best standards of fiscal prudence. I have also kept in mind the need to continue with economic reforms, promote higher investments and accelerate growth.
17. The last one year was a witness to other major reforms, namely, enactment of the Insolvency and Bankruptcy Code; amendment to the RBI Act for inflation targeting; enactment of the Aadhar bill for disbursement of financial subsidies and benefits; significant reforms in FDI policy; the job creating package for textile sector; and several other measures. We will continue the process of economic reforms for the benefit of the poor and the underprivileged.
18. Madam Speaker, the Budget for 2017-18 contains three major reforms. First, the presentation of the Budget has been advanced to 1st February to enable the Parliament to avoid a Vote on Account and pass a single Appropriation Bill for 2017-18, before the close of the current financial year. This would enable the Ministries and Departments to operationalise all schemes and projects, including the new schemes, right from the commencement of the next financial year. They would be able to fully utilise the available working season before the onset of the monsoon. Second, the merger of the Railways Budget with the General Budget is a historic step. We have discontinued the colonial practice prevalent since 1924. This decision brings the Railways to the centre stage of Government’s fiscal policy and would facilitate multi modal transport planning between railways, highways and inland waterways. The functional autonomy of Railways will, however, continue. Third, we have done away with the plan and non-plan classification of expenditure. This will give us a holistic view of allocations for sectors and ministries. This would facilitate optimal allocation of resources.
19. Madam Speaker, we are aware that we need to do more for our people. Continuing with the task of fulfilling the people’s expectations, our agenda for the next year is : “Transform, Energise and Clean India”, that is, TEC India. This agenda of TEC India seeks toTransform the quality of governance and quality of life of our people;
Energise various sections of society, especially the youth and the vulnerable, and enable them to unleash their true potential; and Clean the country from the evils of corruption, black money and non-transparent political funding.
I propose to present my Budget proposals under ten distinct themes to foster this broad agenda. The themes are :
(i) Farmers : for whom we have committed to double the income in 5 years;
(ii) Rural Population : providing employment and basic infrastructure;
(iii) Youth : energising them through education, skills and jobs;
(iv) Poor and the Underprivileged : strengthening the systems of social security, health care and affordable housing;
(v) Infrastructure: for efficiency, productivity and quality of life;
(vi) Financial Sector : growth and stability through stronger institutions;
(vii) Digital Economy : for speed, accountability and transparency;
(viii) Public Service : effective governance and efficient service delivery through people’s participation;
(ix) Prudent Fiscal Management : to ensure optimal deployment of resources and preserve fiscal stability; and
(x) Tax Administration : honouring the honest.
20. The Indian farmer has once again shown his commitment and resilience in the current year. The total area sown under kharif and rabi seasons are higher than the previous year. With a better monsoon, agriculture is expected to grow at 4.1% in the current year.
21. In last year’s Budget speech, I focused on ‘income security’ of farmers to double their income in 5 years. I had also announced a number of measures. We have to take more steps and enable the farmers to increase their production and productivity; and to deal with post-harvest challenges.
22. For a good crop, adequate credit should be available to farmers in time. The target for agricultural credit in 2017-18 has been fixed at a record level of Rs10 lakh crores. We will take special efforts to ensure adequate flow of credit to the under serviced areas, the Eastern States and Jammu & Kashmir. The farmers will also benefit from 60 days’ interest waiver announced by Honourable Prime Minister in respect of their loans from the cooperative credit structure.
23. About 40% of the small and marginal farmers avail credit from the cooperative structure. The Primary Agriculture Credit Societies (PACS) act as the front end for loan disbursements. We will support NABARD for computerisation and integration of all 63,000 functional PACS with the Core Banking System of District Central Cooperative Banks. This will be done in 3 years at an estimated cost of Rs 1,900 crores, with financial participation from State Governments. This will ensure seamless flow of credit to small and marginal farmers.
24. At the time of sowing, farmers should feel secure against natural calamities. The Fasal Bima Yojana launched by our Government is a major step in this direction. The coverage of this scheme will be increased from 30% of cropped area in 2016-17 to 40% in 2017-18 and 50% in 2018-19. The Budget provision of Rs 5,500 crores for this Yojana in BE 2016-17 was increased to Rs 13,240 crores in RE 2016-17 to settle the arrear claims. For 2017-18, I have provided a sum of Rs 9,000 crores. The sum insured under this Yojana has more than doubled from ` 69,000 crores in Kharif 2015 to Rs 1,41,625 crores in Kharif 2016.
25. Issuance of Soil Health Cards has gathered momentum. The real benefit to farmers would be available only when the soil samples are tested quickly and nutrient level of the soil is known. Government will therefore set up new mini labs in Krishi Vigyan Kendras (KVKs) and ensure 100% coverage of all 648 KVKs in the country. In addition, 1000 mini labs will be set up by qualified local entrepreneurs. Government will provide credit linked subsidy to these entrepreneurs.
26. A Long Term Irrigation Fund has already been set up in NABARD. Honourable Prime Minister has announced an addition of ` 20,000 crores to its corpus. This will take the total corpus of this Fund to ` 40,000 crores.
27. A dedicated Micro Irrigation Fund will be set up in NABARD to achieve the goal, ‘per drop more crop’. The Fund will have an initial corpus of `5,000 crores.
28. For the post-harvest phase, we will take steps to enable farmers to get better prices for their produce in the markets. The coverage of National Agricultural Market (e-NAM) will be expanded from the current 250 markets to 585 APMCs. Assistance up to a ceiling of ` 75 lakhs will be provided to every e-NAM market for establishment of cleaning, grading and packaging facilities. This will lead to value addition of farmers’ produce.
29. Market reforms will be undertaken and the States would be urged to denotify perishables from APMC. This will give opportunity to farmers to sell their produce and get better prices.30. We also propose to integrate farmers who grow fruits and vegetables with agro processing units for better price realisation and reduction of post-harvest losses. A model law on contract farming would therefore be prepared and circulated among the States for adoption.
31. Dairy is an important source of additional income for the farmers. Availability of milk processing facility and other infrastructure will benefit the farmers through value addition. A large number of milk processing units set up under the Operation Flood Programme has since become old and obsolete. A Dairy Processing and Infrastructure Development Fund would be set up in NABARD with a corpus of ` 8,000 crores over 3 years. Initially, the Fund will start with a corpus of ` 2,000 crores.