I believe instead of making big promises, the Finance Minister has delivered on specific measures in the Budget.
What probably can really set growth on track is if the RBI cuts its repo rate in April.
If the FY13 GDP growth gets back on track at 7.6 per cent, inflation eases to 5-6 per cent, the percentage of fiscal deficit to GDP corrects to 5.1 per cent, the total subsidy bill is kept in check at 2 per cent of GDP for FY13, and the Government contributes to growth with a 20 per cent hike in Plan expenditure, it will have a very positive impact for Indian investors.
Excise duty and service tax have been raised 2 per cent across the board. The service tax net has been widened to exclude only a small negative list.
Thus, on account of indirect tax, the Budget builds in a revenue gain of almost Rs 46,000 crore. This has helped the government to budget for a 20 per cent jump in total tax revenue.
The fine-print here is that, also built in is a 15 per cent hike in corporate tax revenue. The total hike in indirect tax is unlikely to be passed on to end users due to high-inflation-modest-growth environment. If this happens, corporate profitability will be affected and corporate tax collections will suffer.
Capital market
On the other hand, if businesses do indeed pass on the higher indirect tax burden, expect inflation to be higher than budgeted, and volume growth to be hurt, in turn, affecting both indirect and direct tax collection.
The government has recognised the importance of capital markets to attract financial savings.
The Rajiv Gandhi Equity Saving scheme for income-tax deduction of 50 per cent for retail investors investing directly in equities should have a positive impact on the market.
However, STT reduction of 20 per cent on only delivery trades (which is just 10 per cent of the total turnover) has been much less than what was expected.
Given the present political and economic situation, this is probably the best the Government can do. It seems to be a politically cautious but economically daring budget.