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Small But Right Steps
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Fiscal consolidation was a key expectation from the budget. The revised estimates for 2011-12 show fiscal deficit at 5.9 per cent, much above the targeted 4.6 per cent. For FY2013, the deficit is to be brought down to 5.1 per cent through a slew of measures on both the expenditure and revenue sides.
The expenditure side initiatives, in particular, the commitment to reduce subsidies to 1.75 per cent of GDP in the next three years is a welcome step. While food subsidy is not being cut, fertiliser expenditure can be curtailed through the proposed management system to be instituted this year. We would have expected some more clarity on fuel prices, given that global crude prices are under upward pressure.
On the revenue side, the key measure to garner funds has been the hike in excise and service tax rates. Although this was widely expected, its impact on inflation could be deleterious. Indian industry is already facing substantial pressure on input costs, and this would add to the burden. Also, it is likely to detract from growth impulse.
The budget has taken key initiatives to boost investment through enhanced investment-linked deduction of capital expenditure. The rate has been increased to 150 per cent, and more sectors have been added. Venture capital funds have been allowed to invest in more sectors.Boosting the capital market through initiatives such as removing the impact of dividend distribution tax, reducing securities transaction tax, etc. would also help add to available funds. The budget has substantially increased the allocation on education and proposes to implement 6,000 model schools at the block level during the 12th Plan. The credit guarantee funds for education and skill development as well as the weighted deduction of 150 per cent on expenditure for skill development in the manufacturing sector serve as incentives to increase investments in these critical sectors.
The budget has greatly expanded agriculture credit availability to farmers and announced multiple incentives for storage, warehouses, agri-market infrastructure, irrigation, water management, and other interventions. However, more could have been done to attract private investments in farming as well as in supply chain infrastructure.
It is interesting that the budget has emerged as a platform for announcing governance-related issues. It has done this by rolling out Aadhar for greater coverage. Aadhar is also to be leveraged for scaling up pilot projects in delivery of services such as MGNREGA, scholarships, and certain pensions which is a welcome step.
Confederation of Indian Industries (CII) would have liked to see more initiatives for meeting the needs of the micro, small and medium enterprises (MSME) sector. CII had recommended special funds for new technology adoption, including climate change technologies for MSMEs, apart from other measures. It is to be hoped that the government will expedite the movement to the direct taxes code and goods and services tax so that they can be implemented from 1 April, 2013. In the meantime, the budget is a positive step forward in the economic process.
(This story was published in Businessworld Issue Dated 26-03-2012)