Column: Execution must match intent

Updated: Jul 11 2014, 18:34pm hrs
The new governments maiden Budget is in the nature of a corrective plan for the macroeconomic framework, albeit with some path-breaking measures.

Focusing on returning the economy to a 7-8 % growth trajectory, the Budget stresses on stabilising macroeconomic fundamentals by relying on sound economic logic rather than any window-dressing measures.

While taking note of the tough economic backdropa sub-par growth of below-5% over the last two fiscals, coupled with unsustainable levels of double-digit inflationthe finance minister (FM) voiced confidence over meeting the difficult fiscal deficit target of 4.1% of the GDP.

High on intent, the Budget prescribes measures to revive both savings/investment and consumption. While the FM emphasised the need for industrial revival, he stressed on the need for inclusive development as well.

The FM has budgeted for a 17% growth in tax revenue and a 10% growth in non-tax revenue over the FY14 revised estimates while market borrowings have been maintained at the previous level, of around R6 lakh crore. Disinvestment proceeds, atR63,425 crore, have perhaps been budgeted lower than what is possible. The FM has attempted to find funds for PSUs and banks from outside the budget. Funding needs of PSUs would be met through their cash reservesof about R2.47 lakh croreand the recapitalisation of banks, to the extent of R2.4 lakh crore, via the FPO route.

The Budget prioritises infrastructure development, stressing on the correction of the anomalies in the existing PPP framework. Introducing REITs and infra investment trusts which have a pass-through mechanism of taxation would encourage funds flow in these instruments. In terms of plan-funding, the finance minister has proposed a higher allocation to transport infrastructureof R1.16 lakh crore, a growth of 7% over FY 14. Within this, the allocation to Railways is R63, 949 crore, to civil aviation, R9,474 crore and to roads and bridges, R38, 214 crore. For developing 100 smart cities, the finance minister has allocated R7,060 crore in FY15.

Though industry and manufacturing were mentioned frequently in the Budget, there were no specific announcements in terms of tax proposals. However, the FDI limits in defence manufacturing and insurance were raised from 26% to 49% subject to full Indian management and control through the FIPB route, a positive for Indian manufacturers in this space.

In terms of specific tax measures, the finance minister talked of a stable and predictable tax regime. Addressing the vexed issue of retrospective taxation, he said future demands would be scrutinised by a high-level committee to be constituted by CBDT. To increase savings-to-GDP beyond the current 30%, the Budget incorporates some incremental efforts. To increase retail participation, the tax exemption cap has been raised to R2.5 lakh up to the age of 60 years and upto R3 lakh for those beyond 60 years. The Kisan Vikas Patra scheme has been reintroduced and the tax exemption on interest on housing loans has been increased to R2 lakh.

A clear effort can be seen to revive consumption through reduction in basic customs and excise duties on items such as soaps, footwear, and consumer durables such as TVs and food processing machinery.

Capital markets saw a renewed focus. Voluntary adoption of IND-AS (global accounting standard) will be mooted in FY16, becoming compulsory FY17onwards. There has been a rationalisation of withholding tax on foreign bonds raised by Indian companies abroad through the extension of a liberalised facility of 5% withholding tax to all bonds issued by Indian corporates.

While it is true that the government has only recently picked up the reins, the key to faster economic growth will lie in the true implementation of the intent presented in the Budget yesterday.

K Venkataramanan