Budget has been a non event for the past few years,but this years budget is certainly something that cannot be ignored,I am saying this even after considering the fact that there are hardly any positive or negative surprises in the budget.However,now that the event is over, I expect the focus to shift to monetary policy and the crisis in Europe.
The Finance Minister needs to be praised for giving a proper road map to tackle fiscal deficit.The gradual removal of stimulus should help the growth in the economy.This should help prevent a double dip recession.The F.M has announced to divest upto 40k crores,however looking at the primary market,it is certainly going to be a tough task to raise funds through the primary market.Some money must be left on table for the investors,to successfully raise funds.Most of the analysts dint expect the finance minister to touch the corporate tax rates,but MAT was raised to 18% from 15% which did come as a negative surprise.This should increase the tax liability by 241cr,219cr,183 cr. for Reliance ind. Infosys and Bharti Airtel respectively.Reduction in surcharge should reduce this liability to some extent.Raise in MAT rates is in line with D.T.C which seeks to end exemptions.
The revised income tax slabs should certainly increase savings and spendings which will therefore fuel growth.This should also help the middle class tackle inflation,further a deduction of 20k can be claimed by investing in infrastructure bonds.The revised slabs will also help the middle class to cope up with the interest rates which are set to rise in the future.
Allocations in NREGA and Rajiv Gandhi yojna have not been raised significantly.There are not many steps taken to help the poor in urban and rural areas.The hike in import duty and excise duty on petrol and diesel is going to fuel the inflation.The revised income tax slabs too can fuel inflation,which may eventuaaly lead to a widening of gap between the rich and the poor.The budget has not provided much help to the poor to tackle inflation.The loan waiver has been extended by six months,but the agri sector has recorded a fall of 2.5% for the previous quarter.Due to the lack of initiative towards the farm sector the prayers to lord Indra is going to get louder.
No significant reforms have been mentioned in the budget.The past has shown us that government generally does not use the budget as a platform to announce reforms.Looking at the minister's statements ,I can say with some certainty that Kirit Parikh committees recommendations would be taken seriously.Non banking financial institutions can now get banking license,it is certainly a great move since it will increase competition. Few months back there were rumors in the street about Reliance Capital taking control of Dhanlakshmi Bank,after this announcement R-cap was amongst the top performers in yesterdays market.NBFS's such as IDFC and IFCI moved up after this news.
Finally to sum up I would say it was a great budget for the middle class.The corporates would not be complaining,but it is certainly a bad budget for the poor since much of their problems have not been addressed.The focus of the budget seems to be to increase growth ie. G.D.P but it would be better if the focus shifts to increasing our H.D.I ie. inclusive growth.
All in all I would say this as a typical Pranbda budget. Politically shrewd budget, neither populist nor reformist as said by Swamy. Conditions today were good for a reformist budget. Only one state election (in Bihar) occurs this year, and the current coalition partners don’t have as much power as the Left front had in 2004-09 UPA regime. Also mind you there are elections coming up in 4 major states when the next budget is going to be announced. Mainly the 2nd and 3rd budgets are more of the reformist kind of budgets. Again the last budget would be to woo the voters. So I think Pranabda could have done more than what he has done in this budget. Mr Mukherjee avoided some significant reforms like FDI could have been allowed into retail and the FDI limit could have been hiked in insurance sector.
ReplyDeleteNow, Mr Mukarjee assumes 12.5% nominal GDP growth of which 8-8.5% is real growth and 4% is inflationary growth. However taking into consideration the Japan is still in recession, then European economy especially the Greek economy is in turbulence; this fig. of 12.5% seems to be bit too optimistic to me. However I’m keeping my fingers crossed, let there be no cascading effect.
The 13th finance commission headed by Dr Vijay Kelkar recommended to widen the spectrum of service tax and include railways in the same.However it has not been done. I mean its ridiculous to have a service tax on road and air transport and not on rail transport just becoz it’s a govt. owned monopoly.
Again we say there have been reforms in financial sector as Pranabda promised to grant more licenses to pvt banks. Now here I’ve million dollar question for you all. As the announcement was made we saw Rel cap.stock was the biggest gainer and under the current rules if you own and run an industry then you are not allowed to own a bank. So is this an indication that Ambanis will always be allowed to get over the rules or are rules going to be amended?
However at the end I would say Pranabda has always been a veteran and an astute politician. Hope all his expectations and extrapolations might cum true which will help India experience a phenomenal growth of 12.5%.
Jai Hind.
ya...saw swamy harping on these issues after the budget...dude take this from me in writing...no service tax on railways until Mamta is the rail min.Well the process of givin license(for NBFC's) will now depend on the RBI,it will be interesting to see how RBI goes about this issue.
ReplyDeleteSo what do you think, what are the Pros and corns of granting licences to pvt. banks or NBFCs?
ReplyDeletethere is not much to worry about coz RBI has always been very cautious while giving banking licenses...quite confident that RBI would give licenses only to deserving inst.shud increase competition so its a major plus point...
ReplyDelete