Now, it all depends on whether the Finance Minister is able to walk the talk on fiscal consolidation.

Sometimes the first step to solving a complicated problem is to recognise the problem. By acknowledging that the Indian economy is currently challenged, the Finance Minister set the context for finding solutions to resolve our imbalances of slowdown, high twin deficits and elevated inflation levels.

Despite the compulsions of a pre-election year, the Minister has laid out a credible path of fiscal consolidation by budgeting to reduce fiscal deficit to 4.8 per cent of GDP in fiscal 2014. This is an important step, given the continued scrutiny of our fiscal situation by external rating agencies. As we lay out a path for growth recovery by resolving our stalled projects and kick-starting the investment cycle, renewed concerns regarding our sovereign rating would be significantly counter-productive.

Stalled projects

In this regard, the proposal of an investment allowance for companies investing more than Rs 100 crore in plant and equipment is an important step forward. Similarly, the proposal to constitute a regulatory authority for the road sector should be helpful in resolving stalled projects. There is no doubt that if we can start a virtuous cycle (high investment leading to high growth leading to low inflation) like the one we enjoyed in 2005-2007, then a number of our economic challenges will resolve themselves.

Regarding growth, a significant impetus will also be provided by the 29 per cent increase in Plan spending in fiscal 2014 over fiscal 2013. The Plan outlay has been increased across a number of social development sectors such as agriculture, rural development and health and education. That said, from a longer-term perspective kick-starting our domestic investment cycle should remain the key focus of our policymakers. In this regard, we hope that the Cabinet Committee on Investment resolves at least some of the almost Rs 8-trillion worth of stalled infrastructure projects.

Inflation dichotomy

On the issue of inflation, India is facing a bit of a dichotomy with significant moderation in the wholesale price index (WPI) to 6.6 per cent in January from 8 per cent in August-September, while the consumer price index (CPI) continues to be in double digits.

A key reason is that food inflation, which constitutes a much larger proportion of the CPI than the WPI, remains elevated in our country. To address this high level of food inflation and growing demand for food items, the Minister has talked about taking supply-side reforms forward.

Moreover, the Minister needs to be congratulated on the steps taken to augment financial savings.

First, the Rajiv Gandhi Equity Savings Scheme has been liberalised to give incentives to higher retail participation in the equity market. Moreover, the introduction of inflation-linked bonds will be a significant alternative to gold as a savings instrument. No doubt, the best long-term solution to our addiction to gold is to bring inflation down to a much lower 4-5 per cent range.

Maybe the markets were a bit disappointed because of the additional surcharge on corporate profits or because some may have thought the 19 per cent expected increase in gross tax receipts is unrealistic.

But these are smaller considerations, given the larger economic backdrop of the country. If the Minister continues on the fiscal consolidation path as promised, and lower fiscal deficits result in lower current account deficit and lower inflation, then this Budget can be categorised as a success in putting India back on the right path.

(The author is CEO, Aditya Birla Financial Services.)

(This article was published on March 2, 2013)
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