This budget 2010, the finance minister will have to focus on various issues to keep India on the high growth trajectory. The major agenda includes:

Infrastructure investment

The current infrastructure is simply inadequate in any area whether urban or rural, whether industrial or agricultural sector as also social sectors like education, health. It requires huge investment and needs to be stepped up significantly to allow economy to grow. On one hand, it is constraint to growth and on the other hand it is not adding to growth. Power, railways, roads, ports, housing are the key areas needing significant resources through foreign direct investment (FDI), public ? private partnerships and budget needs to take steps so that infrastructure investment gathers momentum.

Calibrated stimulus adjustment keeping growth in mind

Although fiscal prudence would be the right choice for India, we do not expect any tough measures in the financial year 2010-11 budget ? either a broad-based tax hike or a major cut in expenditure across-the-board. There are many reasons preventing the government from aggressively withdrawing stimulus measures: India?s nascent growth recovery, the recovery?s reliance on government spends, and uncertainty about the global recovery. A slow exit is anticipated.

Partial fiscal consolidation

Notwithstanding the absence of strong expenditure reduction or revenue augmenting measures, we do expect significant improvement in center?s fiscal position. Two key reasons for this would be the absence of certain one-off expenditure undertaken by the government in 2009-10 and upsides from non-tax revenues. The budgeted fiscal deficit in 2010-11 is likely to be considerably lower than the actual deficit in 2009-10. As a percentage of GDP we expect the fiscal deficit to fall by 1.6 percentage points over 2009-10 to 5.9 % in 2010-11.

Our estimates suggest that the revised numbers for 2009-10 to be published in the forthcoming budget would indicate a fiscal slippage during the year. We expect the fiscal deficit to widen by Rs 60,000 crore over the budgeted figure mainly on account of shortfall in indirect tax collection (Rs27.000 crore) and postponement of the 3G spectrum auction for which the budget 2009-10 had assumed revenue of Rs 35,000 crore. On the expenditure side, we expect the budgeted targets to be exceeded for explicit subsidies, mainly on account of Rs12,000 crore cash subsidies to the public sector oil market companies, and central plan revenue expenditure, mainly on account of widening of various welfare schemes. At the same time, expenditures on account of interest payments and defence spending are likely to fall substantially below the budgeted levels. The fall in interest payments would be mainly on account of de-sequencing and unwinding of securities issued under the Market Stabilisation Scheme (MSS).

Capital receipts from elsewhere to contain market borrowing. In line with the increase in interest differential between government?s direct mobilisation of public deposit under the national small savings scheme and the banks? fixed deposit rates, the mobilisation under the former has increased sharply in the recent months. This would help the government to fund part of the fiscal deficit without resorting to market borrowing. Government?s resolve to speed-up divestment in the public sector companies is also likely to facilitate this process. As a result, we expect around Rs 50,000 crore reduction in the net market borrowing requirement of the central government in 2010-11 over 2009-10.

Reforms in the GST, direct tax and financial sector

No major move on direct taxes likely. The draft direct tax code has already been made public the same is likely to be considered for implementation by the 2011-12 budget. In view of this, it is unlikely that any major change in direct taxes would be introduced in the current budget.

Likely selective hike in excise, customs and roll back of service taxes. Given the backdrop of falling indirect tax collections, we expect the government to partially role back some of the large cuts in indirect taxes it implemented during the global financial crisis. In the case of excise duties, they could be modest and selective, with focus on sectors that have recorded strong demand growth in 2009-10 ? automobiles, consumer durables and cement. Customs tariff role backs, on the other hand, are likely to be more across-the-board. The service tax rate that was reduced from 12% to 10% is likely to be rolled back in the 2010-11 budget. And as a precursor to the introduction of GST (goods and services tax), we expect the services tax to be extended to most services, barring a few.

GST role out likely to contain indirect tax rate hike. No official dateline for the introduction of GST is as yet announced. There is also no clear indication of the rate/slabs at which GST would be levied the central and state governments. Yet, there are widespread views that the median consolidated GST rates would be between 12% to 16% to be shared between the centre and the states. Most indirect taxes including excise would be merged with the GST. Currently, the median excise duty rate is around 8%. In view of merger of excise with GST within the next year it is unlikely that the median excise rate would be hiked to more than 10% as it would have to be rolled back again as and when GST is introduced.

The higher rate of taxation of private consumption and investment as compared to government final consumption and net exports is likely to yield higher taxes. Roll backs of service tax, customs duties and excise taxes would also boost tax collection in 2010-11 over the previous year.

Increase in FDI limits. Pre- budget relaxation in FDI limit for automatic route, from Rs 600 crore to Rs 1,200 crore, suggests that government may move ahead on FDI in insurance, retail, media sectors reforms to support the growth.

Incentives for savings and long term investments. The government seems to be keen on pension sector reforms as well as revisiting various instruments to ensure that the savers particularly the senior citizens earn reasonable inflation adjusted return as well as other citizens are encouraged to save and invest with long term orientation through institutional channels who take informed decisions and offer investment choices as per varying risk profiles of the investor in a transparent manner and at reasonable cost.

Government?s resolve towards inclusive growth is likely to keep the social expenditure, especially those targeting rural employment generation, education, health and disadvantaged sections of the population, high. In addition, in view of the prevailing security situation, spending on defence and internal security is likely to go up.

The author is the chairman and founder Anand Rathi Financial Services