Budget 2012: Fin min has given something to everyone

Union finance minister Pranab Mukherjee knew that he will have to do some tight rope walking…he will have to offer something to everyone. The economy accelerating but not at a desired pace; stock market looking for rationalisation of Securities Transaction Tax (STT); power sector reeling under pressure of poor coal linkages & funding; common man looking for tax relief and so on.
It was a multi-dimensional exercise to take care of all the sectors needing his urgent and generous attention. He had to address the needs of all sections of society starting from housewives to millions of income tax payers, from rural poor to MSE and medicine to microfinance.

He rightly summarised this in his budget speech by saying, “It is not easy to be the finance minister”. In this challenging exercise, he acted in a fair manner and offered something to all sections of society. He could not please any one section in an overwhelming manner, but he could put a smile on the maximum number of Indian faces.

The budget offered maximum to infrastructure sector which needed the highest attention. The challenge was to revive interest of investors in power sector which is India's crying requirement. The budget offered one more year of tax exemption in sunset clause, eased out import duty on coal and fuel import and opened a window of bond funding. This would ease the major challenge of coal linkages for power projects. In roads and highways construction, a high target of 8,800 km is set along with providing an exemption of duty for import of road construction equipments.

The financing of infrastructure was addressed by doubling tax free bonds for infrastructure financing to Rs60,000 crore which would provide funding to infrastructure projects and offer tax-free investment opportunity to retail investors. The overwhelming response to tax free bonds in last 3-4 months shows the investors' enthusiasm towards such bonds.
Gujarat would be the major beneficiary of these infrastructure incentives as it has India's largest trading company in imported coal. In road construction projects also, Gujarat would have a decent share. MSME sector is the backbone of Indian industry and its need of venture fund would be addressed by this budget which provides it Rs5,000 crore. Gujarat, which has a major MSME sector, would benefit the most from
this provision.

To boost agriculture, Pranabda has set an ambitious target of agricultural credit to be raised by Rs1,00,000 crore. This along with 3 % interest subvention would help farmers in a big way. Rs1000 crore for National Skill Development Corporation would take care of unemployed youth and the industries' problem of not getting skilled manpower.

Microfinance to millions of poor women would get a fillip due to 7% (plus 3% for timely repayment) interest subvention which would mean that a loan up to Rs. 3 lakh would be available to poor women at 4% interest. NGOs like SEWA in Gujarat would tend to benefit from this. In tax reforms for GST, August 2012 could be the 'D' date. One hoped for a similar tentative time for DTC which Pranabda was silent on. Covering all services except negative list for imposition of service tax was a move in the direction of GST regime. However, increasing service tax from 10%  to 12 % would increase the inflation and be a deterrent to higher growth rate.

Increasing duty on cars was disappointing and automobile sector, which was hoping for a positive boost in a sluggish economy, would be disappointed. Interest subsidy for housing loans up to Rs15 lakh would help both real estate and lower middle class Indians wanting to buy their own houses. Stock exchange hoping for reduction in STT would be happy to see a reduction of 20%. Finally, all income tax payers would smile a little as exemption limit has been raised from Rs1.8 lakh to Rs2 lakh, just enough to take care of inflation. Many would also appreciate the raising of the upper slab of income tax from Rs8 lakh to Rs10 lakh.

Nayan Parikh MD of Nayan Parikh & Consultants and president, IIMA Alumni Association, Ahmedabad