Allow me to assert at the
outset that this budget is far more visionary than it actually looks. I will
try not getting into a debate of any kind; to ensure beforehand I have no
intentions of rating this budget as “Good, bad or ugly”. Having made my
intentions clear, it makes for an interesting discussion on how this budget is
a smart move, considering 2014 (Read: elections) is just a stone’s throw away.
Our economy has taken a hit
from the cold winds of the west; investments have been low, supplemented by
zooming inflation that has resulted in lowest rate of GDP growth we have seen
in the last decade or so. If that was not all UPA had little support from RBI,
and rightly so taking inflation into account. It was a clear stand from RBI- tackle
inflation, and until then let’s not think about tinkering with bank rates.
Amid such hullabaloo arrived
the budget session, and the ball was in PC’s (Read: Palaniappan Chidambaram)
court. There was little margin for error and it seems PC endorsed the view- “when
it gets complicated, stick to the basics”.
Deficit management and
reinstating fiscal discipline were at the top of PC’s agenda. PC assured fiscal
deficit (total
expenditure-{revenue receipts + recoveries of loan + other receipts}) shall be restricted
to 5.3% of GDP this year, further declaring 4.8% as next year’s target. Spontaneous
question now is- how credible is this target? Well PC managed to bring down
fiscal deficit this year to 5.3% where most analysts claimed that it would be
impossible to slip below 5.8%. On face value it seems PC has played a
masterstroke by imposing a 10% surcharge (temporary) on taxable income of over
Rs 1 Cr. 4.8% target looks more than pragmatic. New tax is estimated to raise
Rs 18,000 Cr.
Applauding the robustness of
capital market regulations, PC has simplified norms for foreign institutional
investors (FIIs) at entry level. Foreign direct investment will further act as
a life saver and a supplement in tackling the widening gap between exports and
imports. It shall help restore our current account deficit to acceptable
standards.
While we are still unaware of
the effectiveness of effective revenue deficit (revenue
deficit-grants for creation of capital assets), on
papers it definitely slipped to 3.3% of revenue deficit (revenue expenditure-revenue receipts) to 1.8% as effective revenue
deficit. Thanks to the troubleshooter Mr. Mukherjee who introduced this all
together new term in Indian economy.
The above measures are clearly
in the direction of netting inflation by the end of this year. If we see
closely fiscal deficit, revenue deficit and current account deficit have direct
association with inflation. Inflation moves in the same direction as these
deficits on the parallel path, and this budget’s impact might just start to
show up as 2014 arrives.
Discussed measures shall
help bring down inflation; in return UPA will have RBI’s support with liberal
bank rates inducing a better investment environment providing much needed fuel for
GDP growth. However, intentions have been made clear for a better investment
environment by providing 15% allowance for investments over Rs 100 Cr.
Having discussed the core
economic side and its possible effects, PC had something in store as a women’s
bank to woo women and not to forget the “Nirbhaya fund”, Rs 90000 Cr. Allocation
to food security bill is being considered as a welcome move, smokers have a
higher price tag on their addiction while luxury cars may now have an elevated
snob appeal (apologies if I sound diplomatically incorrect). These measures
will surely hit the bull’s eye of social target.
As expected mobile phones
will cost more, which now more or less draws a vertical curve on the demand
graph considering mobile phones are a necessity these days.
While the debates are on
over how good, bad or ugly this budget is, UPA clearly has a sorted out path leading
them to 2014. The major economic crack of inflation and inadequate investment
which has been dampening growth has been looked into, and social buttons have
been turned on at the right time. These measures might just restore our economy
in time and come the monsoon session, PC will be ready with the GST (goods and
services tax) turbo-booster, which is expected to change the face of India’s
supply chain.
