Consolidating growth

Consolidating growth
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First Published: Fri, Feb 26 2010. 09 49 PM IST

Milind Barve, Managing Director, HDFC Mutual Fund
Milind Barve, Managing Director, HDFC Mutual Fund
Updated: Fri, Feb 26 2010. 09 49 PM IST
Milind Barve, Managing Director, HDFC Mutual Fund
The central theme of Budget 2010-11 is consolidating on India’s growth story through a firm resolve towards a path of fiscal prudence and greater allocation to infrastructure.
The government intends to cut fiscal deficit from 6.7% of gross domestic product (GDP) in 2009-10 to 5.5% of GDP in 2010-11. The reduction has been possible through increase in revenues (higher excise duties, disinvestments, and 3G or third-generation auction) and containment of non-Plan expenditure.
Further, the government is committed to bringing down the fiscal deficit to 4.1% of GDP by 2012-13. For the first time the government is targeting to bring down its public debt to GDP ratio which, if achieved, would free up resources for the credit needs of private sector.
Continuing with its inclusive development theme, the government has increased its spending on social sector to 37% of Plan outlay. The allocation to infrastructure sector at 46% of Plan outlay would lay a foundation for achieving double-digit growth over the medium term.
The Budget highlights that the government would continue with its divestment programme and is targeting Rs40,000 crore during 2010-11. The divestment proceeds would play a key role in enhancing resources for the governments investment in productive areas such as rural infrastructure.
The budget confirmed the government’s plans to introduce the direct tax code (DTC) and implement consolidated goods and services tax (GST) system from 1 April 2011. Both these tax reform measures could prove to be game changers, as they are likely to broaden the tax base.
Concrete step: The allocation to infrastructure sector at 46% of Plan outlay would lay a foundation for achieving double-digit growth. Pradeep Gaur / Mint
The changes in income-tax slabs would result in savings of approximately Rs20,000-50,000 in the hands of individual taxpayers, which could provide a boost to consumption. This would be positive for capital expenditure by the corporate sector and further consolidate the economic growth. An additional amount of Rs20,000 has been allowed under section 80CCF towards investment in long-term infrastructure bonds, which would provide much needed long-term funding for the infrastructure sector.
As partial withdrawal of fiscal stimulus measures undertaken over last 18 months, the government increased excise duty by 2% to 10%. While maintaining service tax rate at 10%, the number of services under the tax net has been increased.
The plans to set up an apex level financial stability and development council as well as financial sector legislative reforms commission would lead to higher transparency and strengthen overall financial stability.
The commitment towards a path of fiscal consolidation is a huge positive for the Indian economy over the medium term. The increase in tax savings for individual consumers as well as commitment to reforms and inclusive development would help consolidate India’s strong domestic led growth.
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First Published: Fri, Feb 26 2010. 09 49 PM IST