This budget had the backdrop of a strong mandate for the new government and huge expectations from an aspiring, growth-hungry and urbanising India. On the other hand, the fiscal space was limited and new, and external risks related to the monsoon and oil prices had become evident. Against this, the budget has upheld fiscal prudence, laid out the government’s medium-term vision and also managed to outline many measures to spur growth in the near future. In that sense, the Finance Minister has indeed done a splendid job.
In many ways, this budget signals a critical message to investors that India is here to do business in a stable and predictable way — be it the assurance of no retrospective changes in taxation regime, the expanded scope of advance ruling, or changes in the transfer pricing regulations. These augur well for reinvigorating the investment spirit. Liberalisation of FDI limits in insurance and defence sectors are welcome, too. As the Finance Minister has clarified that Goods and Services Tax is not an issue of debate, we can look forward to its implementation in the not-so-distant-future. Pushing more investment
There is a very clear and visible thrust on roadways, waterways, infrastructure for urbanisation, housing, industrial corridors and digitisation. These appear to be the chosen vehicles for pushing more investment in the economy in the short term and for boosting India’s competitiveness in the long term. Doubling of gas grid and the extension of incentives for power generation capacities are also good moves. It is encouraging to know that steps are being taken to improve the availability of coal for the power sector.
At a broader level, the government is trying to channel more long-term savings and foreign investments into the infrastructure sector. A number of initiatives are going to be implemented through the Public-Private Partnership (PPP) route. While this approach of partnership is definitely welcome, it would be worthwhile for the implementing agencies to study the bottlenecks that PPP projects have faced in the past and address them accordingly.
The changes in personal income tax will provide some benefits to the masses and boost their purchasing power in these times of high inflation. One hopes that the increase in deduction for interest on housing loans, along with the other measures to attract more investment in the sector, will not only provide a boost to the housing sector, but will create a multiplier effect for the larger economy.
Strengthening welfare mechanismsThe Finance Minister has also outlined the government’s vision for social sectors and for strengthening the welfare mechanisms for the marginalized sections of the society. Health, nutrition, elementary and higher education, skill building and well-being of senior citizens are being addressed proactively. The continuation of the thrust on welfare measures shows that the government is equally committed to development and inclusion as it is to the reacceleration of the growth engine.
There are two things that particularly struck me in this budget. First is that there are several initiatives to promote development of the Northeast and Jammu and Kashmir. Second, there is also a focus on connecting India — not only through roads, but through village-level broadband connectivity and even community radios. The implicit thread in these programmes seems to be that of more connectivity. Greater integration will mean broad-basing of the growth process and expansion of development opportunities across the length and breadth of the country.
It is noteworthy that the imperative to press the pedal on the growth front has not derailed us from a fiscally sustainable strategy. Mr. Jaitley has not only stuck to the fiscal deficit target of the interim budget, but has set out a trajectory to bring down fiscal deficit to 3 per cent of GDP by 2017. Last year, many analysts believed that the Indian economy was perilously close to a macroeconomic crisis. Though subsequent reduction in fiscal deficit and current account deficit have since steadied the ship, it is still very important to ensure fiscal consolidation. It is, therefore, good to note that the Finance Minister has presented a responsible trajectory on this front.
Mr. Jaitley has announced an Expenditure Management Commission to suggest reforms to bring down expenditure. He has also emphasised the need for well-targeted subsidies. Hopefully, as investment and growth start looking up, they will have an effect on the buoyancy of tax collections, especially in a more stable and predictable taxation regime.
When these things fall in place, together with the build-up of infrastructure and connectivity initiatives as envisaged, it should lead to a virtuous cycle of growth along with fiscal prudence. The investors and the business community can surely look at this budget as a harbinger of acche din .
(Kumar Mangalam Birla is the Chairman of the Aditya Birla Group.)
