Challenging fiscal arithmetic: Devendra Pant

The reaction from bond and currency markets to the Budget was very positive: bond prices surged, yields fell and currency appreciated. The relief came from the lower market borrowing target of Rs 4,25,181 crore in 2016-17 against Rs 4,40,608 crore in 2015-16. Whether this euphoria is sustainable or not will depend on how realistic the Budget's assumptions are. The chances of achieving 11 per cent nominal gross domestic product growth in 2016-17 seems achievable. The Budget has pegged revenue receipts to increase by 14.2 per cent. The likelihood of this depends on 18.1 per cent growth in income tax, 12.2 per cent growth in excise duty and 76.67 per cent growth in non-tax revenue from communication services. The assumed buoyancy in income tax and non-tax revenue from other communication services appears optimistic. As usual disinvestment receipts (budgeted at Rs 36,000 crore) are dependent on market conditions and the government's ability to stagger it throughout the year. Strategic disinvestments have proved to be a problematic area for governments over the years. The budget is too optimistic on the expenditure side. The Non-plan revenue expenditure is budgeted to decline by 7.1 per cent, which is too optimistic.

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Devendra Pant
Chief Economist, India Ratings