Union Budget: Heartening and Disheartening

It is heartening to note that the budget aims at reverting the economy to a higher growth rate and the steps initiated in the budget for catapulting the economy out of the recession, are welcome.  The Government’s efforts to eliminate development discrepancies by broadening the development agenda is indeed a good move. Government is right in recognizing that further stimulus and initiative are necessary to revive the economy. Institutional reform plan to control fiscal deficit are positive and one hopes that they would bear results in the short term. A fiscal deficit hovering around 6.8% is unsustainable in the long run.

The budget proposal to provide strength and flexibility to India Infrastructure Finance Co. Ltd., (IIFC) is indeed a very good move.  In these times of recession, the focus must be on public infrastructure and augmenting the capacity of IIFC will go a long way in further facilitating infrastructure development in the country.  Investments into infrastructure not only provide a direct benefit in terms of building capital assets but also provide indirect benefits in terms of priming the economy and provide a market for various commodities such as cement, steel, construction materials, and provide impetus to labour etc.  Further, the directive to States to remove bottlenecks on infrastructure projects is indeed positive.  In these lines, the budget initiative to raise the allocation for national highways projects by 23% is a welcome step.  If implemented in the right manner, this will have far reaching developmental benefits.  Further, the budget initiative to provide additional resources for rural infrastructure such as rural roads, rural electrification and rural housing is a good move and will blend well with overall focus on infrastructure. The move to expand liquefied natural gas infrastructure is positive.

India, being a socialist country, the State cannot ignore the poor and in particular, the urban poor.  It is important for the State to ensure that developmental parties are maintained and further that chunks of population do not fall beneath a development shadow.  In this regard, the budget initiative to raise the allocation for urban poor schemes to Rs. 39.73 billion is indeed a good move. The Government initiative to allocate additional resources for creating and augmenting rural employment is a bold move.  This will have far reaching trickle down effect in the economy.

We have always maintained that making agriculture sustainable and profitable is the key factor for ensuring overall growth in the country.  For us, one of the most important factors to be addressed is the availability of affordable credits to the farmer.  In this regard, the Government’s initiative to target agriculture credit of Rs. 3.25 trillions is a welcome move. Further incentivizing the farmer to repay agriculture/farm loans on schedule by reducing interest rate is a welcome step in the right direction. The Government initiative to provide additional resources for irrigation is also welcome, as India has large tracts of dry/non-irrigated lands.  We hope that a good share of this incentive is received by Karnataka as Karnataka has arid lands, next only to Rajasthan. Further, the Government’s plans to move towards nutrient-based subsidy regime for fertilizers are laudable. Further, the move to offer direct subsidy to farmers will ensure that the benefits trickle down to the ultimate beneficiary.

It is important for the Government to ensure that Indian exporters continue to be competitive in the global arena.  In that regard, Government initiative to extend interest subvention to exporters in several sectors is a positive move.  Further, the Government’s proposal to provide relief to exporters hit by global financial crisis is also a positive move.  It is also necessary for the Government to ensure that small and medium enterprises continue to be sustainable and profitable in these recessionary times.  Therefore, the Government’s initiative to provide additional credit to small and medium enterprises is a step in the right direction. The Government initiative to allocate additional resources for creating and augmenting rural employment is a bold move.  This will have far reaching trickle down effect in the economy.

The initiative to raise the limit for non-founder holdings in companies is welcome.

Despite the several positive initiatives in the Union Budget, it is disheartening to note that the Union Budget has not initiated any material change in the taxation structure.  The income tax rate in India is far higher than in many countries.  The tax rate in excess of 33% is higher than countries such as Bulgaria (10%); Russia (13%); Hong Kong (17%); and Singapore (20%). The Union Government therefore had considerable for further reduction in the personal income tax rates.  In these times of recession, it would have been a critical measure for the Government to reduce the personal income tax rates so as to ensure higher expendable income at the hands of the consumer.

It is also disheartening to note that corporate tax rate has remained unchanged.  The Indian corporate tax rate, which presently stands in excess of 33%, is higher than the global average of 29.5%.  The Union Budget should have revisited the corporate taxation level so as to ensure that companies are left with more funds to invest and expand.  Lower tax rate would not only make Indian companies globally competitive but would also help portray India as a preferred destination.