The Hindu Business Line : Right moves

The budget has been presented at a time when the economy is showing some signs of slowdown on account of both domestic and global factors. The increase in interest rate and a stronger rupee have come as growth dampeners. The corporate sector was on the lookout for some reassuring measure not only to reverse this downtrend but also to keep the growth story intact. Despite being high on populism due to political compulsions, the Finance Minister has taken some bold initiatives to meet such expectations. A general reduction in the excise duty from 16 per cent to 14 per cent, a percentage cut in CST, and a significant cut in excise duty for goods of mass consumption are steps in the right direction to propel consumer demand. The Minister has also dished out generous relaxation in personal income-tax slabs; the process if continued will encourage more and more middle-income households towards discretionary spending. The Minister’s commitment of moving towards a simple and moderate tax regime is a very important paradigm shift in policy direction.

There was expectation for some cut in the corporate income-tax rate and minimum alternate tax, but this did not happen. However, the budget announcement to save parent companies from paying twice under dividend distribution tax is a positive move.

Another positive element of the budget is that it has talked about developing the market for corporate bonds in India as they are currently not in a position to actively fund the investment projects of the corporate sector.

The government has set an ambitious target of 9 per cent growth in the 11th Plan which is not possible without bold reforms both at the macro and sectoral levels.

However, this budget does not put forth a clear policy map in this regard, especially for core sectors like steel, oil and gas, and other infrastructure. But the Finance Minister did spell out some initiatives for the power sector. The Government has proposed to create a national fund for transmission and distribution reform which, I believe, will bring some respite.

In short, given the compulsion, the Finance Minister has made the right moves, but are they enough to continue to propel India’s growth trajectory? Given international concerns, only time will tell.

(The author is Director, Essar Group)

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