Budget falls short of ?dream? expectations

The Honourable Finance Minister?s Union Budget Speech definitely fell short of the ?dream? Budget expectations that most of us had, says Oracle India MD Shekhar Dasgupta.

The Honourable Finance Minister’s Union Budget Speech definitely fell short of the ‘dream’ Budget expectations that most of us had. Given that this is his first Budget as part of the UPA Government, I expected him to be bolder and a lot more aggressive.

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While the Budget’s thrust on agriculture, manufacturing, equity support to certain infrastructure sectors, education, health and senior citizen welfare can be highly commended; the Finance Minister clearly postponed a lot of tough decisions to the next Budget. One good feature of this Budget though is that it brings no major reversal from the previous Government’s policies, other than an apparent slow-down in the disinvestment area.

In the IT industry, while the relief in excise duty for computers will be a major boost for the computer hardware sector, the big disappointment was a lack of any clarification on the business process outsourcing circular issued by the Finance Ministry earlier this year.

The industry expected an explicit statement clarifying this issue given India’s rising share in the global BPO market. However, with a boost to computer hardware and manufacturing in general, the BPO sector may get an indirect benefit. What also came as a disappointment was the absence of any mention of budgetary allocations for e-governance projects.

The complete silence on the subject of e-commerce taxation was also unexpected. One cannot help contrast this with Mr Laloo Prasad Yadav’s Railway Budget, which enunciated a number of most commendable computerization projects for the Railways.

The Finance Minister has talked about empowering the States through devolution of larger resources and expects the States to observe fiscal prudence and financial discipline. This is an area where the IT industry can help a big way. Fiscal management and better revenue generation are areas where IT systems can play a major role and therefore these present a major opportunity for the IT industry.

The one thing that stood out in the budget was the clear focus on agricultural reforms and investment. Credit enabled private investment, venture capital for agro-based industries, special benefits to food processing, steps to help diversification of farm output, insurance for farm income, capital subsidies from NABARD to the agriculture projects, water harvesting and micro-irrigation projects are clearly steps in the right direction.

The plan to repair, renovate and restore all water bodies is wise and practical though ambitious. Again here, there can be huge opportunities for the IT industry. The agriculture sector which contributes to over a quarter of the GDP needs to have a seven-eight per cent growth on a sustained basis.

Else – the three per cent trend line in this sector - will keep dragging the country’s GDP growth rate down. IT can be the enabler in increasing the productivity of the agriculture sector specially given the Government’s thrust in food processing and diversification of farm output which will require high tech soil analysis and weather forecasting.

The increase in foreign direct investment in the telecom, insurance and civil aviation sector is a welcome step. A very small one though. Given the Finance Minister’s and the Prime Minister’s past views on reforms, industry had expected many more sectors to benefit from FDI. While one understands the political compulsions of being shy in the disinvestment area, an aggressive reversal – ie providing equity and loan support to PSUs as against disinvestment – would imply a bigger burden on the State exchequer.

The increase in overall Government expenditure (due to various subsidies and benefits across sectors), the earlier increases in petroleum prices, higher excise on steel can only mean higher inflation. Clearly, the Finance Minister will have to do some serious thinking on expenditure management and have extremely efficient systems for increasing the tax/GDP ratio to fund his dreams and keep inflationary pressures at bay.

(Shekhar Dasgupta is managing director, Oracle India)