The Hindu Business Line : Knee-jerk reaction is negative but long-term growth on sound footing

Measures to support growth with focus on aam aadmi and priorities for the lower end of the pyramid were broadly in line with expectations. Changes effected in the income-tax structure will lead to more money in the hands of people, which in turn should boost consumption. The Budget accords priority to infrastructure with initiatives to support PPP projects in critical sectors. Also, higher income-tax benefit on capital expenditure for natural gas or oil companies is a welcome development. The 44 per cent increase in planned expenditure, with majority of this being earmarked for infrastructure, is a huge positive.

The Government has expressed concerns on the revenue slowdown as the fiscal deficit is now projected at 6.8 per cent of the GDP, leading to a large borrowing requirement of Rs 4,50,000 crore during 2009-10. This could pressurise yields and could immediately impact interest rate sensitive sectors negatively. However, with the possibilities of a revival in growth, tax revenues could get a boost and the fiscal situation could improve sooner than it appears now. The other option available to the Government to tackle the fiscal situation is to expedite the disinvestment programme.

Among the new tax proposals, the Budget has delivered on the long-standing demand from corporates to abolish the fringe benefit tax. Higher exemptions and deductions, reduction in surcharge for income tax payers, no increase in excise duties and further commitment towards implementing GST are all positives in bits and pieces. The Government also reinforced its agenda of changing the fertiliser subsidy system and to move towards freer pricing for petroleum products.

As the Government had come to power on a strong mandate, markets had pinned its hopes on a reformist agenda in the Budget. However, with relatively conservative announcements and roadmap from the Budget speech, the knee-jerk reaction has been negative.

However, the Government has reinforced its target to support growth and that should help bring the cheer back to financial markets in some time as the long-term India growth story remains on a sound footing.

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