The Hindu Business Line : Exuding confidence

The Budget was presented in the backdrop of high expectations after three years of 9 per cent-plus economic growth. At the same time, there were concerns of inequitable growth and inflationary pressures. Globally, there was a build-up of recessionary conditions and unstable credit markets.

The fiscal situation shows improvement with deficits within FRBM targets, aided by record revenue collections.

The tax to GDP ratio has improved while collections from direct taxes have overtaken those from indirect taxes.

However, one needs to note that the target deficit numbers would be compromised after inclusion of liabilities arising out of bonds to oil and fertiliser companies and loan waivers to banks.

Bold initiatives

The Finance Minister has taken bold initiatives towards achieving inclusive growth with a slew of measures which include loan waivers, subsidised housing and higher allocation to education and health. In order to capitalise on the demographic dividend, the Budget has several good proposals such as upgrading ITIs and setting up IITs. These will go a long way in increasing the pool of available resources and improving their employability.

The Budget has also focused on driving investment and consumption to sustain the high growth rate. The current fiscal had seen a moderation in certain sectors due to declining consumption.

The reduction in income taxes and excise duties can be expected to boost consumption, which in turn would help manufacturing. Additionally, lower excise duties would bring down the cost of projects and help moderate inflation.

Not addressed

There was an expectation that the budget would provide a clear roadmap for infrastructure development in the context of the $500 billion infrastructure investment during the Eleventh five year plan.

About 30 per cent of the investment required in infrastructure is expected to come from the private sector.

While the measures aimed at developing the long-term corporate debt market are welcome, some fiscal incentives for infrastructure investment were expected.

Apart from the increases in allocations for certain sectors, the budget does not adequately address the needs of the infrastructure sector. The welcome move of providing a set-off of tax on dividend paid by a subsidiary to the parent was a long-pending demand of industry.

The Finance Minister has been realistic in his assessment of the competing pressures faced by the economy on account of the appreciating rupee and high interest rates. In view of this, the peak customs duty has been left changed. However, to bring down the cost of infrastructure, the customs duty on project imports has been reduced.

The reduction in excise duties is probably indicative of a convergence between excise duty and service tax towards a unified goods and service tax. Considering the buoyant and healthy tax collections, a removal of the surcharge could have been considered. The removal of Banking Cash Transaction Tax is a good move.

The fact that the budget has not seen any increases in tax rates, even while committing large expenditure, shows the confidence of the Finance Minister on the economy sustaining the high growth momentum and carrying it through.

(The author is CFO, Larsen & ToubroLtd. )

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