1. T he Finance Minister was expected to address three key
macroeconomic concerns in this years budget viz., high inflation,
high current account deficit and fiscal consolidation. It was also
expected that the government would resume the process of reforms.
TheFinance Minister has made an attempt to focus on all these
issues although through small steps. The Budget is in sync with
RBIs monetary policy which has raised key rates eight times
sinceMarch 2010 to tame the persistently high rate of inflation.
The government aims to bring down thefiscal deficit in 2011-12 to
4.6%, below the 13th Finance Commissions target of 4.8%.
However,considering the fact that the growth in FY12 may be
subdued, tax revenues lower and absence ofone-time gains like 3G
auction, the government may find it difficult to achieve its
target. Indias Current Account Deficit {CAD} touched 4.1% in the
second quarter of this fiscal, thehighest since 1991. India needs
long term foreign inflows to bridge the CAD. The move to raisethe
limit on foreign investment in the corporate bond market by $20
billion is a welcome step asit will improve the composition of
foreign inflows besides attracting much needed funds into
theinfrastructure sector. The Budget also placed due emphasis on
resolving the supply chain blockages in theagricultural sector
which required serious attention besides considerably stepping up
creditflow to the farmers from Rs. 3750 bn to Rs. 4750 bn. The IT
industry was caught off-guard when the Finance Minister decided to
levy MAT on ITcompanies which are operating in SEZs, from FY12. It
is expected to significantly impact ITcompanies which had
exemptions from MAT under the SEZ scheme. The introduction of
servicetax on hotels, air conditioned restaurants as well as
increasing the same on air travel is bound tohave an adverse impact
on the hospitality sector. Despite four major state elections due,
the government has refrained from a populist budgetand kept its
commitment on fiscal consolidation. While the emphasis of the
budget on activeconsideration of a new fertiliser policy for urea,
efforts to direct transfer of cash subsidy forbetter delivery of
kerosene to BPL families and fertiliser to farmers, further
liberalisation of theFDI policy, et al is definitely positive, how
these proposals fare on the implementation frontremains to be
seen.