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'Realistic budget to pep up the economy'

My first feel is that this is a good Budget—realistic, mature and well thought-out to tackle some of the tough economic threats confronting by our country. The finance minister has presented a

Published: 18th March 2012 11:06 PM  |   Last Updated: 16th May 2012 06:38 PM   |  A+A-

My first feel is that this is a good Budget—realistic, mature and well thought-out to tackle some of the tough economic threats confronting by our country. The finance minister has presented a Budget which should pep up the economy that has of late slowed down to critical sectoral imbalances. Rightly, the minister has given special attention to the power sector and coal, needing an expeditious expansion.

The `10,000-crore tax free bonds for the power sector, exemption of thermal power companies from tax for two years, the extension of sunset clause as also the facilities for coal mining with exemption from customs duty on machinery for mining and on imported coal, will speed-up development of new power generating capacities, as also improvement in the plant load factor.

In power development, solar energy has a special advantage for India and it is possible that about 20 per cent of power requirement can come from solar energy for which the finance minister has given facilities by way of exemption of equipment from custom duties.

The minister has been only too aware of the burden of subsidies on food, fertilizers and petroleum products. He has recognized the need and therefore, suggested steps to ensure that subsidies are leakage proof and will not exceed 1.7 per ecnt of GDP next year.

 The minister reduced the incidence of income-tax for individuals by raising the exemption limit as also by changing the income slabs, apart from giving the tax benefit to savings. Similarly, the reduction in withholding tax will give stimulus to a number of infrastructure activities.

 The widening of the base for services taxation with a negative list of 17 socially desirable services is a rational approach. The increase in service tax along with increase in excise duty from 10 to 12 per cent will certainly raise prices correspondingly all round. However, this measure is a better alternative to a higher budget deficit which, in spite of the additional revenue of `41,000 crore, is estimated to be 5.1 per cent in 2012-13.

The finance minister has recognized that export growth has slowed down because of the recession in Europe. International competition has become more aggressive and countries which provide incentives to exports are able to score. The Economy Survey underlines that export is an important driver of the economy. However, the Budget does not give enough attention to incentivise export.  

The increase in fiscal deficit has taken place precisely because growth in 2011-12 fell short of the expectations of the finance minister. This fall in growth came largely from the drop in investment demand induced by the increase in the rate of interest. It is important that the RBI reduces the repo rate so that investment picks up, revitalizing growth and, with that, the tax revenues of the government. That by itself will reduce fiscal deficit.

The Budget is not merely an economic instrument but also a policy initiative. It is appreciated that there was little political space for the finance minister to announce the major policy reforms that were called for. Even so, the Vudget was a good occasion to announce foreign direct investment in multi-brand retail.

The Economic Survey had also made specific reference to the need to have foreign direct investment in retail since this would assure better prices for the farmer and also bring down recession. The finance minister has indicated that the proposal is under consideration and it is hoped that early announcement will be made.



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