Coming out of a difficult year in the global economy, the finance minister in his Budget 2010-11 has painted a fairly-poised picture of the expected way forward for the Indian economy, balancing economic growth and reducing fiscal deficit. The reinstatement of central excise duty to 10% may have some inflationary impact.
However, the need for fiscal prudence was overriding. The economic growth seems to have generated momentum with manufacturing sector growing at 18.5% in December 2009. The government also reiterated the divestment agenda with Rs 25,000 crore for the current year and plans to increase it in 2010-11 to an estimated Rs 40,000 crore. The importance of the investment flows has been recognised with the announced simplification of FDI flows which are expected to be slightly higher in the current year. There is also an emphasis on domestic savings with exemption on investments in long-term infrastructure funds, which is somewhat lower than expected.
With the thrust on financial inclusion and education the setting up of an apex-level Financial Stability and Development Council recognises the need for more banks and the role of rural banks in financially inclusive growth. Granting banking licence to private sector players and NBFCs meeting required criteria could prove to the third wave in banking after the first two waves of 1992 an 2000. The infusion of Rs 16,500 crore as tier-I capital in public sector banks also seems to have kissed goodbye to the PSBs consolidation agenda.
The contribution of the SME sector to the economy and important part it plays in financial inclusion has been reiterated by the credit support to exports and farmers. In the same vein national social security measures for the unorganised sector have been extended to the NSS fund, NREGA beneficiaries and New Pension Scheme in terms of central and state government contributions rather than the expected tax exemptions. Significant thrust in the budget seems to be on financial inclusion and extending the economic benefits to the weaker sections of society. The Budget also has balanced the various pulls and pressures of sustaining economic growth and better fiscal management keeping in mind the market expectations without making any significant policy announcements.