The Union Budget 2015 was eagerly awaited for path-breaking reforms. On the positive side, the budget has addressed all the critical issues ranging from rural income, social security, skill development, black money, monetization of gold to infrastructure development, green energy initiatives, provision of funds for small business, ease in winding up business and stronger recovery powers for financial institutions. The government has set target to achieve fiscal deficit of 3% of the GDP over the next three years. Therefore clearly the government is in no hurry to achieve fiscal consolidation and is keen to step up public investments to spur growth.
However, a number of headwinds can threaten to derail the government's capital spending to boost economy. Foremost among them is the possibility of crude prices bouncing back. The steep slide in crude prices since the latter half of 2014 put India in a sweet spot. Although the government took steps such as removal of diesel-price controls and hike in tariffs on natural gas, it has fallen short of implementing bold reforms for winding up of subsidies on fertilizer, kerosene and cooking gas. Secondly, there has been an unprecedented increase in the devolution of funds to the States. With States accounting for 62% share of the total tax receipts in FY16, the government will be left be with lower finances. Even the government's disinvestment program seems to be optimistic to say the least. The government has targeted to achieve a disinvestment target of Rs 695 bn in FY16. This appears substantially higher than funds of Rs 242.5 bn raised through stake sales in FY15. Moreover, the forecasts of 8.5% growth in GDP in FY16 are based on a revised method and a new base of 2011-12. Even the growth acceleration is likely to happen only when important legislations for FDI in insurance, land acquisition and commercial coal mining are put in place. But with the Modi government not enjoying majority in the Upper houses of the parliament, getting legislative approval may not be an easy task.
While the Union Budget 2015 has not been exactly ground breaking ,it has initiated the process of kick-starting the economy. However, it remains to be seen whether the government will be able to stick to its capital expenditure plans along with the onerous task of achieving fiscal deficit targets.