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Overall, the Budget is a balancing act with quite a few positive indicators. For starters, there is a lot of thrust on infrastructure, agriculture, education and healthcare. The economy is poised to grow at 9 per cent. There is no tinkering of taxation rates, and some encouraging news on the GST front.
On the macroeconomic front, the Finance Minister has pleasantly surprised us by announcing a fiscal deficit of 4.6 per cent in FY-12. However, with little flexibility on both the revenue and expense sides, it would be a challenge to achieve this.
There is little margin for error here, as the Finance Minister has gambled on a 9 per cent GDP growth in his projections along with tight expense control. The key here would be to keep inflation under check.
Boost for infrastructure
It is well known that infrastructure has to keep pace with the economic development. The Government's decision to increase allocation to the infrastructure sector by 23.3 per cent to Rs 2,14,000 crore is a welcome move.
Foreign investment in the infrastructure sector has received a boost by way of the higher cap of $25 billion (up from $5 billion) on FII investment in bonds issued by corporates in the infrastructure sector and by allowing investment in unlisted bonds, thus promoting direct investment into project SPVs.
The FM has also proposed the creation of infrastructure debt fund for which withholding tax for foreign investment would be reduced to 5 per cent and the income of the fund would be exempt from tax.
The lack of food storage facilities has been found to be a major contributor to recent episodes of high food inflation. The proposed recognition of cold chains and post-harvest storage as an infrastructure sub-sector is also a positive and critical move.
Positive steps
On the manufacturing front, the Government's decision to exempt excise duty for purchase of power generation equipment for mega power plants and UMPPs from domestic suppliers is a positive step as it provides a relatively more level-playing field with foreign manufacturers which are exempt from Customs duty. Other positive aspects include continuation of fiscal stimulus, reduction of surcharge on corporate tax to 5 per cent, increase in allocation for social sector spending, allowing FIIs to invest in mutual funds, etc.
However, the Government should ensure that the allocation to various sectors, especially for development of infrastructure, education and healthcare is utilised efficiently. Mechanisms should be devised for efficient usage of funds along with proper monitoring. Ultimately, intrinsic fundamentals and reforms will pave the way for strong long-term growth with moderate inflation.
(The author is Director and CFO, L&T.)
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