Budget,a watershed on the macro front

The finance minister has done a remarkable job in his comeback stint at North Block.

The finance minister has done a remarkable job in his comeback stint at North Block. The prevailing macroeconomic imbalance in the economy and strong global headwinds didnt allow him much elbow room. Despite the constraints,he has not only stayed within his macroeconomic priorities but presented a realistic Budget.

Social sector investment has clearly been given a big boost,with significant increase in outlays for human resources development,health and welfare programmes. Focus on education and skill development will help maintain long-term supply of skilled manpower. Increased outlays for agriculture by 22 per cent and rural development by 46 per cent over Revised Estimates 2012-13 clearly augur well for the rural sector. This will support the inclusive growth agenda of the government.

Infrastructure has rightly been given enhanced attention with introduction of new funding mechanisms. Not only is there a firm commitment to award road projects worth Rs 3,000 crore in the first six months itself,the finance minister has also dwelt extensively on other new projects like industrial corridors and ports.

Insurance too has received major encouragement. Liberalising branch openings in tier-II cities and below and mandating the opening of branches in 10,000 plus population towns by public sector insurers and allowing banks to act as brokers for insurance companies will certainly help increase penetration.

On the taxation front,increase in surcharge on corporate tax and income tax assesses in the Rs 1 crore plus bracket may raise few eyebrows. But one must appreciate the fact that the finance minister had a difficult job to do in a slowing economy as far as his tax revenue targets were concerned. He was clearly under an obligation to increase tax-GDP ratio in the economy.

Industry hopes that commitment by the finance minister that the surcharge is only for a year will be honoured. However,the fact that the income tax rates have largely remained unchanged will come as a relief to most tax payers. The introduction of Voluntary Compliance Encouragement Scheme for service tax assesses will help broaden the tax base. With provisioning of Rs 9,000 crore towards CST compensation for states,there is a clear statement of intent to introduce the GST.

On the macroeconomic front,the current Budget could prove a watershed. The economy can finally make a move towards our long-term FRBM target of keeping fiscal deficit at 3 per cent of GDP by 2016-17.