Budget 2009-10 was presented against a backdrop of relative political stability and continuing economic uncertainty. Both expectations and challenges from the Budget were enormous, given that measures to stimulate growth had to be weighed against their impact on the burgeoning fiscal deficit.
The overarching priority has been on reviving growth and promoting inclusive development, with a focus on stepping up investments in the infrastructure and social sectors. Thus, outlays on various social sector schemes, such as the National Rural Employment Guarantee Scheme, have been increased substantially.
Pros, cons: Icra senior vice-president Anjan Ghosh.
Emphasis has been placed on infrastructure development, with increased allocation for roads, highways, urban infrastructure and power, though increase in minimum alternate tax rates is a clear negative, even after accounting for the extension in tax credit period. The proposal for India Infrastructure Finance Co. Ltd to refinance up to 60% of loans extended by commercial banks for public-private partnership projects, as well as evolving a mechanism for “take-out” financing is a positive for financing infrastructure projects.
The manner in which the additional expenditure will be offset by increased revenue mobilization remains a matter of concern. The changes in direct and indirect tax rates are expected to result in a mere 2% increase in tax revenues relative to the revised estimates for 2008-09. In addition, the government’s capital receipts from disinvestment are estimated at only Rs1,120 crore. While a slippage in the deficits compared with the interim budget estimates was perhaps unavoidable, it was expected that the Budget would indicate a clear road map towards fiscal consolidation.
Additionally, states have been permitted to incur a fiscal deficit of up to 4% of gross state domestic product (GSDP), higher than both the initial target of 3% set under the debt consolidation and relief facility and the relaxed target of 3.5% of GSDP announced earlier. The combination of higher deficits and, therefore, higher borrowing programmes of the Centre and state governments is likely to result in some upward pressure on bond yields and negatively affect the banking sector.
ICRA, leading indian rating agency and an affiliate/associate of Moody’s Investor Services, partnered with Mint to analyse the impact of the budget on industry.
The Budget has met expectations with respect to areas such as abolition of fringe benefit tax, extension of tax holidays for the information technology (IT) and IT-enabled services sectors and tax holiday on production of natural gas from new exploration licensing policy (Nelp) blocks. A reaffirmation of the deadline for introduction of the proposed goods and services tax at 1 April is another positive.
The biggest disappointment in the Budget is clearly the lack of policy announcements on the expected big-ticket reforms, especially with respect to foreign direct investment limits, financial sector reforms, and opening up the coal sector to private participation and disinvestment.
Anjan Ghosh is senior vice-president, Icra Ltd.