An interim budget, presented days before the general elections, has limited scope. Nevertheless, Mr Chidambaram’s ninth budget speech showed yet again that he has his pulse on the most pressing issues. He has rightly acknowledged the deceleration in investment in manufacturing as a key problem area; and has announced excise cuts on capital goods, consumer nondurables and automobiles, to aid recovery in investments and consumption.
Three new industrial corridors are under planning and a few investment and manufacturing zones have been approved. The FM also said that all central and state taxes that go into an exported product should be waived or rebated. That a country should not export taxes is a well-regarded principle; India must strive to remove the remaining irritants to ensure that we follow this principle in toto.
A substantial capital infusion has been proposed in public sector banks, which would enhance their capacity for credit expansion in the face of rising concern over non-performing assets. The Cabinet Committee on Investment and the Project Monitoring Group are also trying their best to unlock stalled projects. With all these measures, I hope that we will see the Indian growth story regain its flair gradually, even though the global macroeconomic uncertainties persist.
Another assuring aspect of the budget speech was the achievement of the fiscal deficit target for FY14, even though it was partly on account of compression of the Plan expenditure. Non-Plan expenditure for the year is estimated to overshoot the budget target, suggesting that the expenditure mix has worsened. However, what is important is that the macroeconomic instability and the probable crisis that India was staring at just a few quarters back, has been averted with corrective trends in both fiscal deficit and current account deficit.
The FM intends to stay on the path of fiscal consolidation next year too, reducing the fiscal deficit to 4.1% of GDP. Next year’s target is despite providing 10% additional funds for defence and making the provision for implementation of the Food Security Act.
The fiscal consolidation strategy envisages cutting down fiscal deficit to 3% of GDP by 2016-17. The formation of a Public Debt Management Agency will be an important step in this journey. The FM reported that 57 crore Aadhaar cards have been issued so far and that the rollout of the Direct Benefit Transfer (DBT) scheme is in progress. The numbers pertaining to the DBT scheme may not sound too large at the moment, but this scheme — if it becomes successful — will be a breakthrough in ensuring that subsidies reach the targeted beneficiaries, resulting in better welfare outcomes as well as fiscal outcomes.
In the area of social sector initiatives, there is a continuation of the thrust given in the last budget; this is welcome. The National Skills Development programme has been strengthened. This programme is a key component of the strategy to ensure that India’s demographic dividend is encashed in the best possible manner.
Setting up of a Research Funding Organization will also help enhance the flow of funds into scientific research projects. It is heartening to note that various measures have been proposed to deepen the Indian financial markets. This includes liberalisation of the rupeedenominated corporate bond market and strengthening of the currency derivatives market that will help companies manage their exchange rate risks more comprehensively.