Good attempt at providing fiscal stimulus

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The key theme underlining the 2008-09 Budget is to provide fillip to the growth process and make it “faster and more inclusive”. The impetus is likely to come primarily from a boost in consumption activity across the social spectrum which is likely to create investment demand and spur growth.The stimulus to the industrial sector, in the form of excise duty cuts, to pharmaceuticals, automobiles and few mass consumption items will help invigorate consumption demand for these sectors. This is important, especially when the automobile sector, as also some of the other consumer durables, have been seeing a moderation in production, sales and credit offtake.

On the other hand, special emphasis has been given towards supporting demand in the rural economy as well. The increased allocation to agriculture and rural development is expected to generate interlinkage effects and work towards broadening the consumption base. With increased emphasis on education and health in the 11th five-year plan, the allocation to both the sectors has gone up by around 20%. All these proposals will not only provide short-term fillip to the growth process but also help in creating long-term capacity.

For a continued growth in investment and capacity creation, the government has agreed to provide equity and loan support to Central Public Sector Enterprises. An increase in the corpus of Rural Infrastructure Development Fund, higher allocation for the Department of Information Technology and the establishment of a non-profit organisation to promote skill development will go a step further to help India achieve an “inclusive” investment growth.A more than 15% increase in plan expenditure has come alongside a welcome change in direct tax slabs and rates. Although these changes might look marginal on the face of it, the overall aggregate impact can be quite significant.