The Union Budget 2011-12 certainly meets expectations, whether in terms of macroeconomic performance of the Indian economy, policy measures and taxation. The Budget addresses the key issues that have governed the ongoing financial year and looks to make progress on some stagnant, highly debated issues. One of the positive aspects of the Budget is that the fiscal deficit has been pegged at a lower level of 4.6 per cent, in a bid to align the economy's performance with the fiscal consolidation path. With a controlled borrowing program we may expect high interest rate levels, but this may not have any major negative consequences. Furthermore, public issues by Central PSUs and the disinvestment program have met with considerable success in FY-11 so far. The retention of a disinvestment target of Rs 40,000 crore in FY12 seems realistic.
For individuals and corporates
Individuals and corporates are both set to benefit from this budget. Industry shall witness lower surcharge on domestic firms, the same being reduced from 7.5 per cent to 5 per cent; MAT being increased 50 bps to 18.5 per cent.
Most excise and customs duties and service taxes have been retained at the same levels as last year, thus resource mobilisation through taxation has not been a priority this year. The increase in exemption limits to Rs 1.8 lakh and the extension of deduction of Rs 20,000 investment in long-term infrastructure bonds are sweeteners at the level of individual tax payers who have been negatively impacted by accelerating inflation this year.
The promotion of foreign investor participation, especially in the funding of infrastructure is essential. The increase of FII limit to US $25 million and the reduction of withholding tax on Infrastructure Debt Funds will strengthen fund flows in this sector. This is bound to positively impact the funding of economic activity in the country through the expansion of the debt market.
(The author is MD and CEO of CARE Ratings.)