Union Budget-2011-12 ----A review!

The union Economic Budget 2011-12 was a mixed bag.I would say Balanced Budget. (Though it was deviod of the bold  reform  measures  but yeah in the present economic scenario-national and international economic scenario this was expected and was rational) Some features which attracted me the most were-

-->Road map towards fiscal consolidation(quite impressive target of 4.6% if achieved )

-->Reduced market borrowing by the Government (3.43 lakh cr ) which would avoid "crowd-out" of the private investment.

-->A move towards further integration with the world economy (in terms of allowing foreign funds in Indian Mutual Fund).

-->Reforms in Infrastructure financing (30,000cr Tax free Bonds+ long term fnance (corporate debt market)+ take out financing, foreign funds allowed fr this sector with some tax exemption) ...still a long way to go to meet this infra deficit.

-->I also found the increase in salary for Anganwadi workers and helpers as a positive step.

-->Retaining indirect tax rates status quo would def boost the sentiment and give an incentive for the growth in manufacturing sector.More so this will help to harmonise the tax rates and streamline the move for GST. Also an indication of the" National Manufacturing policy "(which demands intensive discussions but definetely a progressive step)

-->Positive signals on the move towards GST and DTC(though the former requires heavy doses of cooperative federalism)

-->Also in the backdrop of the recent MFI crisis- Steps like India MFI equity fund and boost to women SHG are quite optimistic steps for meeting the needs of rural finance.

-->I felt the agriculture sector was definitely given importance in terms of policy and finance(obviously  still a long way to go)..but the earnest steps towards increasing agricultural productivity, reforms and revamp in the supply chain(warehouse n others),PPP model adoption for this, extension of green Revolution to east India, tax exemption (customs and excise duty) on certain essential segments of primary sector coupled with increase in credit allocation to 4.75  lakh cr+ 4% interest rate on agri loans +organic farming are no doubt progressive steps. Tax relief for drip irrigation instruments + stress on development of nurti cereals + fodder growth scheme+ move towards increasing production of fruits and vegetables+ treating cold storage inv n fertilizer sector inv  as a sub part of infrastructure subsector inv were essential steps to meet the supply side bottleneck for meeting Inflation problem.

-->Increase in Social sector investment by 17% to 36.4% of the gross budgetary support was no doubt the right step in right time.(however what was also impressive was that this increase was not to the extent that was in general expected and that hint that government is serious about fiscal consolidation)

-->To achieve demographic dividends-increase in allocation right from SSA(which now is related to implemetation of RTE) + vocationalization of secondary education + NKN initiative +National innovation council + most importantly for me as someone attached to economics increase in allocation to two major schools of Economics in India(DSE and MSE) made me happy that finally social science is getting its due .

-->Increase in Health allocation by 20% and expansion of RSBM to unorganized sectors for those working in the mining and the hazardous industries are imp as they ensure or at least enable a marchtowards the right to health and inclusive growth.

-->Move towards inclusive growth in terms of financial inclusion and Swabhiman scheme were eye catchers.

-->Cautious approach on the path of embarking of giving new licenses for new banks ...here am more with RBI's cautious approach Vs. Economic Survey quite flexible suggestion.

-->Increase in allocation to Rs.30 cr per district (60 districts in Maoist infested states) under integrated action front (launched in December 2010) + flexibility in this amount are important steps for meeting the challenge of an important internal security problem for the nation...obiously the threat requires much better implementation and efforts to tackle the same.

-->Stress on Green India programme, Environment  Remediation programmes and special allocation for various rivers and lakes upkeep and cleaning on the lines of NGAP was impressive and hints at the green growth move.

-->The budget hints at a move towards developing and making technology (either in the form of UID or various other e-governance programme or various innovative steps in tax reform though use of IT)an institutionally embedded part of policy implementation.Expansion of broadband services to rural India will go a long way in the changing the face of rural decentralised goverance.

-->The most imp drift and announcement was however , the shift towards the direct cash transfer(which according to me would be an Institutional delivery drift or so to say a tectonic shift in the Indian Eco history ...more so as it is dealing with such a politico-socio and eco imperative topic as subsidies)

I felt the budget 2011 was a bit more into macroeconomics

--> Less market borrowing n relation to Private investment t- a core concern .

