After the elections gave a clear mandate to the UPA, expectations from this Budget on all fronts were set very high. Expectations varied from how the government would take growth back to the higher trajectory to how the government would bring greater inclusion and equity in the fruits of this growth, how it would kick-start reforms and finally how it would walk the fine line between growth and fiscal prudence. The Economic Survey only increased expectations.
On the issue of getting the economy back to the 9 per cent GDP growth trajectory, the government has decided it will do this by continuing with its fiscal stimulus introduced last year mainly through tax reliefs. While announcing its intent of increasing investment in infrastructure from the current levels of 4.5 per cent of GDP to more than 9 per cent by 2014, the government has chosen a path that is led by public spending. This is perhaps because the external world does not look like it is out of the woods yet and the earlier fiscal stimulus clearly worked. To augment this government-led growth are specific export-boosting measures and increased amounts in the hands of consumers.
In keeping with the mantra of ‘Inclusive growth’ the government stated its intent of creation of 12 million new jobs per year. Total plan (developmental) expenditure (including that on flagship schemes such as NREGS, Bharat Nirman, JNNURM etc.) has risen by 15 per cent, while a first-time budgetary provision for the National Food Security Act has also been made. Additional interest subvention for short-term crop loans for farmers who have paid their instalments on time is yet another such measure. The Budget certainly has focussed a lot of its measures on specific social sections in order to bring about inclusive growth.
The Budget also notes that improving delivery mechanisms of government institutions through accountability is an area that requires redressal. Initial steps have been made through the setting up of the ‘Unique Identification Authority of India’.
On the reforms front, while at the outset, the Budget does not read like a reform agenda (unlike the Economic Survey), it has outlined some key policy areas such as oil price de-regulation, rationalisation and gradual reduction of fertiliser subsidy and disinvestment. While we did not see all the details in the Budget, one could expect that the legislation for these reform measures will follow. A key positive on the reform front is the re-iteration of the GST rollout timeline (April 1, 2010). The external investment community looks for signals on reform and in a world where external capital flows are important to fund growth. Perhaps the Budget could have spelt out the government’s intentions on reform in a bit more detail.
On the fiscal front, while the 6.8 per cent Central fiscal deficit has exceeded expectations, the government’s near-term thrust has definitely been on “growth” over fiscal consolidation.
Measures such as disinvestment, bringing more services under the tax net, rationalising and simplifying the tax structure, bringing more small and medium enterprises under the tax net and an increase in MAT (minimum alternative tax) rate etc are sources of improving government revenues and narrowing the deficit over time.
In sum, the Budget combines a growth stimulus with a high degree of protection against global worries.
(The writer is CEO, financial services, Aditya Birla Group)