Budget 2018-19 is a pragmatic effort, which takes care of fiscal rectitude while keeping in focus the need to connect the missing links in infrastructure and farm sector development.
A fiscal deficit target of 3.3% and a real GDP growth target of around 7-7.5% both look realistic while fund flows to the important sectors like infrastructure remain supportive.
Given the increased buoyancy in direct tax collections and the increase in tax base, an imposition of Long Term Capital Gain tax and an increased cess, coupled with the GST regime settling down, chances of fiscal slippage in 2018-19 are low. Much would also depend on how the expenditure side pans out in a pre-election year.
The downside risks are mainly external, including a possible rise crude oil prices and the attendant rise in current account deficit and pressure on exchange rates. An abrupt rise in developed country interest rates is also a risk which would lead to capital outflow from bond and stock markets.
The budget has reiterated infrastructure investment as the sine qua non for sustained growth, with a requirement of ₹50 lakh crore that has to come partly from the government but importantly through a ‘crowding in’” of investments from the private sector. Government infrastructure investments are set to grow by 21% to around ₹6 lakh crore. A lot of stress has been given to urbanisation through adoption of smart cities and smart infrastructure and construction of large infrastructure projects in transportation like ‘Bharat Mala’, aviation and ports. More importantly, the attendant structural reforms through the adoption of the Insolvency and Bankruptcy Code and a clear emphasis on recapitalisation of the banking system and strategic disinvestment targets reflect the long term commitment of the government. Such incentives will release risk capital, lower risk averseness of the financial sector and lead to the upturn of the private capital expenditure cycle.
A higher tax buoyancy and greater tax base will raise the stagnant tax to GDP ratio and provide for more fiscal space for targeted expenditure. Such efforts are expected to ‘crowd in’ the much required private investment and rejuvenate the capital expenditure upturn which is so important for the success all such initiatives.
The emphasis on digitisation as the underlining tool for proper delivery and governance would go a long way to aid productivity and transparency under the emerging business/social environment.
The decision to reduce corporate income tax for all firms with turnover below ₹250 crore to 25% is a welcome move.
Given the underlying local and global economic trends, coupled with the evolving political/ electoral realities, it is a good budget. The Indian economy has been resilient to two major structural changes adopted during the last two fiscal years. Issues relating to bank recapitalisation and bad loans resolution is under way. I strongly feel that we are on the cusp of the next growth cycle and India would continue to be the fastest growing global economy/ market.
Mr S.N. Subrahmanyan, Member of the Board & Senior Executive Vice President ( Construction), at L&T's Chennai office, on Wednesday ( July 13, 2011) Photo : Bijoy Ghosh To go with N. Ramakrishnan's report
(S.N. Subrahmanyan, CEO & MD, Larsen & Toubro)
