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Budget 2014 clears air on taxation and pushes infrastructure & manufacturing

11th July, 2014

By Kumar Mangalam Birla
The Economic Times
11 July 2014

The new government's maiden Budget is sober and responsible. There are no pretensions of bigbang reforms. It is firmly anchored to the reality of a weak fiscal position. Yet, it also accords due emphasis to stoking growth, particularly in the infrastructure and manufacturing sectors.

From the Budget, one can also discern the contours of a credible vision and philosophy of economic governance. One that includes removal of policy ambiguity, more efficient administration and implementation, better control of government expenditure and a strong accent on infrastructure and institutional capacity creation.

The Budget is honest about the fiscal reality and acknowledges that the fiscal deficit target will overshoot, from the targeted 4.1 per cent to 4.5 per cent of GDP this year. However, over the next two years, the deficit is sought to be lowered substantially to 3.0 per cent of GDP by 2017. The move to raise the FDI limit in the defence and insurance sectors from 26 per cent to 49 per cent is extremely positive.

The clarity on taxation of foreign institutional investor (FII) income is another big plus. This clarity should encourage FIIs to shift operations from offshore tax havens to India. Additionally, the FM has signalled the determination to implement the goods and services tax (GST) at the earliest.

The clouds in the area of taxation are sought to be cleared through measures such as enabling residents to get advance-tax rulings and greater clarity on transfer pricing. While the retrospective tax provisions have not been eliminated, the issues related to this will be dealt with by a higher authority, and the cases fast-tracked. These are all positive, as are some of the measures taken to reduce anomalies in the inverted customs duty structure.

The initiatives on creation of new industrial clusters seek to give a conscious boost to tourism. Several excise duty cuts have been made and these will help to support the nascent economic recovery. There are a string of other positives.

The accent on infrastructure creation is evident. A huge fillip is being given to the construction of highways. A big push is also being made to upgrade urban infrastructure, including the creation of smart cities. There are initiatives to stimulate low-cost housing, including rural housing.

Furthermore, the finance minister has announced the building of 16 new ports, construction of new airports through the PPP route as well as proposals to make the rivers navigable for commercial transport. The thrust on building human capital is very significant.

Several new AIIMS, IITs, IIMs as well as agricultural, horticultural, vocational training and sports institutes will be set up. All in all, the Budget should prove to be a solid first step. It does signal that India can look forward to much better times ahead.

The writer is Chairman, Aditya Birla Group