The new government started with pressure to revive economic growth which had slowed down over the last couple of years. However, they were faced with quite a few challenges. They did not have the option of announcing a lot of concessions to revive the economy as such sops had already been announced. They also had to deal with inflation, the threat of poor monsoon and an already committed fiscal deficit target of 4.1 per cent of gross domestic product (GDP). Under the given circumstances, the attempt made by the Finance Minister is very good in presenting a growth-oriented budget. This budget spells out the directional approach and long-term vision that the government would take towards the country’s development. For instance, the creation of the Expenditure Management Commission is a clear acknowledgement that there has been wasteful expenditure, and more importantly the necessity to approach expenses with a focus towards results. The philosophy of ‘Do not spend beyond your means’ is a right approach.
I would term this agri-oriented budget as innovative policy formation, with the clear budget allocation and movement towards modern technology in agriculture. The Soil Health Card programme and the approach to provide balanced nutrition to the soil, as also a review of the urea subsidy policy are welcome measures. The other enablers are an efficient irrigation system, various schemes under NABARD to bring cash to the hands of the farmer, and the Rs.5,000 crore investment towards building an effective warehousing system for finished products. The setting up of biotech parks and organic farms is expected to improve the quality of agriculture, while reducing the stress on land and labour.
Similarly, in manufacturing, the announcement about streamlining duty structure to remove anomalies is a welcome move. We are hopeful that this will be implemented across all sectors. The announcement of 10 new industrial clusters, 16 new ports, setting up Smart Cities, backed up by corresponding funds allocation, and a 15,000 km long gas pipeline — all contribute to improving the infrastructure support that is vital to the manufacturing sector. The boost given to investment in the form of investment allowance, and the reassurance of doing away with retrospective tax amendments, will aid further inflow of much-needed investments. The proposed Skill India Programme is a good initiative and will address the shortage of skilled workforce in the manufacturing sector.
The Finance Minister has also announced far reaching measures for power, coal and clean energy which were pending for some time. Energy security shall be a key driver of industrial growth and I am happy that this government has recognised this fact and has integrated all concerned departments under one single Ministry.
In the finance sector, the long-awaited increase in foreign direct investment (FDI) in insurance has been announced and this will surely help improve penetration of insurance and spur growth of the sector. The announcement regarding a roadmap for bank consolidation is a welcome signal. The introduction of REIT system will give a boost to the real estate and infrastructure sectors.
Economic growth is expected to be powered by PPP and FDI inflows. In this respect, the budget has announced initiatives to encourage PPP and also addressed the concerns with regard to FDI by clarifying that there would be ‘no retrospective amendment of taxes in the future’ and that steps will be taken to rationalise the way in which FDI proposals will be dealt with. The move to introduce the new accounting standards on a voluntary basis in 2014-15 and on a mandatory basis in the next two years is a good attempt to bring our accounting standards on a par with international standards.
Other significant announcements include the mostly unchanged direct tax structure but for some marginal tweaks in dividend distribution tax, the fillip given to affordable housing sector and reduction of the threshold for accessing FDI that will also boost the real estate / housing sector.
Considering the challenges and constraints, the announcements made in the Union Budget 2014 are very welcome and show promise of ushering in a long-term growth path for the economy.
(The author is Executive Chairman, Murugappa Group)
