Well the Union Budget has come and is through now. I will not write in details as every news channel and every business paper tomorrow will be full of analysis. I will just do a brief macro commentary on how I see the Budget.

Firstly I do believe that the Budget is growth supportive and anti inflationary. It is ant inflationary in two big ways. The first being the fact that the cash given in the hands of taxpayers is not very high and is actually lesser than the inflation in the economy. The tax free limit has been increased from Rs 2 Lakhs to Rs 2.5 Lakhs. The other two Rs 50000 breaks have been given on saving and asset building. Housing loan interest limit increase will make acquiring self occupied houses cheaper and the increase in limit on 80C savings as well as on PPF will help increase the savings rate. Improved savings and limited incentives to spend are anti inflationary.

The second anti inflation move is in the structure of government finances where revenue expenditure is proposed to grow at just 9.4% which will be lower than the nominal GDP growth of around 12%. The other part is the restructuring of MNREGA spending which will now be directed towards productive usage like agriculture and rural asset building rather than just paying off people for free which had created a huge labour shortage for farmers in rural areas. Moreover these spends have been restricted to last year’s level, thus an inflation adjusted decline.

The other big observation is that the budget is growth oriented. Capital expenditure is proposed to be increased by 26% plus which will boost growth and employment. Incentives given for capital expenditure to corporate, extension of excise duty cuts as well as investment allowance for smaller capital spends are positive. The power sector has got extended tax breaks and there has been a huge increase in allocations for the roads sector which is hugely employment generating. This will be followed up by several measures to ease the way business is done and project clearances made. Lot of these moves will be outside the budget. Retention of a low Fiscal Deficit figure of 4.1% is also anti inflationary as it will prevent crowding out. The direction of Fiscal Deficit which has been put out and directed towards 3% over the next 3 years implies that the Government will continue to borrow flat over the next three years and thus provide a huge impetus to economic growth by releasing funds for the private sector.

Lot of clarity on taxation has been sought to be provided to foreign investors by means of taxation of profits of foreign investors, transfer pricing as well as retrospective taxation. More moves of these will be seen outside the budget.

There will be lot of columns written with headlines like “Opportunity Missed”, “Could have done more”, “Damp Squib” etc. These need to be ignored as most people are just interested in flashy announcements and not implementation. The key focus of this government is likely to be on implementation. All said, “The proof of the pudding is in eating it” as such let’s see how the delivery plays out. 

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