Budget 2012: Under so much burden, it's the best Finance Minister Pranab Mukherjee could do
17 March, 2012 | THe Economic Times
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17 March 2012
The backd;rop of the budget was slowing industrial growth and widening fiscal deficit. Even the Economic Survey had acknowledged that industrial investment sentiment needed to be revived. To some extent, the finance minister has addressed this with measures such as doubling of incentives for R&;D spending, higher depreciation and higher weighted deduction for skills development.
The focus on infrastructure, coupled with a slew of financial sector reforms to enable flow of investments in power, telecom and roads is positive. The FM reiterated his government's commitment to build $1 trillion of infrastructure in the next five years. The capital markets, too, will get a boost with measures like reduction in the security transaction tax and incentives for small investors. The massive recapitalisation of banks and rural financial institutions will benefit both industry as well as agriculture credit flow.
The doubling of bonds for infrastructure is similarly welcome. Various financial sector reform bills are being tabled in this session of Parliament, which is a positive signal for investors. Given the current industrial slowdown, perhaps the restoration of excise tax to its higher level could have been postponed. And this could cause some inflation. But since the FM had to give priority to fiscal consolidation, the hike in excise and service taxes was inevitable. The negative list approach to service taxes is quite reformist.
This will reduce litigation and dispute over what can or cannot be taxed. On direct taxes, the FM has actually reduced overall individual income tax by widening the slabs and increasing exemption limits. The government's commitment to inclusive growth is manifest in the increased allocation to the social sectors. There is intent to narrow the gap between rural and urban India and bring in more of equitable growth.
It augurs well that health, education and skills development have got a considerable outlay. With Aadhaar, social sector spending will achieve greater delivery efficiency. The FM has also factored in concerns over corruption. Given the economic environment and coalition compulsions, the FM has done his best. It is a pragmatic budget, which takes on board, in equal measure, the need for providing growth environment and the need for fiscal restraint.
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