Budget 2012: No big bang, but this is as good as it gets

With the global economy still not out the woods and the Indian economy showing distinct signs of moderation, Budget 2012 was closely watched as many feared that the government may take drastic measures to increase tax revenues. The government had already overshot the fiscal deficit target of 4.6% and the divestment programme has been a complete debacle.
The finance minister assuaged those worries by presenting a reasonable , equitable and balanced Budget. Given the difficult circumstances , it was encouraging to see that the government offered some relief to individual taxpayers and desisted from increasing corporate taxes. These measures will provide a boost to domestic demand as it puts more disposable income in the hands of the consumer. Further , the decision to increase service tax to 12% is not unreasonable, given that service tax collections currently accounts for only 10.5% of gross tax revenue.
Admittedly, the Budget has no big-bang reforms or a roadmap on increasing foreign direct investment. Understandably, the current political scenario does not allow the FM to rock the boat. Yet, there are sufficient positive measures taken. For instance , in the capital markets, the introduction of the Rajiv Gandhi Equity Savings Scheme is a small but important step in encouraging larger retail participation in the equity markets. However, the focus of this year’s Budget was definitely infrastructure , especially the benefits awarded to the power sector.
As regards the housing sector, the major positives were allowing ECBs (external commercial borrowings ) for low-cost , affordable housing projects, enhancing the Rural Housing Fund by Rs 1,000 crore and extending the 1% subvention scheme. Disappointingly, the limit on deduction of interest paid on a housing loan has not been increased from Rs 1.5 lakh.
Some key challenges persist. The revised estimates for subsidies in FY12 have increased by 51% over the Budget estimates . This will mandatorily need to be contained if the government is to achieve the fiscal deficit target of 5.1% of the GDP for FY13. The Budget provides no concrete measures on how the government plans to decrease subsidies. Clearly, this will have to be addressed sooner than later.
(Deepak Parekh, chairman, HDFC)
Budget 2012
Budget News 2012