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Choosing the path of fiscal consolidation & continuity

india Updated: Mar 17, 2012 00:48 IST
William Bissell

Some of the themes that dominated the discussions before the Budget included pro-growth, pro-investment, conditions for rapid revival, addressing infrastructure bottle-necks, improved governance.

The Budget chose the path of continuity and fiscal consolidation. This included addressing the challenges of bringing the fiscal deficit down from 5.9% to 5.1%, and keeping the subsidies capped at 2% of the GDP.

Where it did score was in its ability to recognise the ground realities, and put together a way forward of trying to manage the economy without attempting either to rewind and re-invent the economic environment or give in to the populist pay-back of welfare schemes. The key is not in the intent but in the implementation of the many schemes.

The Budget's focus on infrastructure includes the proposal to introduce the Rajiv Gandhi Equity Savings Scheme to allow for income tax deduction of 50% to new middle-incomed retail investors who invest up to Rs 50,000 - directly in equities, tapping into a new reserve base.

However, while the government acknowledges that retail and services are the key drivers for growth, no road-map has been outlined for the industry's expectation that the DTC will be brought into play at the earliest. As the drafting of model legislation for centre and state GST is already underway, we can now hope that August 2012, declared as the date that the GST network will become operational.

Accelerating growth is not about the big strides: it is also about preparing the ground – and while this Budget might seem 'short on the present' as was pointed out by an expert, it could well be far-sighted in its long term expectations.

William Bissell, MD, FabIndia