Opinion
India
Budget Will Spur Sustainable,
Inclusive Growth
by Lt Gen (retd.) S.S. Mehta
The budget
2008-09 has taken the necessary steps to boost consumer demand and
revive manufacturing in the light of emerging global slowdown and
inflationary pressures. The strategy to revise upwards the slabs for
personal income tax, reduce excise on key items and reduce Cenvat from
16 percent to 14 percent will help bolster flagging consumer demand, and
consequently favorably impact the consumer durables segment.
Additionally, the finance minister has taken critical initiatives to
turn India into a knowledge economy and a global skills resource centre.
This is in alignment with the Confederation of Indian Industry's (CII's)
theme of 'Building People, Building India'.
The emphasis on establishing new institutions of higher education,
including 16 new universities and several institutes of excellence, as
well as giving scholarships under the new INSPIRE scheme will help
foster interest in science and technology and boost innovation and
creativity. CII had called for transforming India from a labor arbitrage
economy to an economy that leverages its strengths both in labor and
knowledge. Knowledge arbitrage is more sustainable in the long run that
labor arbitrage, believes CII.
The budget will also help India to build skills through a skill
development mission. A non-profit corporation to assist this has been
announced in the budget with a proposed corpus of Rs. 15,000 crore
(Rs.150 billion), of which the government will make a beginning by
contributing Rs.1000 crore. As only 3 percent of rural workers and 5
percent of urban workers have received any kind of training, this will
help leverage India's demographic advantage.
Increased allocation to the National Rural Health Mission, provision for
health insurance of unorganized sector workers below the poverty line
and extension of life insurance to women members of self-help groups
will add to the country's human resource capacity. Further, showing the
expenditure in all schemes for SC/ST, women and children separately
indicates the stress placed on these vulnerable sections of society.
CII had also recommended keeping the peak customs duties for
non-agricultural goods at the 10 percent level as appreciation of the
rupee had already increased imports. The reduction of excise duties on
pharma products and certain types of vehicles is a welcome move.
Extending service tax to four more sectors will help add to government
revenues.
The loan waiver aimed at removing agricultural indebtedness is welcome
as long as it does not hurt the public sector banks. The benefit to
farmers is very well deserved and necessary; however, alternative
avenues to deliver the same benefits could have been explored. Loan
waivers send the wrong signals to people paying their loan installments
on time. Also the burden of the loan waiver has not been fully
clarified.
For infrastructure, the budget has included capital market reforms such
as implementing some of the recommendations of the R. H. Patil Committee
relating to development of tradable bond, currency, convertibles and
derivatives markets. Steps to streamline stamp duty are also in the
right direction and hopefully will be implemented soon. Announcements
for the power sector regarding reforms and reduction of transmission and
distribution losses through a dedicated fund is very positive.
For industry, increased outlay for the TUFS scheme will help the textile
sector that is reeling under rupee appreciation. Gems and jewellery
sector would benefit from the exemption from custom duty on few
specified items. The reduction in the custom duty to nil on the steel
melting scrap and the aluminum scrap is good news for the sector.
Most important, the Budget has managed to adhere to the fiscal deficit
targets. This sends a clear signal to all stakeholders that the
government is serious on fiscal rectitude and will help promote
investment, both from domestic and foreign sources. Overall the budget
keeps to the promise of delivering inclusive and sustainable growth in a
balanced manner.
(Lt. Gen. S.S. Mehta (retd.) is director general of the Confederation of
Indian Industry - CII. He can be reached at s.s.mehta@ciionline.org)
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