There were growing expectations that Budget 2013-14 will be an extension of the government’s resolve to continue with reforms. The slew of measures announced in September 2012 and the recent investment road shown by the Finance Minister showed that there was a firm commitment to reinvigorate investor confidence and take decisive steps towards fiscal consolidation.
In line with the expectations and understanding the significance of introducing the next steps, the FM presented a budget that was responsible, balanced and aimed at fiscal consolidation. Apart from curtailing the fiscal deficit, some of the salutary measures to kick-start the investment cycle include the introduction of an investment allowance of 15 per cent for large investments in plant and machinery and the constitution of a regulatory authority for the road sector. However, there is a need for strong administrative reforms and a single window clearance for large projects to ensure that these measures are fully effective.
Housing is a key growth driver of the economy and hence allowing an additional deduction of Rs. 1 lakh for an individual taking a loan of up to Rs. 25 lakh for his first home is a welcome move for the housing sector. The other measures to boost housing include the increase in the Rural Housing Fund to Rs. 6,000 crore and the introduction of the Urban Housing Fund of Rs. 2,000 crore. This refinance would help housing finance companies. It needs to be noted that this sector is the second largest employment generator in India and has strong and backward linkages to over 276 industries, with the core ones being steel and cement. Given the fiscal constraints, the budget did not introduce incentives to increase financial savings, which have been declining in the recent years. Financial savings, which accounted for 47 per cent of the household savings in 2000-10 decade, have fallen to 36 per cent in FY 2012. Positively, the reduction of the Securities Transaction Tax could be a key driver in incentivising investments in the financial market. Although imposing a 10 per cent surcharge on individuals that have a taxable income exceeding Rs. 1 crore is a necessary step at this point of time, one would have liked to see more measures to widen the tax base. Apart from only 42,800 people that have declared an income above Rs. 1 crore, only 1.9 lakh assesses have reported an income of above Rs. 10 lakh.
It was good to see the FM stress on the enormous challenge of the current account deficit (CAD). Oil prices continue to be sticky and gold imports remain high. Exports have been subdued as there has been a slowdown in discretionary spending in advanced economies. The only way to finance the CAD is through foreign investments and the FM rightly pointed out that there is a need to encourage foreign investments that are consistent with India’s economic objectives. Hence, streamlining the registration process of foreign investors is a welcome measure.
Overall, Budget 2013-14 was fairly pragmatic. Clarity on GAAR and the quick passage of the insurance and pension bills will be critical in boosting investor confidence and complement the measures introduced in the budget to ensure higher economic growth.
(Keki Mistry is vice-chairman & CEO, HDFC Ltd.)