The finance minister has done a remarkable job in his comeback stint in North Block. The prevailing macro-economic imbalance in the economy and strong global headwinds didn?t allow him much elbow room. Despite the constraints, not only has he stayed within his macro-economic priorities but presented a realistic budget.
Social sector investment has clearly been given a big boost, with significant increase in outlays for HRD, health and welfare programmes. Focus on education and skill development will help maintain long-term supply of skilled manpower to the economy. Increased outlays for agriculture by 22% and rural development by 46% over RE 2012-13 clearly augur well for the rural sector. This will support the inclusive growth agenda of the government.
Infrastructure has rightly been given enhanced attention with the introduction of new funding mechanisms. Not only there is a firm commitment to award road projects worth R3,000 crore in the first six months itself, the FM has dwelt extensively on other new projects like industrial corridors and ports.
Insurance too has received major encouragement.
Liberalising branch openings in tier-2 cities and below, and mandating opening of branches in 10,000-plus population towns by PSU insurers ? both life insurance and general insurance ? and allowing banks to act as brokers for insurance companies will certainly help increase penetration of insurance in the country.
On the taxation front, the increase in surcharge on corporate tax and income tax assesses in the R1-crore-plus bracket may raise few eyebrows. But one must appreciate the fact that the FM had a difficult job to do in a slowing economy as far as his tax revenue targets were concerned. He was clearly under an obligation to increase the tax-GDP ratio. Industry hopes that the FM?s commitment that the surcharge is only for a year will be honoured.
However, the fact that the income tax rates have largely remained unchanged will come as a relief to a majority of taxpayers. The introduction of a voluntary compliance encouragement scheme for service tax assesses will certainly help broaden the tax base. With provisioning of R9,000 crore towards central sales tax compensation for states, there is a clear statement of intent to introduce the goods and services tax, though no timeline has been set.
On the macro-economic front, the current Budget could prove a watershed. The FM has done well to control fiscal deficit at 4.6% of GDP. The economy can finally make a move towards our long-term FRBM target of keeping the fiscal deficit at 3% of GDP by 2016-17.