The Hindu Business Line : UNION BUDGET 2007-08 — Places economy on sound, sustainable track

The Budget is noteworthy for its emphasis on health and education-related issues, as also its acceptance of the idea of using forex reserves for infrastructure. And, while it may not quite be a Dream Budget, it is a pragmatic exercise that has positive messages for society and places the economy on a sound forward track, says S. VENKITARAMANAN.

Overall, the Finance Minster, Mr P. Chidambaram's Budget for 2007-08 has positive implications for the economy. Above all, Mr Chidambaram has delivered on his promises in the earlier Budgets. Besides, there is a positive message for many sectors, especially those involving the aam aadmi.

He has not neglected the corporates either, having taken care to ensure that the priorities of the NCMP are honoured. He has not stinted on incentives for investments, although he has worries about stoking inflation.

He has managed to adjust the Customs duty structure such that it leaves a positive impact on the prices of various goods.

Mr Chidambaram has stated rightly that answer to inflation may lie in supply management — especially increase of production of agricultural products and if necessary, supplemented by imports from the international markets. He has managed to raise the investments on infrastructure, and in particular, education, health and irrigation.

Deficit Targets Met

What is interesting is that in spite of increased investments, Mr Chidambaram has delivered on the targets for fiscal deficit reduction and revenue deficit.

The fiscal deficit/GDP ratio is expected to be only 3.3 per cent in 2007-08, compared to 3.7 per cent in RE 2006-07. And interestingly, the revenue deficit to GDP ratio is expected to be brought down to 1.5 per cent.

The Finance Minister has not disturbed the taxation structure, except to effect a marginal increase in the exemption limits and a rise in the special education cess. He has, however, unnecessarily tinkered with dividend distribution tax and fringe benefit tax on ESOPs.

Overall, the Budget is a positive one, emphasising the role of implementation and investment in various sectors.

The Budget is noteworthy for its emphasis on health and education-related issues. It has signified substantial allocations for tackling HIV/AIDS and polio.

It also takes care of the additional allocations needed for the ICDS scheme. Overall, its initiatives in the area of health deserve to be encouraged and implemented properly. Implementation is perhaps the most difficult in the areas of health and education.

Reserves For Infrastructure

An interesting feature of the Budget is the acceptance of the idea of investment of a part of the foreign exchange reserves of the country on infrastructure — a proposal initially mooted by the Deputy Chairman, Planning Commission, Dr Montek Singh Ahluwalia.

The Finance Minister's acceptance of this idea is based on the recommendations of the latest Deepak Parekh Committee.

An ingenious device is proposed to enable the utilisation of a part of the forex reserves for infrastructure funding. Returns to the RBI will be guaranteed by the Government, ensuring that the central bank gets a better income from the deployment of reserves than it has so far. Another interesting idea in the Budget is the issue of tax-free bonds for investing in infrastructure by State entities. I hope both these proposals succeed in delivering the outcomes their initiators had in mind.

There have been some remarks in the media immediately after the presentation of the Budget to the effect that Mr Chidambaram could have done more directly for agriculture and investments in infrastructure.

Faced by the prospect of inflation, it is obvious that he could not have expanded the fiscal deficit. He has done his best, given the limitations and pressures of a democratic society and the increasing threat of inflation amidst a stagnant agriculture scene.

Rectify Anomalies

The detailed discussions on the Budget in the electronic media subsequent to the explanations offered by the Finance Minister have disclosed that certain fine-print in the Budget have adverse effects on the IT sector and on infrastructure activities.

I do hope the Finance Minister will listen to these voices of dissent and rectify such anomalies that may have arisen due to an obsession with tax-equity.

It is important that the knowledge-intensive software sector is not subjected to more disadvantages than it suffers because of the collective pressure from multinationals against Indian software majors.

Perhaps, this time Mr Chidambaram has not presented a Dream Budget. But one has to thank one's stars that this is not a nightmare, either.

Mr Chidambaram deserves to be congratulated for presenting a pragmatic Budget that has positive messages for society, in general, and places the economy on a sound sustainable forward track.