A long due post……..

Hi all……

My post was long due….

The budget was a crucial event this year as key decisions had to be taken with regards to the fiscal stimulus and inflation without compromising on growth.

The fiscal deficit target for this year was pegged at 5.5 % which was disappointing as such a target would be largely achieved by disinvestment and auction of 3G spectrum. In order to achieve a good quality fiscal deficit, non planned expenditure needs to be reduced. Hence, a target of 5% would have displayed the FM’s resolve of reducing the non planned expenditure. Another key concern is that the FM should not compromise on CAPEX in a bid to reduce the fiscal deficit as CAPEX investments give returns in the long run.

My concern was partially alleviated with the amount of Infrastructure spending announced by the Finance Minister. This would encourage the infrastructure companies to increase their volumes. Moreover, increasing the refinancing limit of IIFCL would increase the availability of cheap funds. However, certain aspects were disappointing. The increase in MAT by 300 basis points would not only result in lowering of book profits, but an increase in cement and steel prices as well which would affect the profitability of this sector. I also have doubts on the success of infrastructure bonds as money would be locked for 5-10 years for a measly rate of 5-6% making them less attractive investment options.

The Finance Minister raised a lot of smiles by raising the IT slab. This seems an illusion to me as the income that an individual would save through direct taxes would be consumed by indirect taxes due to the increase in excise duties. The hike in food prices would create additional burden on the consumers.

The increased focus on clean energy impressed me the most. With the introduction of clean energy cess and the creation of a National Clean Energy Fund, the finance minister has not only paved way for the emergence of a new sector but has also sent a strong message to the international community about India’s commitment to solve the Climate change issues. The government’s intention of transitioning to GST in 2011 is another positive step as a simplified taxation system leads to increased revenues.

 After the recession, it was imperative to reflect optimism in the budget. Although, the budget did manage to setup certain trends, it reflected a certain degree of over cautiousness too.