The Budget appears more grounded in reality this time with credible fiscal numbers driven by increase in taxes as well as rationalisation in subsidy.
The thrust on reviving manufacturing sector output, expanding infrastructure and skill development, along with efforts to raise agricultural productivity will help support higher GDP growth and employment, which the Budget is aiming to achieve next year.
Keeping the fiscal deficit down in FY'13 to 5.1 per cent and further to 4.1 per cent in FY14, and 3.9 per cent in FY15, against 5.9 per cent in FY'12, appears to be quite realistic.
The market was expecting some increase in the borrowing programme and is pleasantly surprised by the market borrowing of only Rs 4.73 lakh crore indicated in the Budget (against Rs 5.1 lakh crore raised in FY12), which may be easily absorbed by the market.
What adds to the credibility of the entire exercise is that the lower deficit target is backed by actions to raise revenues, particularly through tax measures, while rationalising expenditure on subsidy, though of course we will have to wait to see exactly how the expenditure on subsidies is brought down to 2 per cent of GDP from 2.4 per cent in FY12.
There appears to be a realisation that key sectors need to be supported in order to incentivise bank lending. Accordingly, an education guarantee fund to ensure enhanced credit flow for students, a skill guarantee fund to improve the flow of funds for skill development, a credit guarantee trust fund for affordable housing, and a Rs 5,000 crore venture fund for micro, small and medium enterprises have been announced in the Budget.
Along with agriculture and rural development, the Budget has focused on infrastructure, manufacturing, housing, education and financial inclusion, which will help the flow of bank credit for these key sectors.
Stepping up output
The steps to increase production in the economy and ease access to funding especially through the ECB route will give a fillip to industry.
The addition of more sectors under the viability gap scheme is welcome as it will ncourage private sector participation in infrastructure..
Despite these measures, there is some disappointment that the DTC and GST have still not been operationalised and we are yet to see a move towards greater deregulation of fuel subsidies. While the Budget has not been populist, it has perhaps missed an opportunity to push for bold economic reforms.
(The author is General Manager and Head, Economic Research, State Bank of India.)