FinMin gears up for budget in early July
May 21 2014 , New Delhi
Expects it to be reforms-heavy on lines of BJP talk
The budget, widely expected to give a new thrust to the economy, will outline BJP’s policy to simplify taxes including a roadmap to roll out DTC and GST, return to era of big-ticket disinvestment and give new thrust to railways and infrastructure development.
“We are ready with various options in the budget on the basis of the broad economic policy outline provided in the BJP manifesto,’’ a finance ministry official told Financial Chronicle on Wednesday.
Limited time is not expected to be an issue. There will be some tweaking and fine-tuning after a new government assumes office, he said. Cabinet secretary Ajit Seth has directed each ministry to provide top five achievements and five failures and the budget is expected to reflect the way forward on these. Modi is also expected to announce mega projects within a month of assuming office and the budget may outline some of them.
Measures to rein in inflation that had remained beyond RBI’s comfort zone of 4-5 per cent in the last three to four years, will be one of the priorities in the budget and help create an enabling environment to let RBI move towards easing of interest rates and provide much needed boost to investment. The budget will announce measures to keep fiscal deficit and current account deficit under a tight leash.
But it is also expected to give a push to revenue mobilisation efforts and government expenditure to revive sagging growth. Government borrowing is, however, expected to be kept under check so as to prevent crowding out private sector borrowing.
Apex chambers earlier this week came out with their wish list from the new government to get back to high growth path of 8-8.5 per cent in the next two to three years. Some of them may get reflected.
Though every thing Modi wanted to do to the economy will not get reflected in this year’s budget, the policy direction certainly will, the official said.
The industry expects this year’s budget to create an enabling environment for business of both large and small-scale industries. Both public and private enterprises are sitting on a pile of cash, which could be as high as Rs 10 lakh crore.
While these enterprises are awaiting a direction from the new government, the finance minister began on Wednesday to review capital expenditure of 13 large public enterprises including ONGC, SAIL and BHEL to kickstart investment cycle.
“The whole idea is to prepare grounds for the new finance minister and the new government to foster growth," a senior ministry official said. Reports indicate the front-runner for the finance ministry’s top job is Arun Jaitley.
A separate review of capital expenditure plans for power and telecom sector public enterprises is expected on Monday. The budget too is expected to announce some incentives and timelines for crucial and difficult labour reforms. The strategy of the Modi government will be to encourage states to carry out labour and land reforms, two thorny problems faced by the industry.
The budget might relax the 10 per cent import duty on gold with current account deficit coming under control. This would help in boosting sagging gems and jewellery export. Poor showing by the gems and jewellery sector in 2013-14 is one of the reasons for a growth of less than 4 per cent at $312 billion.
Some incentives in the budget are expected to boost investments in the road sector and railways. During the election campaign, PM-elect Modi had announced that his government would set up a golden quadrilateral of bullet trains to connect the four metros of Delhi-Mumbai-Kolkata-Chennai, on the lines of Atal Bihari Vajpayee’s road building initiatives.
Srei Infrastructure Finance chairman cum managing director Hemant Kanoria said the most important step he expected from the new government is to create an enabling environment for business. The one step would be to simplify direct and indirect tax laws and bring about clarity and transparency in terms of tax implications.
Modi, having been chief minister for Gujarat for over a decade, understands how important it is for states to have policies that suit their own requirements, he said, adding that if land matters and environment clearances are left to the respective state governments to decide and the Centre just lays down a basic framework, it would give more autonomy to state governments to frame their own policies.
The government is also expected to initially focus on fast-tracking capacity creation in the power and road sectors. Over Rs 7 lakh crore of projects are stuck and the government is expected to expedite it.
Total 100 per cent fuel linkage to all power plants must be ensured which calls for reforms on the coal-mining front by allowing entry of private sector for mining development. The budget is expected to provide some direction in this regard.