Free Cityblog Live News App

Free CityBlog Live News App has taken Pune by storm with hundreds of downloads. Get to know Pune news as it happens. Be first to know. Important National, business, International, sports also covered. Get useful Traffic, utilities (water cuts, etc),calamity updates. From your android smart phone type http://goo.gl/eRPaq

Friday, March 26, 2010

Edition13: The Budget And The Economy

The latest budgetary exercise has clearly been an attempt to reconcile two equally pressing considerations—economic growth and financial consolidation. While growth is important to have a larger cake to share, financial consolidation is needed to ensure that the gains do not dissipate as a consequence of inflation.
Fortunately, what the country is witnessing today is food inflation primarily due to supply constraints on account of the worst monsoon in 30 years. But as the Economic Survey report warns there is every danger of this inflation percolating to other sectors, if timely steps are not taken.
It was in this backdrop that the Finance Minister Mr. Pranab Mukherjee in his budget proposals, took the first step towards fiscal consolidation by making a modest beginning in partially withdrawing the concessions given in the stimulus package last year. The economy then was in a serious downturn and it needed government help to withstand global pressures. The picture today is different. All indicators point to a reviving economy, much before other world economies. The cuts in excise duties on all non- petroleum products have thus been restored by 2 percent to 10 percent, still less than 12 percent earlier. The service tax has not been raised but broad based.
The action is in line with the recommendations of the Economic Survey report and also the Prime Minister’s Economic Advisory Council suggesting a partial roll back of the stimulus package.
In his post-budget interviews Mr. Mukherjee has made it clear that while a modest beginning has been made he would consider a full withdrawal of the stimulus package only when the economy attains a growth of 8.5 to 9 percent. According to his own estimates, corroborated by other surveys, the economy would grow by around 7.2 percent in the current financial year which would go up to 8 to 8.5 percent in 2010-11 and reach 9 percent and more in the subsequent year.
The budget also envisages a fiscal deficit of 6.8 percent for the current year which would fall to 5.5 percent in the next fiscal and 4.9 percent in 2011-12. This would in turn mean lesser borrowings by the government, making more funds available for investment by the private sector. On the financial side the government will collect a revenue of Rs.46, 500 crore through taxes but would suffer a revenue loss of Rs.26, 000 crore by giving concessions in direct taxes. This will mean a net revenue of Rs. 20,500 crore.
A clear disinvestment plan has also been put in place. The government is confident that it will be able to raise Rs. 25,000 crore though disinvestment in the current fiscal ending 31 March 2010. It also envisages to collect Rs.40,000 crore through disinvestment in the next fiscal. The 3-G auction is estimated to bring in about another Rs.35,000 crore.
All these measures aim at checking the inflationary pressures on the fiscal side. But there is a supply side as well. The budget recognizes the fact that it is really the supply side that has to be tackled more effectively to control inflation. That explains a steep increase in the allocations for the farm sector. A 9 percent growth rate will be possible only if we achieve at least 4 percent growth in agriculture which grew only at 1.6 percent in 2008-09 and actually a shrinkage of 0.2 percent in the current year. A new strategy for farm growth has thus been put in place in tune with the needs of the economy. While allocating Rs. 400 crore for extending the green revolution to the eastern region comprising, Bihar, Chhatisgarh, Jharkhand , Eastern UP, West Bengal and Orissa, Rs. 200 crores have been provided for conservation farming to increase productivity and reduce losses. The target for farm credit too has been raised from 3,25,000 crore to 3,75,000 crore. Loans to farmers will be provided at a concessional rate of 5 percent. To give a push to the food processing sector, five more mega food parks will come up in addition to the 10 already being set up.
The relief given to the middle class by raising income slabs for personal tax and allowing a further savings of Rs.20,000 in infrastructure bonds for tax relief, will on the one hand leave more money will the people to spend and thus raise demand and on the other hand provide for better savings, given the propensities of an average Indian. This will lead to additional funds for investment.
The increase in excise duty on petroleum prices is no doubt going to increase inflationary pressures but as the Minister put it the impact will only be marginal absorbed in due course of time.
Allocation for the social sector has been increasedMahatma Gandhi National Rural Employment Guarantee Scheme has been given Rs. 40,100 crore, a thousand crore more than the previous year. Rural infrastructure programmes under Bharat Nirman got Rs.40,000 crore. Similarly allocations for other sectors like education, health etc. have also been increased substantially.
So the mood is upbeat and India is well on the path of economic recovery.
-Ashok Handoo

No comments:

Post a Comment

About CityBlog

My photo
CityBlog Pune is weekly paper launched by Orange Publications and Productions Pvt Ltd. It aims to create a forum where each issue will be followed up. We will have citizen to express and not just read what others have to say. Just like an on + offline blog