FM has provided right thrust and direction
17 March, 2012 | Financial Chronicle
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Financial Chronicle
17 March 2012
The budget is well balanced and pragmatic. It furthers the twin objectives of growth and fiscal consolidation even while stepping up spending aimed at the weaker sections of society.
It is comforting that some of the structural and transformational initiatives – like the Direct Tax Code, GST and use of technology in improving the outcomes of expenditure – are on the right path, although there have been delays from the timelines expected earlier. While the FM has increased excise duty rate by 2 per cent, it has to be viewed in the context of the need for fiscal consolidation and as a part of the withdrawal of the stimulus that was provided during the global economic crisis. This has been balanced by a welcome relief to personal income tax payers. The shift towards a negative list-based service tax regime is in the right direction, as it will provide buoyancy to this source of tax receipts in the coming years. FM has targeted a reduction in fiscal deficit to 5.1 per cent of GDP from 5.9 per cent in FY12. While these numbers are still quite far from the targets that we were talking about under the Fiscal Responsibility and Budget Management framework prior to the 2008 crisis, it must be noted that the targeted reduction in effective revenue deficit is larger – at 1.1 per cent implying that the quality of fiscal deficit is improving. In the present economic context, the extent of fiscal correction is reasonable.
The reduction in deficit is happening after budgeting for a substantial 22 per cent jump in plan expenditure. That shows that the overall fiscal arithmetic has achieved a good balancing act. From the viewpoint of long-term sustainability of government finances, the strategy of improving the delivery of subsidies – achieving better targeting and minimizing leakages – is important. The FM has said that the experiments on delivering subsidies using the Aadhar platform have yielded encouraging results; this promises to be a game-changer in the coming years.
The budget has a welcome thrust on infrastructure. Doubling of the tax-free bonds for financing infrastructure projects, reduction in withholding tax on interest on ECBs for infrastructure sectors, extension of the tax exemption for power sector units by one year are all positive steps and should help improve the investor sentiment in these sectors. The FM has tried to address the need to kick-start investments in the manufacturing sector through certain duty reductions on capital equipment. Exemption from customs duty on energy inputs like coal and natural gas are also welcome, since the Indian industry has been facing incessant cost pressures on these inputs.
Overall, I believe that this budget has the right thrust and direction in terms of boosting the long-term, sustainable growth rate of Indian economy.
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