The much-awaited budget presentation is over and it is time for analyzing Finance Minister Pranab Mukherjee’s rationale and reasoning behind each detail in the Budget speech.
The consensus is that the Budget is growth-oriented. The FM has given the public and industry sources a reason to cheer. While some tax sops were offered to appease the common man and India Inc, hiking of excise duty and MAT rate proved dampeners. Withdrawal from stimulus packages is only partial, paving way for continuation of low-interest loans. Mukherjee has decided to postpone the introduction of GST by one year to April 2011.
Despite going soft on taxes and other revenue collections, Mukherjee has managed to bring down government borrowings. For this, FM is banking heavily on a 10%+ growth rate. Also, he is assuming that the rise in fuel prices by way of 2% increase in excise duty, will not further inflation.
Mukherjee has acknowledged the part played by domestic consumers in bailing out the economy in its hour of crisis. By raising the tax limits, he has tried to woo them to spend more and propel the growth rate to double digits. FM is relying on the additional purchase power accorded to the taxpaying public to compensate for the rise in prices of various consumer products due to higher tax rates and excise duty.
FM has tried to appease rural India by continuing the loan waiver scheme for six more months up to June 2010. The interest rate for crop loans has been brought down to 5% and a four-pronged scheme for the agriculture sector has been introduced. However, the increased allocation for NREGS may not be enough even to compensate for inflation.
One of the surprises in the Budget is the plan to issue fresh banking licenses to private players and non-banking financial companies. Plans are afoot to revamp the FDI policy. Budget announcement points to setting up a regulator and introduction of FDI in retail.
How the Budget will impact the big problems of inflation and fiscal deficit remains to be seen.
