Union Budget 2013: Capital gains of the human and fiscal kind

1st March, 2013

Mr. Kumar Mangalam Birla
The Times of india
1 March 2013

The macroeconomic backdrop to this budget was high inflation, low growth, widening current account deficit and high fiscal deficit. The finance minister's challenge was to do a tightrope walk between collecting higher tax revenues and increased social sector spending.

He was also expected to revive private investment spending. Additionally, there is the hanging threat of rating agency action. Considering all these constraints, the finance minister has given us a pragmatic and credible budget. The growth impetus is sought from investment allowances, infrastructure focus and boost to housing. The port sector and inland waterways are but two examples of initiatives in infrastructure which will bear fruit in the medium term. The extension of section 80-IA tax holiday and new funding for infrastructure bonds also augur well.

The focus on housing is well-timed. It has a huge multiplier effect because of its impact on construction, demand for consumer goods and job creation. The emphasis on education and human capital mirrors what was described in great detail in the Economic Survey. India's demographic dividend gives it a unique structural advantage. But to actualize it, we need to improve business climate, especially for small and medium enterprises (SME) and increase the skills of youth entering the labour force. The SME sector gets an opportunity to raise capital with a lighter regulatory burden.

Several measures have been announced to revive financial savings through bond and equity markets and inflation indexed bonds. This raising of the domestic savings rate will have an impact on the current account. This budget has hugely stressed the human capital aspect. Though projected spending growth is more than 16 per cent, the emphasis is more on Plan spending, i.e. capital items.

Keeping excise and service tax rates unchanged is welcome. The surcharge on the high-income bracket was perhaps inevitable, but should also be accompanied with continuing effort to widen the tax net. Overall, the budget maintains extreme fidelity to the vision of inclusive and sustainable growth.