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Union Budget FY16
Atul Joshi, Managing Director & CEO
Friday, July 17, 2015
Macroeconomic Context before FY16 Budget
Domestic Context

Fiscal Health/ Public Finance
•

Inflation
•

Infrastructure deficit adversely impacting productivity and competitiveness of the economy
Manufacturing
•

Food inflation declining but food inflation still a challenge
Infrastructure
•

Low revenue base and high committed expenditure
Reviving manufacturing critical for creating employment opportunity
Currency and Balance of Payment
•
CAD as of now low, but will remain a risk
Global Context

India not immune to global development …
•
Global financial 2008/ Eurozone debt crisis
•
Geo-political upheaval impacting oil prices
•
Global GDP/ Trade growth
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Union Budget FY16 - Highlights
Fiscal/ Public Finance
 Fiscal deficit for FY16 pegged at 3.9% of GDP
 Roadmap for fiscal consolidation outlined (3.5% and 3.0% in FY17 and FY18)
 To set up public debt management agency
Inflation
 Average consumer inflation to be 5%-5.5% in FY16 will open room for more
monetary policy easing
 Monetary policy framework agreement with the RBI to keep inflation below 6%
Growth
 GDP to grow at 8-8.5% in FY16
 Aim is to grow at double digit soon
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7/17/2015
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Union Budget FY16 - Highlights
Infrastructure
 Investment in infrastructure to go up by INR700bn in FY16 over last year
 To set up ‘National Investment Infrastructure Fund’
 To allow foreign investment in alternative investment funds
 Tax-free infrastructure bonds for projects in roads, rail and irrigation projects
 5 ‘ultra mega’ power projects of 4000 MW each
 Plan to build additional 100,000 km of road
 Ports in public sector to be corporatise under Companies Act
Policy Reforms
 Comprehensive new law on black money
 Create a universal social security system
 To bring a new bankruptcy code
 To introduce a public contract resolution of disputes bill
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7/17/2015
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Union Budget FY16 - Highlights
Manufacturing
 Goods and services tax by April 2016
 Basic custom duty on commercial vehicle doubled to 20%
 Reduction of custom duty on 22 items
 To cut corporate tax to 25% over next four years (effective corporate tax in FY14:
23.22%)
 Anti-tax avoidance rules GAAR deferred by 2 years and to apply prospectively from
April 1, 2017
 A national skill mission to consolidate skill initiatives spread across several ministries
to be launched.
 Online central excise and service tax registration to be done in two working days
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Current Expenditure Consistently Higher than Current Revenue
Revenue Deficit as % of GDP
(% of GDPMP)
6
5
4
3
2
1
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FY16(BE)
FY14
FY13
FY12
FY11
FY15(RE)
Source: Union Budget, GoI and Ind-Ra
FY10
FY09
FY08
FY07
FY06
FY05
FY04
0
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5
Fiscal Deficit Has Improved …
Fiscal Deficit as % of GDP
(% of
GDPMP)
8
6.5
6.0
5.8
6
4.9
4.8
4.4
4.3
3.9
4
4.1
4.0
3.9
3.3
2.5
2
FY16(BE)
FY15(RE)
FY14
FY13
FY12
FY11
FY10
FY09
FY08
FY07
FY06
FY05
FY04
0
Source: Union Budget, GoI and Ind-Ra
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….but not the Quality of Fiscal Deficit
Revenue Deficit as % of Fiscal Deficit
(%)
90
81.0
76.4
75.2
74.3
70
71.0
70.7
FY15(RE)
79.7
FY14
80
71.0
67.5
62.6
63.0
60
56.3
50
41.4
40
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FY13
FY12
FY11
FY16(BE)
Source: Union Budget, GoI and Ind-Ra
FY10
FY09
FY08
FY07
FY06
FY05
FY04
30
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FM announced incremental investment of INR700bn
Budget numbers do not show this…..
Item (in INR Crore)
1 Non-Plan Expenditure
1.1 On Revenue Account
FY14
FY15BE
FY15RE
FY16 BE
1106120 1219892 1213224 1312200
1019040 1114609 1121897 1206027
of which,
1.2 Interest Payments
1.3 On Capital Account
2 Plan Expenditure
2.1 On Revenue Account
2.2 On Capital Account
3 Total Expenditure (1+2)
3.1 Revenue Expenditure (1.1+2.1)
3.2 Of Which, Grants for creation of Capital Assets
3.3 Capital Expenditure (1.3+2.2)
