Budget lays foundation for future growth across infra, manufacturing and agriculture

At the outset I would like to say that this is a good Budget in laying the foundation for future growth, providing some near-term impetus for investments while maintaining fiscal discipline.

The government is focused on making sure that there is growth and development across infrastructure, manufacturing and agriculture.

The Budget addresses these aspects while also providing the roadmap for looking after the underprivileged and providing a social security framework and encouraging retirement savings and pensions.

It is important to remember that this government has been handed a set of issues that are not easy to resolve, and in our country everything needs to be balanced in terms of the political economy and the time it takes to get things done. Expectation management is, therefore, important for government and people need to understand that things will not happen overnight.

The commitment to fiscal discipline is clear in bringing down the fiscal deficit to 3 per cent over four years rather than three years, which is fine given that in the current construct where private sector investments will be hard to mobilise in the immediate term, the government will need to bridge the gap.

It will be important for government to make sure that leakages in subsidies are plugged.

The focus on infrastructure is welcome. While the amount of investments by government in the immediate term is approximately an increase of Rs 70,000 crore (primarily in roads and railways) over the previous year, which is not that large relative to the needs of the country, the announcement that the government plans to resort to a "plug and play" model to encourage the private sector to participate in infrastructure once all approvals are in place is a very important step.

It is important to remember that the private sector has become risk averse in investing in greenfield assets primarily on account of operational risks in getting projects completed on time. Therefore, such a step by the government would go a long way in attracting investments.

Tax-free infrastructure bonds is another important element in channelizing domestic savings into infrastructure. Other important measures announced in the Budget to better intermediate savings and facilitate investments include steps to monetise gold assets and convert hard gold assets into financial assets through gold bonds, reduction in corporate tax rates to 25 per cent from 30 per cent over four years through simplification of the tax regime (by rationalising tax exemptions) and providing an easier framework for real estate investment trusts and AIFs through tax benefits and sorting out permanent establishment issues.

Commitment to reforms in dispute resolution, introduction of a bankruptcy code this year and laws to curb black money and cash transactions will go a long way in improving confidence and investments in the economy.

To conclude, this is a good Budget that combines addressing near-term investment issues while providing a roadmap for future growth within the boundaries of maintaining fiscal discipline. There needs to be continued focus on debottlenecking existing projects and improving the productivity of invested capital, which the government is focused on.

(The author is Managing Director & CEO, IDFC)