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 email@example.com)