Union Budget 2013 - 14: An earnest effort to restore confidence: BoB CMD

By S. S. Mundra
Chairman & Managing Director
Bank of Baroda

The four major macro concerns that have been weighing on the confidence of investors and rating agencies for the last several months are India's high fiscal and current account deficits and the dwindling savings and investment rates. And in my opinion, the Budget has effectively addressed all these issues.

Moreover, the Budget 2013-14 has not only focused on high growth, but also placed equal importance on sustainable and inclusive growth. Through a combination of curtailing expenditure and augmenting revenue receipts, the Budget has managed to contain the fiscal deficit at 5.2% for FY12-13 and set the target of 4.8% for FY13-14.

The Finance Minister has flagged the high current account deficit as the biggest worry facing the economy mainly because of high oil, coal and gold imports, and the slowdown in exports. As FIIs play a significant role in financing current account deficit, the Budget has sought to widen the scope of FII investment by allowing them in exchange traded currency derivatives and simplifying the registration procedure for FIIs.

Furthermore, the Finance Minister has sought to remove the ambiguity regarding FDI and FII and the FIIs have been permitted to use their investment in corporate bonds and government securities as collateral to meet their margin requirements.

As the gross domestic savings have been falling over the past few years, the Finance Minister has introduced a few select measures to enhance the savings rate and move the household sector’s preference from physical to financial savings.

For instance, the income limit for Rajiv Gandhi Equity Savings Scheme (RGESS) for first time investors has been increased from Rs 10 lakh to Rs 12 lakh. Also, for the first time home loan borrowers, the Budget has offered an additional deduction of income on small ticket home loans. 

To protect the savings of the household sector from inflation, the budget has introduced Inflation Indexed Bonds or Inflation Indexed National Security Certificates.  To improve the penetration of banking facilities, the post offices, which have a large network across the country, are to become the part of the core banking solution and offer real time banking services. 

To give a necessary boost to the new investment plans and also to revive the capital goods industry, the Budget has allowed for an investment allowance of 15.0% of investment of Rs 100 crore or more in plant and machinery. Also, Micro and Small and Medium enterprises are granted permission to enjoy the benefit of preferences for up to three years even after they move out of the category.

Apart from addressing the fundamental issues relating to growth, the Budget has sought to focus on sustainable and inclusive growth and placed special emphasis on women and youth to ensure not just higher growth but a well-balanced development. Apart from setting up India’s first Women Bank with an initial capital Rs 1,000 crore, the Budget has also set up a Nirbhaya Fund for women with the government contributing Rs 1,000 crore to it.

Finally, the measures taken for the banking industry such as infusion of capital in PSU banks to facilitate their smoother transition to the Basel III framework; permission to banks to act as insurance brokers, permission to Banking Correspondents to sell micro insurance products, etc. also reflect the government's continued commitment to improve the health and soundness of the sector.

In short, the Budget has finely balanced prudence with growth to restore the confidence of market participants.