2G:Growth and Global Capital

The budget is pragmatic and grounded in reality. It seeks to address the distortions resulting from an interrupted recovery. Growth in 2011-12 slowed to 6.9%, from 8.4% in each of the preceding two years.

The slowdown, combined with high oil prices, continuing global recession, and high domestic interest rates resulted in the fiscal deficit/GDP ratio slipping from the budgeted 4.6% to 5.9%. The budget seeks to r;estore growth in the current year to 7.6%, even while lowering fiscal deficit to 5.1% of GDP. The key focus areas relate to improving domestic demand, reviving private investment, and easing infrastructure bottlenecks.

There are several measures to contain the fiscal deficit. The UID will be used for effective delivery of three major subsidies - oil, fertilizer and food - to guide transfers directly to the beneficiaries. The subsidy bill is targeted to be reduced to 1.7% of GDP by 2015. Major resource mobilization measures have been unveiled, including a disinvestment target of Rs 30,000 crore, doubling of tax-free infrastructure bonds to Rs 60,000 crore and a hike in the rate of service tax from 10 to 12%. The cut in the STT rate is a plus. The Rs 10,000 tax exemption on bank interest income and the Rajiv Gandhi equity scheme will promote savings.

The FM has also tried to attract what he rightly terms "restless global capital". This is being done through allowing qualified FIIs to invest in corporate bonds and enabling two-way fungibility for GDRs.

It provides for higher outlays in key areas. The Plan outlay for agriculture is up 18%. Agriculture credit will be around 20% higher. There are more funds targeted at inclusive development, in areas such as tackling malnourishment, drinking water, sanitation, healthcare and education. The budget also provides for a major recapitalization of public sector banks and lenders. Many more infrastructure sectors will be eligible to draw on viability gap funding.

The budget does bypass major reform measures. But the FM has sent positive signals on key reforms, including introduction of the Direct Tax Code, GST, and FDI in retail and aviation.

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• Mr. Kumar Mangalam Birla on the Indian Union Budget 2012-13