A virtuoso performance amid myriad strains

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: The finance minister appears to have managed to pull the proverbial rabbit out of the magician’s hat. He has increased Plan outlays, maintained defence outlays, increased priority social sector spending by Rs 25,000 crores, made special provisions for SCs/STs and minorities, increased allocations to Bihar and Jammu & Kashmir, absorbed additional costs on account of Tsunami Relief and yet managed to reduce indirect taxes, nominally increase direct taxes and also managed to keep revenue and fiscal deficits within the reduced ceilings prescribed by the Fiscal Responsibility Act.

The Budget should satisfy the Left partners in the coalition, the IMF, World Bank and foreign direct investors. The much-awaited introduction of VAT was only indirectly referred to in the finance minister’s speech.

While the finance minister alluded to the fantastic scope for growth of the textile industry, the speech made no reference to the labour reforms that the industry needs to achieve the envisaged growth. Perhaps the sensitivities of the Left partners has resulted in these reforms being mentioned some fine print in the Budget.

The proposed Central assistance towards viability gap finding for Mumbai trans-harbour sealink is welcome. The proposed setting up of a SPV to give longer tenor loans for infrastructure projects is a step in the right direction. With China also opening up its infrastructure sector for private sector investment, more steps may be needed to make more FDI come India’s way.

The proposed reductions in customs duties were in line with industry expectations. At the same time, expectations in relation to dismantling of administered price mechanism for natural gas in particular were not addressed.

Lastly, the proposal to levy withholding tax at 0.1% on cash withdrawals of Rs 10,000 and above on any one day from banks, while welcome from the angle of tackling the problem of ‘black’ money in the economy, might cause disproportionate increase in the workload on bank staff (already stretched by staff reductions through VRS). An increase in the amount of withdrawal to say Rs 1 lakh per day may prove to be more workable and not needlessly harass thousands of small and middle class Bank customers.

On the whole, the finance minister needs to be complimented on his virtuoso performance, given the umpteen constraints he has had to work within.