Given the current state of the economy where economic growth has fallen to a decadal low, the finance minister has done a commendable job in sending out the right signals. He has given incentives to industry for restarting the investment cycle and has taken care of bottlenecks, particularly in the infrastructure sector. Clearly, he is concerned about the delays being faced by industry in setting up projects, including specific issues in sectors such as roads, power and oil and gas. While it is true that the budget alone cannot solve these issues, the finance ministry can play an important role in reviving stalled projects.
The budget has come up with a few innovative ideas to encourage the micro, small and medium enterprises (MSMEs) to scale up and innovate. Today, there are several factors that inhibit MSMEs from growing, including the disproportionately large regulatory costs they face once they grow to a certain size. By allowing the benefits to continue for three years after units have moved to a higher category, the budget has provided an incentive to MSME units to grow and leverage the benefits of economies of scale. Similarly, treating funds provided to technology incubators located within approved academic institutions as CSR expenditure will encourage development of indigenous technologies.
The manufacturing sector has come in for special attention in the budget. Recognising the pivotal role of the semiconductor industry in the eco-system of manufacture of electronics, the budget announced appropriate incentives to semiconductor wafer fab manufacturing facilities, including zero customs duty for plant and machinery. The increase in customs duty on set-top boxes will make the domestic industry more competitive.
Similarly, there are special incentives for the textile sector to ride out this difficult period. The incentive measures for setting up textile parks, the move to set up apparel parks combined with the announcement of zero per cent excise duty on cotton and fibre are all in line with the CII policy recommendations and will help to revive the textile sector.
The coal sector, which has been facing production shortages, has become critical for increasing power generation. The move to encourage and roll out a PPP framework between the private sector and Coal India to reduce coal imports is welcome as this will encourage more production and infusion of technology.
The finance minister has used every opportunity to focus on education, healthcare and skills. This will go a long way in creating a productive workforce. Inclusive growth will provide special benefits to the three categories of women, youth and the poor. The emphasis on the direct benefits scheme will ultimately help to curtail wasteful expenses.
In terms of the deficit numbers, the budget has stuck to the path of fiscal consolidation set out earlier and has projected a steady decline in the fiscal deficit to 3 per cent of GDP by 2017. The government faces a difficult task as expenses such as interest payments and wages and salaries make up a bulk of total expenditure. In view of this situation, the government has made an effort to curb expenditure on subsidies, which have been projected to decline 10 per cent in the coming year. On the revenue side, it has made provisions for strong increases in tax and non-tax revenues. There is a concern about a slippage in the deficit target in case the ambitious revenue targets are not met.
However, it is encouraging that the finance minister did not raise the indirect tax rates in an attempt to raise revenue. This would have deepened the gloom in industry.
Indeed, industry is now looking forward to the early implementation of the goods and services tax, which would simplify the tax system and garner additional revenue for the government.
Banerjee is director-general, CII