The 2010-11 Budget was one of the few that have lived up to expectations. It was an adroit exercise in balancing a targeted thrust on key economic drivers, while bringing to bear a focus on fiscal consolidation.
India will be a major growth engine for the global economy, “with some luck […] breach the 10 per cent mark in not-too-distant a future” and grow steadily at a sustained 8-9 per cent in the next decade. This needs a stable investment environment, even while facilitating domestic consumption, and the Budget has put in place some key enablers.
The first notable aspect was the attempt to control the fiscal deficit, for well-known reasons, not the least of which was the potential of spilling over into non-food prices. The decision to increase petrol and diesel prices following the Budget, close on the heels of a partial decontrol of fertiliser prices, has the potential to stoke inflation.
Exiting the stimulus is a tricky process. The Budget has a calibrated road map for fiscal consolidation. Even as there was a partial stimulus rollback through an increase in excise rates, there was also an attempt to directly boost consumers’ disposable incomes, both through a rejig of the personal tax exemption slabs and status quo on service tax rates. Reinforcing this was the provision of subsidies through cash, bringing them “above the line” into fiscal accounting, thereby increasing transparency.
The key thrust areas of the Budget were infrastructure and rural development. While the increased plan outlays for infrastructure segments and the anticipated doubling of IIFCL’s refinancing are required, meeting the ambitious investment targets for infrastructure capex requires innovative approaches, particularly credit enhancements by the government.
Rural development was the second plank, key not just for enhancing inclusive growth, but also to increase agricultural productivity and develop a large potential domestic market. The increase in the scope and coverage of public social security nets for NREGA beneficiaries and the unorganised sector will fill an existing gap.
The writer is MD and CEO, Axis Bank