The Union Budget for fiscal 2013 is a pragmatic exercise aimed at growth and stability in the backdrop of the challenging year gone by and the broad consensus needed for various policy measures.
Given the fiscal imperatives, it goes further to set a direction for fiscal consolidation to ensure long term stability and sustainability of the growth momentum in the economy.
Fiscal 2012 has been a challenging year for the Indian economy. Both global and domestic factors resulted in a moderation of economic activity, led to persistent inflationary pressures and contributed to deterioration in the current account and fiscal position.
Economic management has been challenging given the need to balance these factors. The Union Budget for fiscal 2013 has to be seen in the context of these developments.
With a fiscal deficit estimated at 5.9% of GDP, fiscal management had assumed significant importance. The Union Budget seeks to address this issue.
The deficit estimate of 5.1% of GDP for the coming year represents a substantial reduction from the current year. This should give comfort about the Government's focus on enhancing the sustainability of public finances.
In this context, the intention to contain subsidies at 2.0% of GDP next year and 1.75% of GDP within three years is laudable. Greater efficiency in distribution and lower leakage through use of the Aadhaar platform are key positives that should contribute towards achieving this goal.
The budget also establishes the government's intention for increasing efficiencies in expenditure management by introducing rolling three-year targets for expenditure indicators.
Given the moderation in economic activity during fiscal 2012, the Union Budget also needed to address growth concerns even as it focused on fiscal consolidation.
The Budget seeks to revive the growth momentum in the economy with a focus on infrastructure development, agriculture & rural economy and inclusive growth.
With regard to the infrastructure sector, the Budget proposes several measures to address some of the challenges being faced by this sector. Proposals to allow external commercial borrowing to part finance rupee debt of existing power projects, permitting external commercial borrowings for working capital requirements of the airline industry and reduction in withholding tax from 20% to 5% for power, airlines, roads and bridges, ports and shipyards would result in increased investments and capital flows to the infrastructure sectors.
The Budget also seeks to reduce the cost of production for power companies by exempting input fuel from customs duty.
In addition to the above, outlays in critical sectors such as agriculture, education, healthcare and rural development have been enhanced.
Overall, the Union Budget adopts a pragmatic approach towards addressing the needs of the economy and managing the fiscal position. Continued incentives to critical sectors emphasise the government's focus on growth.
At the same time a reduction in the fiscal deficit through increased efficiencies in the subsidy and government spending mechanism as well as higher revenue generation has been emphasised. In addition, necessary policy and administrative measures to facilitate the execution of investment plans would need to be pursued. The growth slowdown appears to have bottomed out and some pickup in growth can be expected next year.
In the long term, the fundamental strengths of the Indian economy coupled with appropriate fiscal policies and investments in key sectors should take India back to a higher growth trajectory.
(The author is the Managing Director and Chief Executive Officer of ICICI Bank Limited)
