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Budget taps the right buttons for growth [DNA : Daily News & Analysis (India)]
[July 12, 2014]

Budget taps the right buttons for growth [DNA : Daily News & Analysis (India)]

(DNA : Daily News & Analysis (India) Via Acquire Media NewsEdge) The budget will be a turning point in economic growth. For three years now, the economy has been sliding and it requires a strong push. The finance minister has done precisely that.

Arun Jaitley has given special attention to the energy sector. There has certainly been substantial development of installed generating capacity. But peak shortage is still more than 3% for many reasons. It is welcome that the government has now combined coal and power into one ministry.  This will bring about wholesome development in the energy sector.

In many power plants, coal stocks had reached a critical point and the industry was forced to import coal at higher prices. This additional cost could not be passed on to the consumer. The budget has simplified the customs duty on coal by making it uniform for all categories of coal.

There are also other issues. The discoms are making losses in spite of subsidies and are in a weak financial position. The T& D losses even now exceed 23%, which is a drain on the revenues. Many State governments also do not have the finances to fund discoms. Hence, the latter are unwilling to purchase power leading to a fall in demand which has forced power plants to operate at a lower PLF. The budget had to look at the viability of the energy sector as well.    At present, foreign investment is only 4.5 per cent of total investment in the country. The positive approach expressed by the finance minister will make foreign investment an effective supplement to domestic investment. The finance minister has opened up more areas for FDI, increased foreign equity holding to 49% in insurance and defence, rationalised transfer pricing and changed dividend distribution tax assured that in future retrospective taxation will not be resorted to. All this will make FDI more attractive and it can be expected to double in the next two years.   The importance of organised retail trade has not been adequately recognised. Retail business generates 10% of the GDP and accounts for 8% total employment. The current share of organised retail is only about 7.5% and should increase rapidly.

Concessions under Section 80C of the Income Tax Act by increasing tax free investment from Rs.1 lakh to Rs1.52 lakh and interest on home loans from Rs1.5 lakh to Rs2 lakh are welcome.

Exports are essential to sustain balance of payments. In the past six months, the current account ratio has substantially declined. Yet, the payment position is still vulnerable and exports, particularly from SEZs, need to be encouraged. The finance minister has provided for the necessary facilities to be created.

One sector that required special attention was agriculture, which,  after Green Revolution, has not progressed that well. New technologies have come to the market and have to be introduced in agriculture. Besides, the budget encourages post-harvest processing with a view to avoid wastages. Organised retail can play an effective role in this activity.

The budget is the first step towards a dynamic economy which will take growth to new high levels in the next two years and generate employment for the young population.   Credit:Sanjiv Goenka (c) 2014 @ 2014 DILIGENT MEDIA CORPORATION LTD. ALL RIGHTS RESERVED

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