Laying the groundwork for growth

Jul 12 2014, 01:33 IST
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SummaryThe Budget comes as a shot in the arm for infrastructure, a sector crucial to reviving growth

The sheer weight of expectations from this Budget was very high, and the finance minister has shouldered most of it. The highlight was that there were no unpleasant surprises. Considering the shortage of time, a good job has been done with drafting the Budget which talks about fiscal prudence, inflation control, and offers a lot of clarity on portfolio flows too.

On the fiscal front, the finance minister had the task of meeting the fiscal deficit target of 4.1% of the GDP this year. It is interesting to note that the Budget retains the fiscal deficit target, which is, in some ways, a confidence-boosting measure that signals to the markets the government’s commitment to expenditure control. However, there might have been some over-optimism in the assumptions to back this deficit figure, given that the economy is still moving slow.

But there are a few good positives. First, the Budget sets the fiscal deficit target for FY17 at 3% of the GDP. That is a very good move as it clearly shows that fiscal control is among the top priorities of the government. In the long run, all investors will appreciate a reduction in unproductive expenditures.

Until now, there was plenty of conjecture on what sectors the government would target and how it would plan to make resources available for investments. Now, there is some clarity on the roadmap.

The point to note is that the finance minister has subtly increased the tools that will spur infrastructure investment in the next few years, by the way of making infrastructure-funding cheaper by removing the SLR and CRR requirements for long-term infrastructure lending. That is a highly encouraging move, something that can be termed ‘power positive.’

This move is significant for banking as well, if only because some of the biggest lenders to infrastructure have been the PSU banks. Now, many of them will get the benefit of this exemption and it will also make infrastructure lending cheaper as some of the built-in costs of holding in SLR and CRR will reduce, and will be passed on by the bankers to the infrastructure segment.

The impact of the good concessions given to the middle-class for personal income tax will be substantial and tangible. Home-loan interest exemptions have been increased further, basic tax exemption has been increased—such measures will increase the disposable income in the hands of individuals.

It will also spur more savings; especially

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