Given the current economic and political environment, it was expected that the FM would need to do some tightrope walking and major economic reforms would certainly have been difficult to carry through. There was need to improve the tax-GDP ratio while ensuring that it does not hurt growth or spur inflation.
One good thing about this year’s budget is that it looks more credible and realistic. There is a genuine intent and effort to boost revenues by hiking services tax and excise duty rates by 2% (from 10% to 12%). Subsidy management is likely to improve with reduction in pilferage through direct credit to end users’ account. GDP is expected to be around 7.60% in FY13 which is again realistic looking at the current year’s growth. Disinvestment target of Rs 30.000 crore is realistic and achievable.
The accent of the budget was on agriculture and infrastructure growth, which in the long run are likely to augur well for the economic growth of the country. Interesting reforms were introduced to boost the flow of both domestic and foreign money towards the capital markets. The deepening of the market along with expected fund flows is again likely to augur well for the growth of industry. Introduction of Rajiv Gandhi Equity Savings Scheme and reduction of STT will aid in broad basing of the equity markets and reduction of transaction costs. Important steps were suggested for improvement of corporate governance standards in the country, with the use of technology.
The impact of direct tax proposals on individuals will at best be moderate. The extension of service tax to more services and the hike in excise and service tax would have inflationary impact that could delay the monetary easing process.
For banks, few things stand out. The exemption of upto Rs 10,000 on income earned as interest on savings bank accounts, and interest subvention to farmers who are prompt in repayments. Both are likely to have a positive impact on the retail customers of the banks. The proposed credit guarantee fund for educational loan will give a modicum of relief to bankers. The Budget also proposed to have a central depository for storage of KYC details. It was also mentioned that subsidies will be directly credited to the beneficiary’s Bank accounts. This, coupled with PDS being linked to Aadhaar card will help in making the financial Inclusion drive more inclusive.
For the MSME segment, the move to exempt capital gains on sale of residential property for investment in the business would give a boost to the spirit of entrepreneurship. The view was echoed by businessmen and members of CII with whom I had a chat on the budget proposals. Affordable housing will also get a fillip from this year’s budget.
I was expecting more clarity on the roadmap to DTC/ GST and structural changes towards fiscal consolidation and am yet not sure if the measures will all trigger the much desired economic activity. One hopes that we will get answers soon.
Shyam Srinivasan is Managing Director & Chief Executive Officer, Federal Bank
