Under difficult circumstances, the finance minister has presented a positive and growth-oriented budget. It focuses on addressing all three macroeconomic concerns—high inflation, high current account deficit and fiscal consolidation—through small steps.

The move to keep excise duty levels unchanged, increase Plan allocation towards infrastructure investment, hike the limit for foreign institutional investor investment in corporate bonds issued by companies in the infrastructure sector, and increased allocation to the social sector indicates an attempt to sustain growth momentum.

The proposal to introduce a constitution amendment Bill to facilitate the roll-out of the goods and services tax (GST) in the current budget session of Parliament and implement the direct taxes code (DTC) from April 2012 outlines the intent towards reforms. The key would lie in effective implementation of the pronouncements made and monitoring social sector schemes.

On the flip side, the fiscal deficit target of 4.6% for 2011-12 hinges on continued buoyancy in tax collections, which may be difficult to achieve. We believe that the real gross domestic product (GDP) growth target of 9% factored in the budget is on the optimistic side. Crisil expects GDP growth to moderate to 8.3% in 2011-12.

Again, targeted inflow of Rs40,000 crore (versus Rs22,100 crore in 2010-11) from the divestment of stakes in public sector units (PSUs) hinges on the capital market staying buoyant. On the subsidy front, too, there are risks of slippages. For example, the budgeted 38% reduction in petroleum subsidies seems to be aggressive, and may necessitate further reforms on this front in the near future. Crisil believes that the fiscal deficit will settle at around 5% of GDP in 2011-12—a slippage of 40 basis points—as we expect lower tax buoyancy and lower one-off gains.

Volatility in agricultural output has left the country vulnerable to frequent bouts of food inflation. The budget has taken some baby steps towards reforms in agriculture, but more could have been done by raising allocations and initiating decisive marketing reforms to curb retail margins.

For corporate India, the budget is by and large positive. The move to leave Central excise duty unchanged would have come as a relief for corporates already facing a demand slowdown, input price pressures and higher interest rates. The reduction in the surcharge on corporate tax—from 7.5% to 5%—partly neutralizes the increase in the minimum alternate tax (MAT) rate from 18% to 18.5%. Information technology (IT) companies though, especially mid-size players, would be adversely affected by the non-extension of tax benefits available under the software technology parks of India scheme and the move to levy MAT on units operating in special economic zones (SEZs).

Individual taxpayers would have hoped for more than the slight increase in minimum taxable income to Rs1.8 lakh per annum.

In sum, the finance minister has done a good job of balancing growth and fiscal considerations. Meeting the fiscal deficit targets would be tough, as it hinges on continued revenue buoyancy, substantial inflow from divestment of government stake in PSUs, and control over the subsidy burden.