By: Rana Kapoor
The Union Budget makes a fervent pitch for attaining a balance by creating growth, preserving an ideal level of fiscal deficit of 4.1 per cent and destroying (supply side) inflation.
The Budget has created significant growth enablers, including the ‘Rurban’ push through allocations for 100 smart cities, Rs 50,000 crore support for municipal debt management for infrastructure and ‘Ease of Doing Business’ by relaxing limits for FDI in key sectors like defence and insurance.
Further, the Budget displays long-term focus on harnessing human capital through Skill India, a national multi-skill programme on employability and entrepreneur skills along with expansion of centres of excellence like the AIIMS, IIMs and IITs.
The Budget has emphasised preserving savings for investment and fiscal balance. The Budget stresses on the path of fiscal consolidation, with the objective of reaching the milestone of 3 per cent fiscal deficit by FY17. Besides consolidation, the quality of adjustment has improved with subsidy expenditure reigned in at 2 per cent of GDP, down from 2.3 per cent in FY14 and capital expenditure increasing to 1.8 per cent of GDP, up from 1.7 per cent in FY14.
In addition, adequate incentive has been provided for incentivising financial savings by relaxing the slab for income tax by Rs 50,000, exempting resources raised by banks for long term infrastructure from regulatory pre-emption, extension of withholding tax for bonds and streamlining of KYC data across the financial sector. With improvement in economic growth, this will enable the Savings Ratio to move towards 32-33 per cent, from 30.1 per cent in FY13.
On the Inflation control and management front, the creation of a Price Stabilisation Fund to mitigate near term food price risks is a laudable initiative. In addition, to accelerate setting up of a National Market, the finance minister has pointed out that the Centre will work in coordination with states to re-orient their respective APMC Acts.
Refraining from populist announcements, the Budget rightly focuses on jumpstarting investments by focusing on infrastructure and manufacturing revival. In my opinion, the Budget will enable GDP growth to move above 5.5 per cent in the current year, up from 4.7 per cent in FY14. Further, by addressing near term pressure on food inflation by upping incentives to invest in agriculture along with creation of a Price Stabilisation Fund, the Budget will contribute significantly towards RBI meeting its CPI inflation target of 8 per cent in January 2015, thereby creating room for the central bank to ease policy rates sooner than expected.
The writer is CEO & MD, Yes Bank and Assocham president