Expect growth marked by macroeconomic stability

Siddhartha Roy

Economic Advisor - Tata Group

The Union Budget is intended to take the economy to a higher growth trajectory at a time marked by macroeconomic stability. Currently, CPI inflation is around 5.1%, current account deficit is veering around 1.9% of GDP, and fiscal deficit has been contained at 4.15% of GDP.

The question is not whether one could have presented a bolder budget but do we have a budget and economic policy roadmap that focuses on sustainable growth over the medium term. Secondly, will it encourage investment and revive business sentiment, will it facilitate employment growth. Thirdly, can the vision be politically managed?

So far as investment is concerned there are several welcome initiatives, direct investment in infrastructure is supposed to go up by Rs.70,000 crores or around $ 11.5 bn. Given the fact the multiplier effect of this type of capital expenditure is above two, this will have a significant positive impact on income growth. The creation of national investment and infrastructure fund (NIIF) with an annual flow of Rs.20,000 crores, introduction of tax free infrastructure bonds, corporatisation of ports are other positive moves. The introduction of plus and play mode for five ultra-mega power projects is an interesting idea. It is clearly recognized that public sector will have to be the immediate driver for the infrastructure sector, the entire PPP concept needs some refurbishing. The budget also provides for the conversion of existing excise duty on petrol and diesel to the extent of rupee four per litre into road cess to investment in road and related infrastructure. This is indeed a very pragmatic step and would provide Rs.40,000 crores for this sector.

The move towards predictability of tax structure, particularly attempt to reduce corporate tax rate to 25% over a period of four years along with reduction in exemptions, introduction of non-adversarial tax regime, postponement of GAAR by two years, necessary clarification on taxation of REITs, a credible timeframe for the introduction of GST, increasing threshold limit for domestic transfer pricing and reduction of taxes on technology related fees to 10% would go a long way in improving the ease of doing business. Removal of wealth tax which did not add much to the coffers is largely welcomed. Possibly, reduction of MAT for SEZ could have been considered in the context of encouraging make in India, this expectation has not been met. On the whole, steps taken would go a long way in improving business sentiments and encourage both Indian and foreign investment.

From the point of view of political economy the budget needs to balance the interests of diverse stakeholders coming from different socio-economic groups. The focus on housing in both urban and rural areas, disbursement of subsidies sans leakages by contacting direct beneficiaries, introduction of insurance and health care schemes, MUDRA Bank are important socio-economic measures. The financial support for micro enterprises will help in generating new employment. Another thrust of the budget is to provide the necessary financial wherewithal for the new entrepreneurs, this is being done through the incubation support provided for start-up businesses.