The Finance Minister has presented a credible and prudent budget. This is commendable, considering the multiple headwinds, by way of an anaemic global recovery, persistent high oil prices, lower than budget tax revenues, sharp movements in the rupee exchange rate and stubborn inflation during much of the year, resulting in high interest rates. The compulsion of managing a coalition government, no doubt, also narrowed policy options.
Despite these negatives, the budget ends up as being pragmatic. It aims to rev up GDP growth from 6.9 per cent in 2011-12 to 7.6 per cent in 2012-13. This would be lower than the 8.4 per cent GDP growth in the preceding two years. The budget also seeks to contain the fiscal deficit at 5.1 per cent of GDP, down from 5.9 per cent last year. Clearly, a fine balance is sought to be struck between the twin imperatives of growth and fiscal soundness.
Major steps are being taken to mobilise resources and rationalise spending. The UID will be used to improve the delivery of three major subsidies — oil, fertilizer and food — by guiding transfers directly to the beneficiaries. The subsidy bill is sought to be lowered to 1.7 per cent of GDP by 2015. The steps aimed at mopping up resources include disinvestment, targeted at Rs.30,000 crore, and a doubling of the issue of tax-free infrastructure bonds to Rs.60,000 crore. Another major step is the hike in the rate of Service Tax from 10 per cent to 12 per cent. Also the move to tax all services other than those in the negative list is significant.
In direct taxes, there is a hike in the exemption limit as well as more liberal tax slabs. The cut in the STT rate is a plus for equity investors. The attempt to extend the reach of IPOs to smaller towns will help boost the diffusion of the equity culture. The Rs.10,000 tax exemption on bank interest income and the Rajiv Gandhi equity scheme will spur savings.
There are other incentives too. Among them are rationalisation of taxes for multi-layer corporate structures, enhanced depreciation for specified businesses and a five-year extension for weighted deduction for R&D expenditure. The move to bring forward the implementation of an advance pricing agreement is a positive in terms of providing tax certainty and reducing litigation.
The budget does increase outlays where necessary. The Plan outlay for agriculture is up 18 per cent. Agriculture credit will be around 20 per cent higher. There are more funds targeted at inclusive development, in areas such as tackling malnourishment, drinking water, sanitation, health care and education. The budget also provides for a major recapitalisation of public sector banks and lenders. More infrastructure sectors will be eligible to draw on viability gap funding. While the budget makes a pass on key reforms pending, the message is upbeat.
(The author is Chairman, Aditya Birla Group)
