A Budget with little impact

The Finance Minister had to start the budgetary exercise with what look like conflicting objectives — of creating growth drivers and working on fiscal consolidation. He started with a twin handicap of an economy on a decelerating growth path, and the challenge of mounting fiscal deficit. Added to this, are the compulsion of braving the political weather and anti-corruption sentiments that are slowing down action on the reform agenda. So what we have is at best a limited-impact Budget.

Compounding the limited beneficial impact, however, is the huge element of uncertainty that has come in the wake of the reopening of tax liabilities with retrospective effect. Provisions for reopening assessments, introduction of some GAAR and retrospective TDS in some payments overseas, are perhaps intended towards tightening revenue collection to reduce the fiscal gap. While the FM has pointed to a definite time line on GST, he has chosen to merely talk about his intention for implementation of DTC, and some legislation on it. Some good and some worrying.

Specific initiatives

The FM has nevertheless set the nation a fiscal deficit target of 5.1 per cent of GDP, and a growth target that has to reverse the trend of the last three quarters. To plan a GDP growth of 7.6 per cent following 6.9 per cent this year requires creation of specific initiatives and fervent prayer. He appears to have chosen to pray. For, from a slowdown to 6.9 per cent, the economy now has to look at the drivers to chart the course towards higher growth objectives.

There are some initiatives, but are they strong enough?

What is required could well be efficiency improvement measures that help plug in the leakages and maximise the benefit yield. In the absence of any substantive pull-back on subsidies, we have to rely on measures like streamlining public distribution system, impetus to UID etc through a computerisation drive, to deliver the goods.

With the higher fiscal deficit and continuing inflationary pressures, we have to keep our fingers crossed for a favourable response to foreign investments in sectors where the sops are sought to be given. IT and ITeS was looking for an extension of SEZ benefits, as an impetus to higher growth for the industry, which indeed is an engine of growth for greater economic prosperity. Though the notion of SEZ profit is really an anomaly, the request to exclude these from ambitious MAT has not materialised, and we now have to pay close to normal corporate tax rates, albeit through the backdoor.

This, along with the impact of increased excise duty and tax-inclusive price structures, implies the sector will have to work with far greater efficiencies without the benefit of a favourable tax regime.

Some welcome measures are the exemption of school education from service tax and the allocation of Rs 1,000 crore to the National Skill Development Fund.

The speech was on predictable lines, but there are issues in fine print which will show up in the next few days.

Let us hope that we have set ourselves to a growth trajectory without introducing uncertainties in our long term planning.

(The author is the CFO and Executive Director of TCS.)

COMMENT NOW