The Hindu Business Line : Enduring bonds

FINANCIALLY ingenious, while being politically astute, the budgethas sought to tread new ground in individual taxation, infrastructure funding and the sweep of measures for rural India.

However, a lot has been left to various committees and one looks forward to positive recommendations from them.

The Finance Minister has stayed within the broader contours of the CMP, the FRBM Act and the recommendations of the 12th Finance Commission.

Plan allocation, government programmes, direct and indirect taxation, and fiscal incentives have been integrated to give powerful stimulus to equity (and economic) growth.

Overall, the Budget has met expectations on tax reforms, fiscal consolidation and acceleration of growth.

Some key features include:

The upturn in the capex cycle for private and public sector required a stable interest rate regime and a vibrant, liquid financial sector.

By capping the fiscal deficit and sustaining the FDI regime, without liberalising it further, the FM has provided stability to the bond markets. Otherwise this would have significantly destabilised the markets.

The thrust on rationalisation of indirect taxes and a soft interest regime should help spur demand.

The FM has subtly, and rightly so, kept FDI related announcements outside the budget and passed the mantle of further financial sector reforms to RBI and SEBI.

They are likely to come out with important announcements, enabling regulation in the near future.

Reduction in depreciation rates and a simultaneous increase in current tax vis-à-vis deferred tax is a clever ploy that will boost revenues. This in conjunction with the successful implementation of VAT will provide a fillip to revenues.

The bold step of allowing Rs 1 lakh deduction for savings without any strings attached, while doing away with a plethora of incentives for individual schemes, is likely to boost the capital market in particular, and savings and investments in general.

The experiment with an SPV that will tap into forex reserves to the extent of Rs 10,000 crore to fund infrastructure projects is creditable.

The FM needs to be commended for putting in place measures thatensure focussed social spending.

Micro targeting and linkage of social spending through state governments and local self-help bodies is a hallmark of this budget. However, the conspicuous absence of administrative reform is a let down.

The thrust on rural development, micro-credit, and investments in agriculture, education and healthcare will go a long way in enhancing the quality of life and security for large sections of the population.

This will create an extraordinary boom in demand and scope for investment in the next few years.

In conclusion, a lot of thought and originality has gone into this budget to warrant the hope that we will continue to see an emphasis on growth from the Dream Team.

(The author is Chairman, Enam Financial Consultants)

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