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374254
427011
411354
456145
87080
105283
91327
106173
453327
575000
467934
465277
352732
453503
366883
330020
100595
121497
101051
135257
1559447 1794892 1681158 1777477
1371772 1568111 1488780 1536047
129418
187675
168104
226781
131898
192378
110551
241430
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Net Tax/GDP Still on a Declining Trajectory
Central Government's Net Tax/GDP Ratio
(Net Tax/GDP,%)
9
8
7
6
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FY16(BE)
FY14
FY13
FY12
FY11
FY15(RE)
Source: Union Budget, GoI and Ind-Ra
FY10
FY09
FY08
FY07
FY06
FY05
FY04
5
7/17/2015
9
Disinvestment Fallen Way Short of Budget Estimate
Actual and Budgeted Disinvestment Receipts
(INRbn)
Actual
Budget estimate
800
600
400
200
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FY16(BE)
FY14
FY13
FY12
FY11
FY15(RE)
Source: Union Budget, GoI and Ind-Ra
FY10
FY09
FY08
FY07
FY06
FY05
FY04
0
7/17/2015
10
Current Exp Moderating but Capital Exp Flat…
Current and Capital Expenditure as % of GDPMP
Capital expenditure (LHS)
Revenue expenditure (RHS)
(% of GDPMP)
(%of GDPMP)
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FY16(BE)
Source: Union Budget, GoI and Ind-Ra
FY15(RE)
10
FY14
0
FY13
11
FY12
1
FY11
12
FY10
2
FY09
13
FY08
3
FY07
14
FY06
4
FY05
15
FY04
5
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Marginal Decline in Subsidies
Marginal Decline in Subsidies from FY13
(% of GDPMP)
3
2.6
2.5
2.3
2.2
2.2
2.2
2.1
2
1.7
1.6
1.3
1.3
FY06
FY07
1.4
1.4
1
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FY16(BE)
FY14
FY13
FY12
FY11
FY15(RE)
Source: Union Budget, GoI and Ind-Ra
FY10
FY09
FY08
FY05
FY04
0
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Interest Payment Continues to be Very High…
Large Interest Payments
Interest payment/revenue (LHS)
(% of revenue)
Interest payment/GDP (RHS)
(% of GDPMP)
4.5
50
45
40
4.0
35
30
3.5
25
FY16(BE)
FY15(RE)
FY14
FY13
FY12
FY11
FY10
FY09
FY08
FY07
FY06
FY05
3.0
FY04
20
Source: Union Budget, GoI and Ind-Ra
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7/17/2015
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Sustainability of Debt is Under Pressure....
Positive Rate Spread Providing Support to Debt Sustainability
Rate spread (LHS)
Primary balance (LHS)
Debt/GDP (RHS)
(%)
(% of GDPMP)
FY14(BE)
FY12
FY11
FY13(RE)
Source: Union Budget, GoI and Ind-Ra
FY10
65
FY09
-5
FY08
70
FY07
0
FY06
75
FY05
5
FY04
80
FY03
10
FY02
85
FY01
15
Debt is Sustainable so long as the Rate Spread (nominal growth net of interest
rate on debt) is significantly higher than primary deficit (fiscal deficit net of
interest payment). This has been the situation between FY05 and FY08.
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7/17/2015
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Expenditure Reform Not Easy……
Committed Expenditure as % of Revenue and GDP
Committed expenditure to revenue (LHS)
Committed expenditure to GDP (RHS)
(%of GDP)
(% of Revenue)
90
8.0
7.5
80
7.0
70
6.5
6.0
60
5.5
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FY16(BE)
FY14
FY13
FY12
FY15(RE)
Source: Union Budget, GoI and Ind-Ra
FY11
FY10
FY09
FY08
FY07
FY06
FY05
5.0
FY04
50
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In Sum Economy to Improve in FY16
Key Indicator
Trend in FY15
GDP Growth
To Improve
- Agriculture Growth
To Decline (Base Effect)
- Industrial Growth
To Improve
- Services Growth
To Improve
Fiscal Deficit
Marginal Decline
Currency
To Appreciate
Benchmark Yield (Interest Rate)
To Decline
Current Account Deficit
To Expand
Inflation
To Decline
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7/17/2015
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India - Economic Outlook - FY15
Key Indicators
2012-13
2013-14
2014-15* 2015-16F*
Real GDP factor cost (y-o-y % growth)
4.5
4.7
5.6
6.5

Agriculture
1.4
4.7
1.9
2.0

Industry
1.0
0.4
3.6
6.5

Services
7.0
6.8
7.3
7.4
Average Inflation (WPI)
7.4
5.9
2.7
2.8
Average Inflation (CPI)
10.2
9.5
6.4
6.0
Exchange rate (INR/$ March end)
54.39
59.6
61-62
63**
Year End Interest rate (10-year G-sec)
8.01
8.8
7.4-7.5
7.1-7.2
Current Account (% 0f GDP)
4.7
1.7
2.1
2.2
Fiscal deficit (center, % of GDP)
4.9
4.5
4.2
3.9
Gradual
recovery
* Ind-Ra Forecast
** Average for FY16
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