The Hindu Business Line : Building on promise

THE backdrop to this Budget, as confirmed by the Economic Survey, has been that of a thriving economy. Gross domestic product is projected to grow around 7 per cent this year and inflation has been contained at around 5 per cent despite spikes in commodity pieces. Exports are booming and forex reserves growing. The highlight has been a good industrial growth of 8.9 per cent. This is supported by strong growth in corporate results. And despite the sharp rise in credit, interest rates have remained range bound. All of these have buoyed the equity markets, and reinstated the primary market.

The reform process has endured, with the Government opening up different sectors, including construction, to foreign investment. The sustainability of economic growth hinges on a significant step-up in infrastructure investments. Despite the traffic growth at ports, airports and in the railways, investment has flagged. In the first nine months of FY05, planned expenditure spending stayed at 58 per cent. The Economic Survey rightly attributed this to procedural bottlenecks.

The budget pronouncements have addressed this anomaly to a fair extent and the Government's attempts to develop infrastructure are appreciable. The major initiatives are the rural six-point programme and the urban renewal mission.

The Finance Minister has announced allocations for electrification, basic infrastructure and urban infrastructure. The success of this Budget depends on the availability of adequate funding.

He has proposed the much-awaited deployment of forex reserves for infrastructure funding, through a Special Purpose Vehicle (SPV). What is more important is how this funding mechanism will be put into operation. The other challenge is in keeping the mechanism inflation neutral.

Corporate taxes

The reduction in corporate tax from 35 per cent to 30 per cent and the reduction in peak customs duty have brought some cheer. However, the `inverted customs duty structure' that has long hampered the capital goods industry needs immediate attention.

The author is Chief Financial Officer & Member of the Board, L&T Limited

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