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Bracing the economy for resurgence, without stoking inflation flames

The revival of the investment and business sentiments holds the key to stimulating the GDP growth.

New Delhi | Published: July 11, 2014 1:24:47 am

CS Verma

The Budget aims at bracing the economy and pushing growth, without stoking the flames of inflation. While keeping the fiscal deficit in check, the GDP growth rate is to be lifted to 7- 8% in the next 3-4 years.

Against a challenging and often conflicting set of objectives for the current fiscal, the FM has done an excellent balancing act. Fiscal deficit, targeted at 4.1%, has a fair degree of challenge, especially with the limited scope to cut subsidies — particularly in food and fertiliser in the backdrop of a possible “rain deficit”, caused by El Nino with its attendant implication on agriculture. The government has come out with a number of complementary measures, addressing the supply-side constraints in the farm sector, including creation of Rs 500  crore price stabilisation funds. A new urea policy is on the cards. The FM is targeting for fiscal deficit to be brought down to 3% by 2016-17.

The revival of the investment and business sentiments holds the key to stimulating the GDP growth. The measures announced for reviving the manufacturing sector are encouraging as these should bring back investments, and also help in better utilisation of capacities on ground. Easing of the FDI limit in defence will further improve the overall investment climate as it opens up new avenues for indigenisation and value addition in defence equipment manufacturing. The renewed focus on infrastructure — development of smart cities, ports, Pradhan Mantri Gram Sadak Yojana, power plants, plan for doubling pipeline grid, Metro for tier-2 cities, industrial corridor, incentives for housing, and revival of SEZ etc —  will go a long way in further consolidating growth, giving a fillip to sectors such as steel which has faced stagnant demand of late. Incentives for SMEs in terms of investment allowance, creating venture capital fund for start-ups will encourage entrepreneurship.

India’s tax-GDP ratio is one of the lowest in the world. Raising this ratio is imperative for fiscal consolidation. While the solution is in the implementation of the goods and services tax, increasing the efficiency of tax administration and simplifying the tax base can provide immediate gains.

For the steel sector, the increase in customs duty for stainless steel will provide the requisite protection at a time when the demand has slackened. Other measures, such as reduction in customs duty for steel grade limestone and dolomite as well as ships for breaking, should also help the industry. The proposal for inland navigation from Allahabad to Haldia will facilitate bulk transportation. However, the industry, particularly the integrated steel sector, will be impacted by customs duty on coking coal to 2.5%. The suggested new MMDR Act would be looked at with anticipation.  The industry expects that while rationalising the royalty rate for minerals, the government keeps in mind the rates in other countries as minerals provide competitiveness to the domestic metal industries.

The writer is chairman, Sail

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