Budget 2010-11 reflects the good growth story of the Indian economy. The Finance minister defined the budget as not just an accounting statement but a road-map of policy.
The stance has been reformist as the budget has taken cognizance and has been framed in the backdrop of two landmarks — the direct tax code and the Goods and Services Tax. Conformity was visible with the 13th Finance Commission recommendations. Being framed in the challenging economic environment, the budget has attempted to support growth and tame inflation through a combination of emphasis on infrastructure and inclusive growth.
The economy has shown a good turnaround in the current fiscal and the GDP is expected to grow 7.2 per cent. This has been ably supported by the industrial sector, particularly manufacturing, which in December 2009 grew almost 18 per cent, the highest in the last two decades. The budget made a good attempt forward in terms of tax reform. It has expressed the intention of implementation of DTC and GST from April 1, 2011.
The budget did introduce the restoration of the central excise to 10 per cent from the level of 8 per cent, while at the same time tax reliefs were provided at the grassroot level keeping the inflationary concerns in perspective. An important reformist development of the budget was towards greater transparency. Fiscal deficit numbers have included the hitherto off-budget items such as oil bonds and fertiliser subsidy. With this new classification, the fiscal deficit/GDP ratio for FY10 has been pegged lower at 5.5 per cent vis-à-vis the revised ratio of 6.7 per cent for FY10. The Finance Minister resolved to make cash subsidy payments going forward instead of the practice of issuing bonds in the interest of better fiscal transparency.
The focus on infrastructure development can be seen in its higher plan allocation of 46 per cent of total Plan allocation in FY11.
The renewable energy sector has seen an hike in allocation to Rs 1,000 crore from Rs 620 crore in the last budget. The competitive bidding of coal blocks for captive mining is also a step in the right direction.
The budget has also recognised the requirement of increasing avenues for long-term infra finance. This can be seen in the doubling of disbursements of IIFCL to Rs 20, 000 cr by March 11, refinancing to about Rs 6000 crore and take -out financing of about Rs 25, 000 crore in the next 3 years.
The thrust on inclusive development can be seen in the share of spending on social sector increased to Rs 1.37 lakh crore which is 37 per cent of the total plan outlay. Additionally, 25 per cent has been allocated to rural infrastructure. Support to the agriculture sector has been provided through a more holistic 4-pronged strategy, which includes increasing output, reduction in wastage, credit support to farmers and impetus to food processing sector. Bank credit to agri has been targeted at an enhanced level of Rs. 3.75 lakh crore.
The writer is CMD, L&T