Reactions to Union Budget 2012-A.Vellayan, Chairman, Murugappa Group

Overall, the Union Budget 2012 presented by Mr Pranab Mukherjee appears to be a modest budget which recognizes the need for consolidating the financial status of the country today, and for providing economic stability. There are some points which will affect a few key sectors in a positive manner and hence are worth welcoming in this budget, while there are some more which will present challenges and hence will need to be observed in greater detail.

It is a welcome gesture to see the agriculture sector getting its continued focus, with the total plan outlay increasing 18% from last year to Rs 20,208 crores. There are also some moves in the fertiliser sector which are worth welcoming, like the fillip to increase self-sufficiency in urea production in the next 5 years within India itself, and also the encouragement to use single super phosphate. Micro- irrigation also has got a boost this time around, with the greater commitment of funds in that area. There is also a clearly warm gesture to put more money into the farmers’ hands, by having increased the agriculture credit from Rs 4.75 lakh crores to Rs 5.75 lakh crores.

India’s infrastructure should also look better thanks to the huge outlay in the areas of power, roads, ports, civil aviation etc. This will be propped up strongly by the doubling of infrastructure bonds from the earlier Rs 30,000 crores to Rs 60,000 crores this time.

The Finance Minister has paved the way for more liquidity to be pumped into the system, by the re- capitalisation of PSU banks to the extent of Rs 15,800 crores. He has also made it easier to source funds, by facilitating greater access to ECBs at lower rates. Foreign exchange will also get a positive impact by way of the curb in gold import.

It is expected that all of this will be funded through the increase in indirect taxes to the tune of Rs41,000 crores.

However, this increase in taxes will also have a cascading effect on overall costs increase, and this will impact inflation. In addition to this, it appears that the common man has been given very little concession by way of Direct Taxes. Together, this and the possible increase in inflation will have an effect on the common man which is to be observed and assessed.

A similar effect will be seen on the manufacturing sector, with the increased Service Tax and Excise duties. The impact of this on the manufacturing sector’s growth rate will have to be observed. Whether the GDP growth target of 7.60% can be achieved or not, is something which we will have to wait and see. This GDP growth will have to be supported by growth in other sectors like the Service industry and Agriculture sector.

We will have to wait and see the Government’s progress in implementing reforms like Direct Tax Code and Goods and Service Tax, and also whether the fiscal deficit target of 5.1% (which has itself been revised downwards from 5.9%) can be reached.

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