It’s a booster of a budget

The Union Budget 2016-17 is progressive, with a focus on strengthening the economy, especially given the uncertainty around the world. Finance Minister Arun Jaitley has drawn a transformative agenda around nine pillars with a focus on rural and infrastructure development, social sector issues, tax reforms and fiscal consolidation.

It is commendable that the government has been able to achieve a fiscal deficit of 3.9 per cent of GDP for FY16 and set a tight target of 3.5 per cent in FY17, and 3 per cent subsequently for FY18 and FY19. This is despite large commitments for infrastructure.

The Budget estimates the capital expenditure on railways and roads to be more than ₹2 lakh crore. Likewise, it has specific plans for ports, airports and privatisation of transportation. Given the thrust on infrastructure development, it’s essential to have a specific plan for the power sector.

The government, for the first time, has focused on drawing up a comprehensive long-term plan to increase the investment in nuclear power generation.

Realising the sensitivity of the private sector’s role in infrastructure building under public-private partnership, the finance minister has announced a three-pronged strategy to make it more efficient and effective.

Economic growth is also largely dependent on a strong financial sector and a well-functioning banking system. The proposed allocation of ₹25,000 crore towards recapitalisation of banks was essential; there is also the assurance that the government may increase the allocation if required. It has proposed the Banks Board Bureau, which will spell out the roadmap for consolidation of public sector banks.

The thrust on good governance and ease of doing business are two other strategic focus areas. The incentives for startups will encourage entrepreneurial skills. Further, the Budget explicitly covers the issue of monitoring the prices of essential commodities. This will address the problem of abrupt increase in prices, which add to inflationary pressures in the economy.

The thrust on spending in rural areas and on agriculture is timely and will give a hefty payoff. There was growing awareness that the rural economy, especially the agriculture sector, was facing a distress-like situation in many parts of the country. This was partly due to two consecutive drought seasons, but also due to falling demand and purchasing power, stagnating rural wages and falling prices for agricultural commodities.

Thanks to this, farm credit will reach an all-time high of 9 lakh crore. In the next fiscal, there will be fast-tracking of irrigation projects; a dedicated long-term irrigation fund is being created. The Cabinet had already announced a crop insurance scheme, a huge safety net. The focus has shifted to not just providing food security but also income security, especially for the farmer. The aim is to double farm incomes over the next five years.

Special focus on progressive taxation, healthcare and affordable housing will help address social inequalities in the economy.

To finance the increased spend on the rural economy and infrastructure, the Budget has listed several additional resource mobilisation measures, especially on the indirect tax front.

It is hoped that the Goods & Services Tax, which promises to be a game-changer for the Indian economy, sees the light of the day this year. That will provide some buoyancy to government revenues. On the direct tax front, the finance minister has started the process of phasing out exemptions for corporate income tax; hopefully this will be followed by a reduction in corporate tax rate in the coming years. The finance minister has raised the tax burden on the rich and dividend-earners, deploying the principle of progressivity.

The customs and excise duty changes will incentivise the domestic value chain and increase productivity. The Budget has announced suitable changes in customs and excise duty rates on certain inputs, raw materials, intermediaries and components, and simplifed procedures so as to reduce costs and improve competitiveness of the domestic industry in sectors such as information technology hardware, capital goods, defence production, textiles, mineral fuels and mineral oils, chemicals, and so on.

All these measures and incentives will help the government achieve its Make in India agenda. These incentives will increase domestic demand and income. The policy changes are likely to generate employment and enable the economy to continue on a sustainable growth path.

The writer is the chairman of the Aditya Birla Group