A positive move, budget boosts growth drivers
From the perspective of the Indian industry, Budget 2011-12 is a positive exercise, effectively balancing growth and inclusion while adhering to fiscal consolidation compulsions. The lowering of the fiscal deficit to 4.6% for 2011-12 is truly laudable, given the multiple exigencies facing the finance minister. Inflationary expectations have been curbed as well by prudent management of the government’s borrowing programme. The Confederation of Indian Industry deeply appreciates the sagacious manner in which the divergent challenges of the economy have been addressed through the budget.
In its pre-budget recommendations, CII had called for retention of stimulus and adding spending power in the hands of the consumer. This has been achieved with excise duties remaining at 10% and increase in the exemption limits under personal income tax. The reduction in surcharge on corporate taxes is timely. The budget thus boosts both consumption and investment so that the growth momentum remains on track.
The overall reform agenda is on track. On tax reforms, CII is greatly encouraged by the promise to introduce direct taxes code (DTC) from next year to moderate rates, simplify laws and ensure better compliance. The roll-out of goods and services tax (GST) has been paved by the proposal to introduce necessary legislation and put in place IT infrastructure. The intention to move towards direct transfer of cash subsidy for better delivery of kerosene, LPG and fertiliser subsidies signals movement on expenditure reform and is in line with CII recommendations.
In particular, the budget has concentrated on ameliorating supply side bottlenecks in agriculture. Initiatives have been announced for rice, pulses, fruits and vegetables, milk, edible oils, etc. Agricultural credit receives impetus through increased interest subvention, enhanced capital base of NABARD, and other steps. Capital investment for storage is now eligible for viability gap funding and customs duties on agricultural machinery have been reduced. Fifteen more mega food parks are to be set up to reduce wastage. These initiatives strengthen the interlinkages between the farm and industry sectors.
The financial sector receives special mention as various legislations are proposed to be moved for reform. Financial inclusion is boosted by the proposal to create the India Microfinance Equity Fund and Women’s SHG’s Development Fund. All villages with over 2,000 population will have banking facilities by the end of 2011-12, a truly major step. Another welcome initiative has been the move to allow SEBI registered mutual funds to accept subscription from foreign investors for equity schemes.
The budget carries forward the emphasis on inclusive growth through a number of interventions in education, skill development, health, employment and rural development targeted at low-income strata of society. Such sustained initiatives are unlocking the potential of our human assets. The National Food Security Bill will add to nutritional stature of the workforce.
Recognising implementation gaps, leakages and outcomes as serious challenges, the finance minister has stressed economic management in a transparent and outcome-oriented manner through various initiatives. Governance issues and corruption have been mentioned, with IT tools being leveraged for administration and simplification of procedures. The budget gives high importance to tackling black money through a five-fold strategy. CII believes that these announcements will add to the overall comfort level of investors.
The overall macroeconomic environment for industry is very supportive. The various proposals for infrastructure will facilitate public private partnerships and investment inflows into the sector. CII had called for tax free infrastructure bonds, which has been allowed to the extent of R30,000 crore. Special vehicles are on the anvil to attract foreign investments in the sector.
Overall, a successful attempt has been made to improve the operating system for the forces of economic growth. Budget 2011-12 will go a long way to sustain the present high rate of growth.