Finance minister P Chidambaram has proved to be a deft gymnast by manoeuvring a delicate tightrope to carefully balance revenues and expenditure in order to rein in the fiscal deficit to 5.2% of GDP. The directional intent is good and the investment signals are positive.
However, implementation and fiscal prudence remain concerns. The finance minister?s categorical recognition that foreign direct investment, foreign institutional investors and external commercial borrowings are imperative to fund the current account deficit of $75 billion is a strong message that export benefits will not be curtailed.
The budgetary allocations to rural development, skill development, rural healthcare, education and women, address populist sentiments. Prudence has been exhibited when it comes to announcing a tax surcharge on high incomes of above R1 crore, corporate profits exceeding R10 crore and dividends, a necessary and acceptable measure to mop up revenues.
However, a serious worry is the spiralling fertiliser and food subsidy, which is pegged at R65,000 crore and R85,000 crore, respectively. The Budget also provides for an ambitious and unrealistic disinvestment plan of R55,000 crore for the next fiscal, which is currently at R24,000 crore, a downward revision from R30,000 crore. In summary, it begs the question: Can we deliver 6% growth and achieve a further reduction in fiscal deficit to 4.8% of GDP?
The Economic Survey 2012-13 has indicated some serious concerns around capital inflows, agricultural productivity and job creation. The outlook for 2013-14 is not exactly upbeat even though the growth forecast is estimated to accelerate to 6.1-6.7% on the hope of a rebound in the global economy. We need innovative policies to counter the global headwinds that are slowing down the pace of our growth. Foodgrain production is expected to decline from 260 million tonnes in FY13 to 250 million tonnes in FY14 at a time when we plan to introduce the Food Security Bill. Power and fertiliser subsidies have not worked for the agricultural sector, which accounts for 50% of employment, but less than 15% of GDP. This is simply unsustainable.
I, for one, had hoped for converting agricultural subsidies into incentives for cooperative farming that create economies of scale to enable technology adoption to boost productivity. This has not happened. I had hoped that NREGS jobs were replaced by manufacturing jobs in the micro, small and medium enterprises sector through soft loans and capital gains exemptions for investing in start-ups and SMEs. The FM has addressed this to some extent, though NREGS, I believe, is a drain on the economy. I do, however, welcome the proposed R1,000-crore skill development fund, which has an overarching objective to focus on self-employment of youth. Additionally, I am delighted that the FM has encouraged corporates to invest in technology incubators as a part of their corporate social responsibility commitment.
Women have certainly occupied centre stage in this year?s Budget. I welcome all the women-oriented schemes announced by the FM. The proposal to fund a women?s-only bank for and by women with a starting capital of R1,000 crore is a good step. However, a concern I have is with reference to the capital infusion of R14,000 crore in state-run public sector banks to comply with the Basel III norms. I would have preferred a disinvestment or privatisation route and use this allocation towards other expenditure.
The manufacturing sector could have done with greater impetus. A 15% investment allowance to incentivise capital investment is grossly inadequate given the high cost of capital and the sub-optimal infrastructure.
The pharma and urban healthcare sectors have been grossly neglected. Drugs under price control need to be exempted from taxes and excise duties to compensate for forced discounts and increased manufacturing costs. Considering that 85% of healthcare infrastructure is in the private sector, the FM would have done well to extend the allocation provided to AIIMS-like hospitals, to the private hospitals.
All in all, given the constraints and challenges, I would rate this year?s Budget at 7/10.