In our country, much is expected from Union Budgets. Finance ministers not only have to deal with the more serious economic/fiscal problem of the country, but they also have to deal with the expectations and aspirations of the common man. Pranab Mukherjee has done a fine job of driving forward the growth agenda.

This budget given a strong policy push in a wide range of areas like the food security bill, higher infrastructure spending, defined timeline for GST/Direct tax code rollout, new banking licenses, more technology in government and higher divestment plans apart from the welcome tax relief. In aggregate, these announcements create an enabling, nurturing environment for the Indian economy to grow.

The 2010 Economic survey suggests that economic growth improved to 7.2 per cent (08-09) from 6.7 per cent (07-08). Monthly movements in the Index of Industrial Production (IIP) indicate a sustained improvement of industrial growth in recent months though not sufficiently broad based. Agriculture is a current laggard, but a normal 2010 monsoon could set this right. These trends suggest that economic recovery is truly underway thanks in no small measure to the various stimulus packages.

The funding of these stimulus packages lead to a widening fiscal deficit in the last two years. In 2010-11, the finance minister has delicately balanced the need to augment revenues by rollback of indirect tax cuts with the introduction of financial prudence measures and thereby hopes to reduce the fiscal deficit from 6.5% RE 09-10 to 5.5% BE 10-11. He also benefited by the tapering impact of the Pay Commission arrears, lesser debt waiver expenditure, lower NREGS outgo on expectations of an improved monsoon and anticipated inflows from the 3G auctions.

Globally, 2008 and 2009 have seen increased government involvement in all matters financial, economic and even personal leading to growing levels of uncertainty, and markets shun uncertainty. After multiple rounds of financial and monetary stimulus, 2010 was billed to be the year where governments from the USA to China might move towards policy tightening and stimulus withdrawal. As a result, India’s export dependent sectors and IT/BPO industries are expected to witness continued uncertainty.

For the Insurance sector, there has been a mixed bag. The move to broaden the scope of section 80D is welcome though enhancing the limit under this section would have helped tremendously. The economic survey referred to capital market solutions for catastrophe risk insurance. This will open up a new market for insurers. The government has skipped another opportunity to increase FDI in insurance. A recent study estimates that an increase in foreign ownership limit to 49% can lead to inflow upto Rs.10,000 crores. Broadbasing of the social health insurance scheme to cover NREGS members could add millions of new beneficiaries. Income Tax authorities have been seeking to deduct TDS on Insurers payments to hospitals. This TDS issue along with the Service Tax now being proposed on payments by Insurance Companies to a Health Care Provider for an insured member is likely to discourage the usage of the popular ”Cash less facility” which is being offered by insurance companies.

This budget is a brave attempt to drive forward this government’s inclusive growth agenda while also providing much needed succor from price rise. If the government is able to implement all its plans, I am optimistic that we have a real chance of growing at 8.5 per cent.