'Budget directly addresses core issues'

What puzzled the street was that the Budget was conspicuously silent on giving the big picture on broader issues of interest, despite the fact that the Economic Survey, released last Thursday, was very vivid on most issues. The real surprise was that there was neither a clear road map for PSU disinvestment nor reforms agenda for key sectors.

The gut feeling is that reforms on the broader issue of liberalisation agenda may have to wait a while. The Finance Minister may be right in being cautious as the current global negative events are to do with unregulated free market. The government may want to have a firm relook at various regulatory and control issues before reforms are firmed up for implementation.

No direct sops

What instantly belied the market was, besides expected policy directions in various segments such as FDI, nuclear power, pension, retail, subsidies etc, there was absolutely no direct concession to the corporate entities as a whole. Besides, the street was demanding removal of STT and DDT, but this exemption was given only to investment made by proposed new pension funds. However, in my opinion, there is a very clear direction in the Budget.

Budget: Don't expect drastic changes

It has directly addressed the core issues that can directly impact economic growth - that is generating domestic demand through inclusive growth. It has already been under stress after two stimulus packages and so the additional resource it can committee at this juncture is also limited. As expected, the Budget spelt continuity. The policy intent and direction was in line with the previous two stimulus package and the vote-on-account Budget - that is energising domestic consumption through generating demands at the bottom of the pyramid.

Additional outlay

There is an additional outlay of Rs 40000 crore in the central budget and the states will be allowed to spend another Rs 21000 crore through increase in their deficit spending limits. This additional spending was targeted at generating purchasing power amoung urban and rural marginalised populous. Rural and urban low-cost housing, social infrastructure, rural roads, irrigation, communication etc were given additional thrust, mainly through the recent successfully programmes such as NREGA, Bharath Nirman and JNURI. Interest subvention for agriculture credit (7%) extended and additional one percentage concession for those who are prompt in repayment (6%). An amount of Rs 2000 crore has been allocated to NHB for providing refinance for rural housing projects. A similar additional allocation is made for National Rural Health Mission.

Raising funds

In addition to inclusive growth, the Budget proposal also reiterated its commitment to speed up major infrastructure projects through IIFCL which has been given the flexibility to use commercial bank funding through take out financing model. IIFCL is expected to generate credit availability of Rs 1,00,000 crore in 12-18 months.

All relief measures provided for stressed employment generating export sector, including interest subvention facilities, have been extended for six months up to March 2010. MSME sector will get an additional facility to the extent of Rs 4000 crore through SIDBI. Three more textile clusters to be set up, give a flip to this sector.

Setting up facilities for higher education also received an additional allocation Rs 2000 crore. There was also a proposal for interest subsidy on education loans for students from the weaker section. Empowering rural women through self-help groups got a thrust. Proposed social security scheme for informal sector (which employs 92% of the workforce) employees.

Tax relief

The biggest tax relief was removal of 10% surcharge on individual income tax and FBT while the most negative tax proposal is increasing MAT to 15% from 10% while no other tax concession was provided to the corporate sector. Even the surcharge was not removed on corporate tax. Individual tax payers also received another token relief in the form of Rs, 10,000 increase in the taxable income limit.

Fiscal deficit

Central fiscal deficit has been enhanced to 6.8% of GDP from 6.2% present in the vote on account. States' limit for fiscal deficit has been enhanced to 4% from 3.75%. It means gross fiscal deficit is moving into double digit level. Many feel that it is at unmanageable level.

But, in my opinion, when nominal GDP is growing at 12% plus, less than one time leverage on future income is well under control. But this additional demand on the available funds from the government should keep the pressure on interest rate, against the government will.

The author is an economist, financial and capital market analyst with over 30 years of experience in various aspects of the financial services industry and journalism.

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