The Union budget was presented today on the back of huge expectations that it could revive growth as well as contain inflation and at the same time stick to fiscal consolidation.
Markets and foreign investors were looking for some bold policy measures that will end the policy paralysis and can help in reviving investors sentiments. On the back of such euphoria, this budget did try to balance these expectations and at the same time signal that some of the issues need longer time to address.
On the fiscal consolidation, while the fiscal deficit target is retained at 4.1 per cent, as the finance minister emphasised earlier this appears to be achieved through increasing tax-GDP ratio.
One limitation is that it seems to assume higher tax-buoyancy compared to the last three years experience. Another downside risk for achieving such fiscal target is that it sets a higher disinvestment target, which is more than double compared to the last two years.
On the expenditure side, the budget seems to make a strong assumption regarding rationalising subsides through use of Direct Benefit Transfer, which at the most is still a work-in-progress.
At the same time, there is no clarity on the subsidy given to urea, kerosene as well as on food. All these suggest that achieving the fiscal deficit target is going to be more challenging.
For growth recovery, there is a emphasis on infrastructure and urban development. Such measures will help revive growth. One needs to see how these targets are going to be achieved, more so when many issues that are related to doing business (such as land acquisition, labour issues, power constraints, financing, etc.) is not yet addressed.
On the taxes side, there are measures such as rationalisation of customs and excise duties and tax incentives to power sector projects should lead to larger investments in crucial sector such as roads, ports, airports, etc.
There seems to be some continuation of many of the inclusive development programs that are already initiated by the previous governments with some minor changes, which is very welcoming. At the same time, there are efforts to rationalise and consolidate some of the social sector schemes as suggested by the Chaturvedi committee. This seems to have helped in containing the allocations.