Union Budget will be growth-oriented: Arvind Mayaram

Written by fe Bureau | New Delhi | Updated: Jun 25 2014, 14:42pm hrs
The Modi government's maiden budget will be "growth-oriented" with some "major changes" in policies to lift the economy to a higher growth orbit from the less than 5% expansion seen in the last two years, finance secretary Arvind Mayaram said on Tuesday.

While many policy initiatives have been announced by respective ministries after Modi took charge as PM, the finance ministry will present in details the capital expenditure and outlays for various schemes including infrastructure.

Many policy reforms, including those for taxation and financial sector could also be announced in the Budget.

"The Budget will be growth-oriented. You will see major changes in policies," Mayaram said at a Unctad conference. He did not divulge details as the ministry was in the midst of budget preparation.

Already, speculations are rife that the government may increase spending especially for infrastructure to revive the investment cycle, subsidies may be further rationalised and irritants in tax policies may be removed to shore up revenue and instill confidence among investors.

Some hard decisions, especially on subsidies, may be announced to curb wasteful expenditure and raise capital outlays. Modi has said some "bitter medicines" were required to put the economy back on the high growth path.

Finance minister Arun Jaitley may not lose sight on fiscal prudence and adhere to the fiscal target of close to 4.1% of GDP for 2014-15, but at the same time may not be too over-ambitious in cutting the deficit beyond 4.1% by curtailing capital expenditure.

During the last few years of UPA regime, the finance ministry squeezed capital expenditure to 1.7% of GDP during 2013-14 from 1.9% in 2010-11 and 2.4% during the pre-Lehman year of 2007-08, even though the total expenditure remained near about 14% in the last four years.

Apart from a slow growth in public investment, private investment has also slowed as mega projects worth Rs 20 lakh crore got stuck due to delays in clearances and foreign investors turned averse due to retro tax rules and GAAR.

After weathering the global financial crisis, India's GDP growth recovered to 8.9% in 2010-11 but slipped to 4.5% in 2012-13 and stayed low at 4.7% last fiscal.

Referring to PM Modi's policy prescription, Mayaram said the immediate task was to accelerate growth, which in turn can help India reduce poverty.

"I believe, our potential growth rate is 8%. And to get there, we need to develop resources. And that which we cannot generate domestically must come from outside and if it comes from outside then we prefer it in the form of foreign direct investment (FDI) rather than foreign institutional investment (FII)," Mayaram said.

The new government's priorities are that systems have to be improved, clearances have to faster and fix timelines, he said.

Indications are that the Budget may pave the road map for raising the FDI limit for insurance, defence and railways while streamlining investment procedures to attract from FDI.

"You must remember that investments don't come because of agreements like Bilateral Investment Promotion and Protection Agreements. Investments come if there are opportunities to make profits. Opportunity to make profits can only happen when growth is higher and when the economy becomes robust," Mayaram said.