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Clearing the ground

Budget 2007-08 has frontally addressed the first of the two pillars — social infrastructure. It has also attempted to address the constraints of the agricultural infrastructure. Unfortunately, the budget has not excited and ignited the entrepreneurs of India, small, medium and large, writes Amit Mitra.
None | By Amit Mitra
UPDATED ON MAR 14, 2007 03:15 PM IST

The economy of a nation walks on two feet. One is the flow of educated, skilled and healthy human capital. And the other is the buoyancy of entrepreneurs using physical capital in a market economy, stretching across agriculture, services and manufacturing. Both these streams are spurred by inventive minds and innovative corporates.

Budget 2007-08 has frontally addressed the first of the two pillars — social infrastructure. It has also attempted to address the constraints of the agricultural infrastructure. Unfortunately, the budget has not excited and ignited the entrepreneurs of India, small, medium and large.

In this sense, one leg was empowered significantly while the other leg fell slightly out of sync.

The Indian corporate sector expected a tax reduction that would stimulate enterprise and at the same time give greater revenues to the government. Finance Minister P Chidambaram, while speaking at the Ficci annual general meeting, candidly stated that every time he has lowered tax rates, he has also garnered greater revenue. In other words, the Laffer Curve works in India.

Therefore, the expectation was of a lower tax incidence and with it elimination of some exemptions, which are cluttering our tax matrix. Instead, it appears the tax incidence will, in fact, go up by over 1 per cent based on the budget announcements.

This, of course, does not mean that corporates will relax on their past laurels. They will continue to push the frontiers of growth. However, that extra zing was missing from the faces of corporates who were glued to the television at Ficci on the budget day presentation.

But I am confident that we will continue to pierce the 9 per cent GDP growth, though we could have attempted to reach the 10 per cent mark this financial year.

The Finance Minister has taken giant steps forward by increasing the social sector allocations. Most notable among these is the increase in the allocation for education by a massive 34.2 per cent and health by 21.9 per cent. Amazingly, secondary education allocation has doubled this year. The huge step of introducing one lakh scholarships for arresting the high drop-out rates among students at the secondary level is, indeed, praiseworthy.

The budget has also pushed the envelope on vocational training. The ITIs have been brought under a public-private partnership mode with 300 ITIs to be reformed giving much-needed financial and academic autonomy to the private partner. However, what needs to be now monitored is the progress towards the intended outcomes.

Ficci also endorses the government’s thrust on the agriculture sector. The proposal to increase farm credit by a whopping 28.5 per cent, from Rs 190,000 crore in 2006-07 to Rs 225,000 crore in 2007-08, and to bring an additional 50 lakh new farmers into the formal credit system is a great leap forward.

Further, the focus on creating an additional irrigation potential of 900,000 hectares, the grant of subsidy to small and medium farmers for undertaking ground water recharge activities and the revitalisation of the extension programme will certainly help address the key concerns facing the Indian agriculture sector.

The Finance Minister deserves congratulations on his gender budget allocation and the sensitivity he has shown to the physically challenged — an agenda of the Ficci Socio Economic Development Foundation.

One of the key constraints that could prevent the Indian economy from achieving the targets that have been set for it is the inadequacy of the infrastructure facilities in the country. The government has rightly recognised the important role the private sector can play in meeting with the humungous financial requirements of this sector.

We have already seen good progress in the roads and highways sector and the Finance Minister’s proposal to set up a revolving fund, with an allocated budget of Rs 100 crore with bankable projects that can be offered to competitive bidding would certainly see more private sector participation in this crucial area of infrastructure.

We also hope that after studying the legal and regulatory aspects of the Deepak Parekh Committee’s specific suggestions the government would soon come up with a detailed roadmap in this area.

In addition to giving thrust to sectors that have been the traditional strengths of the Indian economy like textiles, the government has also given a leg-up to the knowledge driven sectors. While in the case of the bio-tech sector, service tax exemption has been granted to clinical trials for new drugs, in the case of pharma, excise duty for life-saving vaccines has been exempted. Further, the extension of the existing in-house R&D benefits for another five years would certainly help sustain the innovation culture among Indian companies.

Corporates recognise that the social sector jumps in the budget are vital to a sustainable growth trajectory. However, they were eager to get that extra fillip of moving to Asean levels of tax rates, which was not to be.

Corporate India will have to strengthen its internal muscle even more aggressively to match up with the power given to the other leg of the economy — the social infrastructure.

Amit Mitra is Secretary General, Federation of Indian Chambers of Commerce and Industry (Ficci)

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