Vision holistic, now for reforms: Kumar Mangalam Birla

The Budget has rightly emphasised the urgent need to accelerate growth in the manufacturing sector

By Kumar Mangalam Birla, Chairman, Aditya Birla Group

Business Standard
17 February 2014

Mumbai: The finance minister did not announce any major policy or direct tax changes, given that this was an interim Budget. It was noteworthy that the government showed its continuing commitment to fiscal consolidation, despite the economic slowdown. The fiscal deficit for FY14 has been contained at 4.6 per cent, lower than the budgeted estimate of 4.8 per cent of the Gross Domestic Product (GDP).

The jump in non-tax revenues, achieved through spending cuts, disinvestments and higher dividends from public sector companies have all contributed to containing the fiscal deficit. What is worrisome, though, is that plan expenditures are less than budgeted, while non-plan expenditures slightly exceeded the budget.

For the next fiscal, the government has budgeted for an even lower fiscal deficit of 4.1 per cent of GDP and reiterated its commitment to reducing this to 3 per cent by 2016-17. The lower fiscal deficit will help in containing government borrowing and will act as a brake on interest rates. The improving fiscal position, together with the improvement in the external position will, no doubt, reduce the possibility of a rating downgrade. This is a definite positive for the corporate sector.

The Budget has rightly emphasised the urgent need to accelerate growth in the manufacturing sector. The excise duty on certain capital goods has been reduced from 12 per cent to 10 per cent, while the excise duty on small cars, commercial vehicles and two-wheelers has been reduced from 12 per cent to 8 per cent. There has also been a significant reduction in the excise duty on SUVs and large and mid-size cars.

Given the importance of a sound financial sector, the Interim Budget has proposed Rs.11,300 crore for capital infusion in public sector banks. This will strengthen capital adequacy and address the problem of non-performing assets, while enabling credit expansion.

Outlining the vision for the future, the government has emphasised the need to increase the focus on manufacturing sector, especially manufacturing for exports. The proposal that all taxes, Central and State, that go into exported products should be waived or rebated is a welcome step. Other aspects highlighted in the vision are the need to continue on the path of fiscal consolidation, and the key role of foreign investment in funding the current account deficit.

The government’s vision is comprehensive and holistic. What is needed now is quick and effective implementation of reforms that are long pending, among them the Goods and Services Tax (GST) and Direct Tax Code (DTC). Any action taken to tackle the reforms backlog will boost business sentiment, reignite the investment cycle and propel the economy into a higher growth trajectory.