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Industry & Economy - Budget


Consolidation vital

Christopher Low

THE United Progressive Alliance's first Budget builds on the CMP in a comprehensive manner. India's fiscal position has worried international investors for a long time and the Budget brings out the Government's commitment to fiscal consolidation. The fiscal and revenue deficits have been projected at 4.4 per cent and 2.5 per cent of the gross domestic product (GDP), respectively, and we believe that these targets are achievable, especially in view of the strong growth outlook for the year ahead.

On the privatisation front, the Budget outcome was better than expected. Though the public asset sales target has been reduced to Rs 4,000 crore (from Rs 16,000 crore in the interim budget) markets were not expecting anything on this front. The Budget also talks about setting up a panel to advise the Government on issues related to closure and revival of weak PSUs.

On encouraging FDI, the Finance Minister has increased the sectoral caps on telecom, civil aviation and insurance to 74 per cent, 49 per cent and 49 per cent, respectively. We would have liked to see bolder measures but this is a move in the right direction. It is also positive that the ceiling for foreign investment in the debt market has been raised from $1 billion to $1.75 billion. These measures should encourage portfolio inflows and help the rupee.

The Government has imposed a 2 per cent cess on all central taxes to fund spending on education. They have also recognised the need to focus on HIV/AIDS and, clearly, the Government realises that progress on the human capital front is necessary for sustainable economic ascent.

The emphasis on rural infrastructure projects is laudable. The Budget proposes the re-establishment of the Rural Infrastructure Development Fund with a corpus of Rs 8,000 crore and seeks to enable farmers to diversify crop patterns. On the infrastructure front, the Budget envisages initiatives on drinking water and rural housing and the Government has proposed building an international Container Trans-shipment Terminal in Kochi port. Clearly, more could have been and needs to be done on the infrastructure front, as this is the biggest constraint on India's long-term growth potential.

On the taxation side, the Budget has taken the right steps. However, more could have been done as far as removal of exemption goes. Inclusion of more services in the tax net is also a step in the right direction.

Overall, this Budget promotes growth with equity. The move towards fiscal consolidation is a big long-term positive and the rural sector focus will encourage balanced regional development and should pre-empt future social tensions.

(The author is CEO India, Standard Chartered Bank.)

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