The Union Budget came at a time of slowing manufacturing growth, and a widening fiscal deficit, caused mostly by high oil prices. Private sector investment spending has almost halted. Even the Economic Survey says that it is imperative to quickly revive investment sentiment, and give a big impetus to industrial production.
The national goal is to increase the share of manufacturing in GDP to 25% from the current 16%. Hence the FM had an unenviable job of providing this much-needed impetus, and yet achieving fiscal consolidation. The budget gave us this balance, by investment friendly measures such as doubling of incentives for R&D spending, higher depreciation and higher weighted deduction for skill development. On the other hand excise and service tax rates have been raised by 2% back to their earlier levels.
This restoration of tax rates to their higher level gives some extra fiscal space to the government to reduce its fiscal deficit from 5.9% this year to 5.1% next year.
There is considerable focus on infrastructure. The FM reiterated his government’s commitment to spend about Rs. 50 lakh cror in the next five year on infrastructure.
This is great news for sectors such as power, roads and telecom. Along with financial sector reforms, and doubling of infrastructure bonds, this will be hugely growth inducing. Capital markets too got a boost with measures such as reduction in the security transaction tax and incentives for small investors to invest in equities. Other financial sector reforms will enable capital market investment from the insurance and pension sectors too.
The massive recapitalisation of banks, and rural financial institutions will benefit both industry as well as agriculture credit flow. The negative list approach to service taxes is quite reformist. This will reduce a lot of litigation and dispute over what can or cannot be taxed. On the direct taxes, the FM has actually reduced overall individual income tax, by widening the slabs, and increasing exemption limits. This will keep consumer spending robust. This government’s commitment to inclusive growth is manifest in the increased allocation to social sectors. Health, education, nutrition and skill development have all got a considerable increase.
The use of the Aadhaar platform, which has got an increased budgetary support, will ensure better targeting and lower leakages of social sector spending.
On balance it is a pragmatic budget, which balances the need of providing a growth environment, and the need for fiscal restraint. The FM has also achieved a credible balance which respects the constraints faced by a coalition government. I am confident that with imminent industrial recovery we should be able to achieve the growth projections of the Union Budget.
Kumar Mangalam Birla, chairman, Aditya Birla Group