At the current, challenging juncture of the Indian growth experience, industry expected two things from the Budget - first, the fiscal deficit to be maintained and second, continuity and stability in the tax structure. Both these expectations have been largely met in the Budget.
Fiscal prudence is critical to the task of revival of GDP growth. At the halfway mark of this fiscal year, an unchecked fiscal situation was threatening to overwhelm other macroeconomic indicators. It is a creditable achievement that, as per revised estimates for 2012-13, the fiscal deficit is expected to come in at below the target at 5.2 per cent. Severe expenditure compression was called for, and undertaken in a responsible manner. With the final figure under check, we can expect a moderation in inflation, followed by lower interest rates from the RBI, and consequently, an impetus to private sector investment and GDP growth in the coming year. Importantly, commitment to fiscal prudence has been established and would add comfort to investors.
The finance minister also unequivocally highlighted growth as the single most important objective, identified the current account deficit as a major concern, and stressed the importance of overseas funds to the economy. These statements in our view reiterate the government's commitment to reforms, and we believe that outside of the Budget, we can see further determined action during the course of the coming year on multiple fronts, as have been announced over the previous few months.
On the revenue side, the estimated inflows appear somewhat optimistic - especially the disinvestment target, which is larger than ever before. But they are credible under best circumstances, and we should hope that with a growth uptick, they could be met. On the expenditure side, the jump in spending is large, and Plan outlays have been boosted over revised estimates by almost 30 per cent. The outlay for the proposed food security bill too is moderate at Rs 10,000 crores, realistic since the legislative and administrative processes would take time. The revenue deficit is still elevated, but lack of funds for public capital expenditure should incentivise enlarged private sector participation.
Further, on the macroeconomic front, key announcements have been made to revive both savings and investments as growth drivers. In particular, household financial savings have been addressed in a bid to encourage higher savings as well as to divert attention from gold as a savings instrument. The decision to introduce inflation-indexed financial instruments will bring comfort to households battling higher prices and should be quickly introduced.
Investments in both infrastructure and manufacturing would be key to growth. New investments are being offered an allowance of 15 per cent for two years. This should encourage industry to re-examine the financial viability of projects and bring shelved projects back on the table.
The Budget emphasises industrial corridors, which are emerging as game-changers for manufacturing and also exports. The Delhi-Mumbai Industrial Corridor is in a fairly advanced stage of implementation and will transform the manufacturing landscape in the western region. The Budget assures necessary funds for quick implementation of this as well as two other such projects. The two ports and inland waterways too are welcome. But more was required on increasing private sector participation, which is expected to contribute a substantial proportion of infrastructure funds in the 12th Plan. Much of the action on infrastructure is outside the scope of a financial document, and we hope that the reiterated commitment to the sector accompanied by determined action through the Cabinet Committee on Investments and an opening of access to finance would impart impetus to new projects.
Industry is particularly pleased that the issue of MSME expansion has been addressed for the first time, first in the Economic Survey which pointed out that regulatory and incentival structures do not encourage growth of small units, and secondly, in the Budget, where non-tax benefits to MSME graduating out of the class will be retained for three years. Encouragement to SME stock exchange listing and factoring also meets the requirements of industry.
Stability in the tax rates was fundamental to restoring business confidence. The Budget desists from meeting expenditure compulsions through added burden on the tax front, retaining the excise and service tax rates. Similarly, the restraint on the so-called super-rich tax is noteworthy for its limited coverage. The threshold for surcharge on corporate taxes, however, is set too low at Rs 10 crore taxable income. We would urge the FM to raise the floor for surcharge.
In the final analysis, what was required at this stage was a sober, responsible financial statement, accompanied by reformist policy intentions. We feel that the Budget, by avoiding big-bang announcements that may or may not have been credible, serves to boost investor confidence. Industry looks forward to policy announcements for further improving the business climate in the coming year.