Budget balanced, non-disruptive

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SummaryI rate the Union Budget FY12 as a balanced Budget and a Budget that is non-disruptive. The FM is continuing with the policies of the government since it came to power, keeping the focus on growth and inclusiveness.

HM Nerurkar,

Managing director, Tata Steel

I rate the Union Budget FY12 as a balanced Budget and a Budget that is non-disruptive. The FM is continuing with the policies of the government since it came to power, keeping the focus on growth and inclusiveness. The Budget has to be seen in the context of the measures already announced and I am sure there will be several other measures that the government will announce progressively to ensure that the economy exceeds the 9% GDP level at the earliest. The government’s target GDP growth rate of 9% and commitment to bring down fiscal deficit to 4.6% of GDP for FY2011-12 and 3.5% of GDP by FY2014 are statements that hold a lot of promise. There has been a positive change in the quantum of fiscal deficit for FY 2010-11, which was at 5.1% of GDP against the previous budget estimate of 5.5%. The FM affirmed his resolve to introduce DTC from April 1, 2012. However, as regards GST, the rollout, including constitutional amendment, is still in progress.

The increase in MAT rate, when it is felt that it is already high, would not have a beneficial effect on the industry, although this would be marginally offset by the reduction in surcharge. The imposition of MAT on SEZ developers will have an adverse effect on SEZs. The focus on infrastructure sector is in keeping with India’s insatiable need for enhanced infrastructure. Industries like steel, that have high capital outlays and also have high contribution towards creating infrastructure, should have been categorised as infrastructure industry too.

I also believe that there was an opportunity to develop Mumbai as an international financial centre in view of the decline of traditional financial centres in the West and elsewhere, but the measures expected to be announced in this regard fall short of what could have been done to capitalise on this opportunity. The various legislations proposed in 2011-12 and discussions to liberalise FDI policy are a positive. Foreign investment in mutual funds would enable greater inflows and greater participation in the Indian capital markets, but at the same time, this would also require careful monitoring. Funds provided for capitalisation of public sector banks, regional rural banks and NABARD are also strong positive measures to ensure financial robustness of these banks and encourage financial inclusion, though the banks are likely to require greater capitalisation to cope with increasing growth.

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