The budget presented by the finance minister combines vision for the future and realities on the ground. While growth has been good, there were problems. Th­ese have been seriously addressed.

Food inflation, which is still near double-digit levels, hit the common man hard. The relief by way of increase in exemption limit for income tax payers was highly desirable and commonly expected. The other major issue that can hamper development is the huge gap in infrastructure that can hold back other sectors of the economy.

The finance minister has, therefore, given considerable attention on how the money has to be spent. He has given high priority to investment in agriculture, which has fallen behind the demand for food. The investment in infrastructure will be up 23 per cent next year and will be undertaken under public-private partnerships (PPPs). The latter, particularly the power projects, would have been expedited had all power plants been extended the facili-

ties given to mega power projects.

It is significant that the finance minister has increased the amount the FIIs can invest in bonds, which will partly help fund infrastructure. Along with the facility for remittance of dividends by companies overseas, it will also help cover part of the current account deficit.

The proposal for direct cash transfer of subsidies for kerosene, LPG and fertilisers will reduce the leakage that presently takes place and inflates the amount of subsidy.

Without any net additional taxation, direct and indirect taxes taken together, the finance minister has been able to reduce the fiscal deficit from 5.1 per cent to 4.6 per cent. This means that the government’s borrowing from the market will be lower and will create additional room for the private sector to raise money by issue of bonds and equity.

The restraint on taxation has imparted some stability to the tax system. The finance minister has reduced the surcharge on income tax from 7.5 per cent to 5 per cent and increased MAT marginally to 18.5 per cent, while extending the latter to SEZs. The tax system for individuals and companies remains more or less in tune with long-term requirements and will create ground for introducing DTC from April 2012 as assured by the finance minister.

The service tax and excise duties continue at 10 per cent. It is important that the finance minister did not roll back the excise duty to the pre-crisis level. Partly, it will help industry to recover faster from the drop in growth and partly, it will facilitate adoption of GST, possibly next year.

The finance minister has expressed the need for enhancing foreign direct investment. This is undoubtedly necessary not only in infrastructure but also in other activities like retail to reduce the gap between wholesale and retail prices.

The critical reduction in fiscal deficit will come primarily from the buoyancy of tax revenue, which will depend largely on the rate of growth of the economy. With effective check on non-productive expenditure, it should be possible to achieve more than 9 per cent growth next year.