-->Allowing Foreign inv in Mutual Fund and how it (i.e capital flow) would impact the trilemma prob.

-->Role of inflation and hence nominal terms (or growth in nominal income ) and their role in putting numbers together! That is, Inflation -->increased the revenue robustness of the govt+ a bit of contribution towards the economic growth made the economics seem a bit bullish with the deficit fig's.

-->The tax proposals like increase in duty for Branded clothes, private hospitals, dining out , air travel ----all are indications of progressive tax  and thereby moving towards reducing income inequality.

-->also the economic projections are more on the line of the LAFFER CURVE(prpounded by Arthur Laffer) -a simple sytem of taxation and reasonable rates leads to increase in revenue buoyancy.

Challenges

-->Meeting the deficit target-(last yr non revenue segment contributed a lot  in the form of  3G spectrum allocation+ disinvestment).. However, the direction seems to be on the path of optimistic moves i.e., as the discussion in post budget analysis by revenue and economic affairs secretary hints that the govt aims to provide a conducive env for industry and emphasise on implementation and maybe the returns and revenue would flow back.

-->Govt restricting its disinvestment target to Rs.40,000cr but no doubt the tax compliance has increased . Also certain segments like the tax for the IT sector which is going to lapse by the end of the year has not been  talked about --> hints that certain other taxes and hence viable revenue source may give a fillip on the revenue aspect.

Certain features of the budget and remarks which attracted me

The budget was presented in the backdrop of 3 deficits-

  Governance Deficit( which the FM at least and i feel it was good that he mentioned about the policies and steps being undertaken to reign in Black money and the five pronged approach to meet corruption charges----I felt optimistic because though they were just remarks and references yet at least that gives an impression which i believe will have a positive impact on the international and national business community as well as general masses that India as a democratic republic allows discussion and healthy participation of all --and a statement by FM in the budget on the same hints that India is taking a serious stand on wiping out this malaise).

Fiscal Deficit-(which according to projections and data seem positive)

CAD(current account deficit)- I felt this arena ..esp the ways of financing it and in  the backdrop of the unstable world economic recovery + violent political conditions in Middle East and North Africa....needed more clear guidelines.

Moreover, a lot of legislative bills were highlighted namely related to Insurance, PFRDA, SAFRESI etc ..Just hope these and various committees and GOM reports helps to fill up the blanks in the move towards reform.

I felt the Union Budget also stressed on a move towards the manufacturing led growth(obv with agri and service sector robustness).The budget estimates that the manufacturing will contribute a quarter of India's GDP over a decade(16% vs.25%) with the government betting big on the sector to power economic expansion and to create jobs for its young population. The Q3 data also gives room for hope (Farm output grew 8.9% over the year ago period ).

Disappointment

Women and child health care was not given due emphasis.

Some expectations on reform agenda as in allowing FDI in Multi brand retail etc were missed. (However, the recent initiatives of the government to start national debates on the same and inviting suggestions from all concerned do hint that steps are been taken in this direction).

Also what i had expected was that in the wake of recent reports and fall back in terms of attracting foreign investment or so to say a slight sluggishness in the field of attracting investment into the economy and loss in business confidence  --some indications  or positive signs were expected in the form of a more  dynamic and all collaborative policy indicators..which i felt were lacking. No doubt certain tax reforms were initiated but much left to be desired..

I also felt that the budget 2011-12 was a bit low on the path of bold reforms and vision !

However ,this budget was no problem budget on the tax front(though increasing MAT and bringing SEZ's in its net would be a bit worrisome)....Definetely , a bit progressive on the expenditure front (reduction in plan and non plan) . Also steps like bringing more services undr service tax net, self assesment for customs (by exporters and importers) +simplfication of tax procedures are conducive hints for the finacial health of the economy!

Most importantly, i felt its a balanced budget in terms of reformist Vs. populist. 

p.s- I was a bit excited to witness this budget as this was the first budget under India's first women finance secretary!