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Monday, Jul 06, 2009
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Increased spending on infrastructure likely

Ashok Dasgupta

Focus of the budget to be on speeding up long-pending reforms and stimulating “inclusive” growth

— Photo: V. Sudershan

Union Finance Minister Pranab Mukherjee, flanked by Ministers of State Namo Narain Meena (left) and S.S. Palanimanickam, and Finance Ministry officials, giving finishing touches to the Union Budget 2009-10 in New Delhi on Sunday.

NEW DELHI: Increased spending on infrastructure to combat the ongoing slowdown and spur economic growth, a road map for public sector equity disinvestment and financial sector reforms over the next five years, assured supply of cereals at highly subsidised rates to BPL households, specific incentives for the export-hit sectors and a marginal revamp of the taxation regime along with a moderate hike in the tax exemption limit for the salaried class are expected to be some of the main features of the Union budget for 2009-10.

The suspense over what actually lies in store for the aam aadmi, the salaried class, various sections of the industry and the nation at large will end on Monday when Finance Minister Pranab Mukherjee rises in the Lok Sabha to unveil the full budget for the current fiscal. Expectations of all stakeholders from the annual accounting and policy document are high, even as it is amply clear from various political statements that the primary focus of the “pro-poor” budget will be to speed up the long-pending reforms and stimulate “inclusive” economic growth by stepping up expenditure within the limits of fiscal prudence.

Back in power at the Centre for a second five-year term with a stronger mandate than before, the Congress-led United Progressive Alliance government is committed to provide 25 kg of rice or wheat at Rs. 3 per kg to all families below the poverty line. Even as the number of such households in each State is to be firmed up, Mr. Mukherjee may also refer to the objective of extending the facility to other underprivileged sections, as highlighted by Congress president Sonia Gandhi.

Although the government this time is not shackled by political ideologies in its policy decision-making process, the crunch, however, is the paucity of resources, thanks to the sharp fall in revenue in the wake of the slowdown. While there are signs of recovery in certain key sectors and yet another push — in addition to the three stimulus packages — is required to goad the economy back on the high growth track, there is no certainty when the global financial crisis and the ongoing recession in the U.S. is likely to bottom out. As per the Economic Survey, a GDP growth of seven per cent (plus or minus 0.75 per cent) would depend on whether the turnaround in the U.S. comes this September or later in 2010.

In the event, while having concrete short and medium-term vision strategies for sustained stimulus to spur economic growth, the budget is expected to pave the way for higher spending on infrastructure and housing to keep the wheels of construction such as steel, cement and allied sectors moving and thereby generate greater employment. Apart from higher public expenditure and PPP (public-private partnership) projects, the Finance Minister may take recourse to tax-free infrastructure bonds to tap domestic savings while providing sop for catalysing investment in the housing sector by raising the tax exemption ceiling on loan interest payments.

The export-hit sectors such as textiles, leather, gems and jewellery and software are likely to receive specific incentives to stay afloat till the U.S. and European economies come out of the recession. Alongside, there may be some tinkering with the customs duties aimed at protecting industries affected by dumping and cheap imports.

For inducing higher consumer demand, a marginally higher income-tax exemption limit is on the cards although the rates of taxation are likely to remain the same, pending introduction of a New Income Tax Code. Alongside, in deference to the demands of corporates, the fringe benefit tax (FBT) is likely to be rationalised while the STT (security transaction tax) and the commodity transaction tax (which was not notified) may be withdrawn.

Unified GST

The government is also likely to bare its mind on whether the unified goods and services tax (GST) is to be introduced as proposed from April 1, 2010 or shelved for the next fiscal pending a decision on the compensation package for the States to make up for likely revenue losses.

As for revenue generation to support the higher expenditure, the government is likely to extend the service tax net further, rely on improved tax compliance in a higher growth environment and bank on divestment of its equity in PSUs.

While the Finance Minister is expected to draw up the contours of the disinvestment programme of unlisted PSUs over a five-year period, the remaining nine months of the current fiscal may see sell-off in power majors NHPC and REC and telecom major BSNL. Auction of 3G spectrum is also expected to fetch Rs. 25,000-Rs. 30,000 crore. Evidently, the government will have to go in for additional market borrowings during the year.

Fiscal deficit

A major concern during the slowdown has been the fiscal deficit owing to additional spending. However, the immediate task is to induce higher growth. Therefore, while taking serious note of the need to contain the fiscal deficit, another FRBM (Fiscal Responsibility and Budget Management) legislation is likely to be introduced with targets that are achievable during the crisis period.

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