The Union Budget 2009-10 is not, by any means, a ‘big bang’ budget. As the finance minister himself suggested, the Budget is only one policy platform and economic policy is an ongoing process. Moreover, as is the case in most countries, the Budget should be seen more as an exercise that deals with the affairs of the exchequer, rather than radical policy shifts.
The Budget is strong on continuity, stability and inclusiveness. However, it does not provide a long-term vision to revive corporate investment.
What is highlighted most in the Budget is the sharp focus on building inclusiveness. This is evident in measures such as encouraging women self-help groups and helping them access bank finance, providing minimum levels of food security to all, improving the levels of female literacy, and making educational loans available for all streams of education, including vocational education.
An attempt is being made to integrate the functioning of employment exchanges and introduce the concept of public-private partnerships in this area.
Furthermore, existing schemes stand to be given a substantial fillip — for instance, outlays on NREGA are being stepped up by 144 per cent, while spending on urban infrastructure is being boosted by 80 per cent. The Budget also proposes to make India slum-free in five years.
The Budget aims to increase GDP growth to 9 per cent per annum and the measures announced are generally consistent with that objective. In pursuit of growth, the fiscal deficit target has been relaxed considerable — to 6.8 per cent of GDP. This no doubt will lead to higher consumer and government spending. There is also a provision that increases the refinance resources of IFFCL for PPP (Public Private Partnership) projects. The outlays on accelerated power development programmes have been hiked 160 per cent. Also positive for growth is an investment-linked tax incentive for a few sectors, among them investments in cold chains. An interest rate incentive, to encourage timely repayment of farm loans, is an innovative step to incentivise borrowers to meet their financial commitments.
While no changes have been made in the overall tax structure, the abolition of levies such as the fringe benefit tax (which was cumbersome to administer), the 10 per cent income tax surcharge on individuals, and the Commodities Transaction Tax is extremely positive. This sends the right signals on tax reforms going forward. At the margin, there is an increase in the standard deduction.
The Budget does provide some markers about what’s going to drive medium and long-term policy. The urgency about getting back to a high growth trajectory is unmistakable. So is the thrust on getting the forces of development to trickle down to those who have been bypassed.
The finance minister also explicitly recognised the aspirations of the youth of India and stated that economic policy would be aligned with their aspirations. However, the specifics are missing.
The Budget does raise some concerns in a few areas, and there are some omissions. The high fiscal deficit is a clear area of worry. We will have to be more vigilant to pre-empt pressure on interest rates and crowding out of capital for the private sector.
The Budget also fails to provide a roadmap for fiscal consolidation. The increase in MAT (from 10 per cent to 15 per cent) is a negative. There is no definitive statement on restarting the process of disinvestment. Finally, there is a need to do much more to ensure that outlays on social programmes deliver full value and that leakages are minimised.
The Budget could also have provided more specific policy direction on how corporate investments will be incentivised and energised. Corporate investments had been increasing at 20 per cent per annum over the past four years. Much more needs to be done to get the corporate sector to step up investments, particularly when business confidence is at a low.
The Budget does send some signals that economic reforms remain on track. There is an effort to retarget fertiliser subsidies directly at the farmers; the introduction of the new Direct Tax Code also seems high on the agenda; and the implementation of the GST (goods and services tax) also remains on track.
We have to view the Budget from a much broader perspective. A Budget cannot be the be-all and end-all of economic policy. Rather, we should see the Budget as a positive reinforcement of the medium and longer-term strategy.
(The writer is chairman, Aditya Birla Group)