The Union Budget for 2011-12 will be presented shortly by the Government of India (GoI) in a situation where the “India Growth Story” which seemed totally unstoppable only a few months back now looks to be under serious threat of moderation because of factors like rising inflation, tight liquidity, slowing investments in both industrial and infrastructure sector as well as pronounced governance issues which has impaired investor sentiment to a significant extent . Ensuring that the growth momentum does not get derailed would clearly be the most critical priority for the Government. The top most focus area in this regard would be on fiscal consolidation, with a focus on both augmentation of tax revenues as well as control on expenditure. However, given the Government’s stated commitment towards ‘inclusive’ growth and focus on issues like food security, a credible programme of expenditure control would be a very challenging task.More...
The Union Budget for 2011-12 will be presented shortly by the Government of India (GoI) in a situation where the “India Growth Story” which seemed totally unstoppable only a few months back now looks to be under serious threat of moderation because of factors like rising inflation, tight liquidity, slowing investments in both industrial and infrastructure sector as well as pronounced governance issues which has impaired investor sentiment to a significant extent . Ensuring that the growth momentum does not get derailed would clearly be the most critical priority for the Government. The top most focus area in this regard would be on fiscal consolidation, with a focus on both augmentation of tax revenues as well as control on expenditure. However, given the Government’s stated commitment towards ‘inclusive’ growth and focus on issues like food security, a credible programme of expenditure control would be a very challenging task. In all likelihood, this could be achieved only by ensuring that there is not a significant increase in outlay on new social sector schemes, since many of the increased outlays that have been carried out over the last two years as ‘counter-cyclical’ fiscal measure are irreversible in nature. The other area of controlling expenditure- tackling the issue of oil and fertiliser subsidies- also looks unlikely given the fact that a number of crucial State elections are round the corner. In this area, one can only hope for some measures to reform the Public Distribution System through conditional cash transfers or smart cards which could be a way of reducing the burden of subsidies while simultaneously allowing better targeting.
ReplyDeleteThe other big challenge confronting the Government is to remove the supply side bottlenecks that, along with the expansionary fiscal policy, has contributed to the stubbornly high inflation rates. This could include encouraging investments in agriculture including reforms in the agricultural sector like facilitating consolidation of fragmented landholdings, review of agricultural land ceiling to enable commercial farming besides investment in the supply chain as well as phased opening up of FDI in modern retail. Another area of serious concern has been the considerable slowdown in investments in infrastructure sector as well as lack of revival of industrial capital expenditure, and while many of the steps required to kick-start investments may be beyond the purview of the budget, some measures designed to tackle the vexed issues of land acquisition, environmental clearances and faster award of bankable projects under the PPP framework may be keenly hoped for.
On a sectoral basis, expectations from this budget are quite muted. Given the imperatives of fiscal consolidation, one can expect an increase in service tax coverage, phasing out of exemptions and more roll back of the excise duty cuts that were introduced. However, the negative impact of such increased taxation could be more than offset if the fiscal consolidation is able to achieve some extent of inflation control as well as reduce interest rates. Also on the expectations agenda would be some reform measures that could have a beneficial impact in terms of improving investor sentiment and creating a more enabling environment for investments and FDI inflow.
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