A fine balance

This Union budget 2011-12 is presented against a backdrop of an enviable 8.6 per cent GDP growth rate. The growth extends across all sectors. India's sterling growth rate has been achieved despite the protracted slow growth in developed economies, accompanied by stubborn and high unemployment.

For India, the outlook is one of accelerating momentum over the next year too. The Economic Survey expects both savings and investment ratios to continue to improve. Hence, in the 2011-2012 Budget, the objective seems to be to consolidate on the gains made so far. The budget is distinctly pro-growth and incorporates enough stimulus for driving both consumption and investment. The decision to retain the general excise duty at 10 per cent serves the objective of sustaining growth as well as keeping inflation in check. The increase in personal tax exemption limit will increase disposable income.

Food inflation

Food inflation remains high, though it has come substantially off peak levels. The Budget does attempt to address the issue of food inflation. The Finance Minister referred to the substantial gap between wholesale and retail prices of food items. These points to inefficiencies in agricultural supply chain as being a major factor behind food inflation. Hence, there are a number of incentives in areas such as storage and the cold chain. Further, fertilizer has been classified as an infrastructure sub-sector and the reform in fertilizer pricing policy (by way of instituting direct cash subsidies) will promote greater investment in the fertilizer industry. The creation of an infrastructure bond fund will provide long term funds much needed in that sector.

Employment sector

The Budget has provided crucial support in areas such as employment and skills building. With such focus, the share of industry in the India's GDP can grow from 17-25 per cent . More importantly, India can also hope to become one of the manufacturing hubs for the world. This requires a huge increase in skills development, a goal which the FM emphasised. Experience elsewhere shows manufacturing jobs have a big multiplier effect on overall employment. Despite India's having moved to a higher growth trajectory, growth in organised sector employment has not been commensurate with the high growth in GDP. This is an anomaly that needs to be addressed.

The budget speech also contained a slew of legislations in the financial sector. Financial sector reforms are a high priority, and are important factors in making India globally competitive . Finally one must commend the Finance minister for setting the fiscal deficit target at 4.6 per cent of GDP, despite the constraints and the substantial hikes in spending infrastructure and the social sector.

While no ‘big bang' reform was announced by the Finance Minister, next year promises to bring legislations and amendments, which will make the economy more dynamic and competitive. The roll-out of DTC and GST, and a new company law are three examples. Thus, overall the budget signals consolidation of gains and continuity of policy, to keep the economy on a high and inclusive growth path.

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