”Growth momentum must be restored”: PM^*

Q. This is the first budget of this new administration presumably the first of the five budgets. To what extent does this fulfill the election promises and what will it do for the aam aadmi? PM: The focus of the budget is to ensure that the short term requirements of the economy are reconciled with the medium term goals of our social and economic policies. Right now, the major concern is to minimise the impact of the international recession on the Indian economy.

And for that it is necessary to provide stimulus to our economy - that process began in December last year. This budget carries that process further. At the same time, there are medium term concerns that the growth momentum of the economy must be restored notwithstanding the decline in the international demand for our exports. The road to do that is to strengthen infrastructure investment both in the public sector and in the private sector through the PPP route. The budget does that admirably well. And then simultaneously it also seeks to carry forward the process of inclusive growth, its expenditure programmes take care of our major flagship programmes, Bharat Nirman, National Rural Employment Guarantee Act programmes, the Urban Renewal Mission, the Rural Health Mission. All these programmes receive handsome additional allocations. So, I believe the Finance Minister has done an admirable job, as I said we will be reconciling with the requirements, short term requirements of the economy with the medium term goals of our economic and social policy, of the commitments that we have made to our people in our election manifesto.

Q. What will this do for people in rural areas particularly?

PM: It is essentially a rural development oriented budget. A record increase in allocation for National Rural Employment Guarantee Fund, increased money for irrigation benefit schemes, the Bharat Nirman programme which seeks to upgrade and modernise rural infrastructure. These are all programmes which will primarily benefit our rural areas and reduce the gap between Bharat and India.

Q. At the same time, there is new urban emphasis. The Urban Mission has a huge increase of 86% in the outlay.

PM: The Urban Mission focuses on the infrastructure needs of our cities. We have identified 60 cities, probably we need to relook at the number in due course of time. Simultaneously the emphasis on basic amenities for the poorer section, the slum free India commitment also is taken into account.

Q. Food security Act. Any outlay for the project?

PM: Well it is too early because the whole Act has to be put in place. As the Finance Minister mentioned we will soon come out with a draft that will be put on the website. We will invite large scale discussions with interested groups, civil societies and other groups and it is only then we can translate the inclusion of this legislation into an Act of Parliament.

Q. State subsidy to foodgrains.

PM: If we go by the number of people, who the Planning Commission records as people below the poverty line, I think the outlay on the Centre even if we provide grains at Rs.3, additional outlay is within the limits of practical politics. But if we go by the much larger figure of people below the poverty line which are floating around, I think then there will be some problem. We will sort out these problems. The commitment has to be honoured. And we will honour it in a credible way.

Q. More public ownership, any targets for PSU disinvestment?

PM: I haven’t done any detailed calculation. The Finance Minister has committed our Government to increased disinvestment while maintaining the public sector character of public enterprises. Much depends upon the evolving economic situation, the state of the stock markets. So I think no figure has been mentioned by the Finance Minister in the Budget speech.

Q. Economic Survey suggests 25,000 crore per year.

PM: Well, Economic Survey is a forward looking document.

Q. Stock market reactions somewhat down, fiscal deficit high, any deadline to get back to FRBM targets?

PM: This is a matter which the Government has also referred to the Finance Commission for advise. The Finance Commission will be reporting in the month of October. Unless we take into account the recommendations of the Finance Commission, anything by way of new deadlines, of what we achieve, will be counterproductive. So once the Finance Commission’s report is available, once the devolution pattern that they recommend is known for the next five years, it is only then that you can make credible guesses and work out credible strategies, how to handle the problem of fiscal deficit. I recognise this is an important problem in the medium term we have to return to the path of fiscal rectitude and the Finance Minister has committed our Government to that.

Q. Would 2011 be a reasonable date?

PM: I would like to look at the report of the Finance Commission.

Q. Is Goods and Services Tax possible by April 2010?

PM: It is important that the Government should reaffirm its commitment. If in the process of implementation there are some difficulties, they could be taken care of. But if right from the beginning, we work with the assumption that a lazy effort is called for, I think that could be counter productive.

Q. Administrative Reforms?

PM: The Administrative Reforms Commission has produced 15 voluminous reports. I am contemplating to set up an empowered group of Ministers to apply themselves as to how we can implement this voluminous document that has been produced by ARC.

Q. What about the Security aspect?

PM: We don’t have adequate number of policemen. Police forces in our country are under staffed. Security forces need our understanding and support. We will do all that is necessary to modernise the security and intelligence services. And that is a commitment which is essential to deal with problems of development. Law and order is a prerequisite task for development. So the security forces requirements, modernisation of our police force, modernisation of our intelligence agencies is a must.

* The text of the Prime Minister Dr Manmohan Singh’s interview on the Union Budget to Doordarshan (State controlled Television channel)

Positive Indications: CII

Venu Srinivasan, President of Confederation of Indian Industry (CII), said that the federal Budget 2009-10 is in keeping with CII's expectations. "Many of our recommendations have been incorporated in the Budget. Positive indications for the long term have been announced on a number of important issues such as subsidies, infrastructure and FRBM. The Budget's spending package for inclusive growth and large outlays on infrastructure and NREGS will help revive the economy by stimulating investment and consumption," added the President.

The Budget has reiterated the importance of reverting to the growth path of 9% and stressed private sector investment and FDI as major growth drivers of the economy. "The emphasis on inclusive growth would go towards maintaining domestic demand conditions, especially in the rural sector, given that external demand is still uncertain," said  Srinivasan.

Steps to increase expenditure under the NREGS and the sharp hike in Bharat Nirman for rural infrastructure as well as expanded spending on rural roads, urban housing under Rajiv Awaas Yojana, and JNNURM will bridge the regional disconnect and add to rural spending power. "Under current conditions, the rate of fiscal deficit at 6.8% of GDP was to be expected," HE asserted. The FM's statement on PSU disinvestment is encouraging, but CII would like to see additional details, given the necessity of containing the fiscal deficit.

CII President welcomed the intent to rationalize the tax regime by introducing a new Direct Tax Code for consultation within 45 days. The creation of an alternative dispute resolution mechanism for the resolution of transfer pricing disputes will help encourage foreign investors. He appreciated the abolishing of FBT and CTT as well as surcharge on personal income tax, which were in keeping with CII's pre-Budget suggestions.

Under Indirect Taxes, the stability in peak Customs Duty at 10%, excise at 8% and service tax at 10% is very welcome under the current challenging economic environment. CII had called for maintaining the peak customs duty in light of adverse global conditions. However, the increase in excise tax from 4% to 8% on many goods may adversely affect some sectors, he added. CII expressed appreciation that FM reiterated the government's commitment to introduce GST as scheduled on April1, 2010, and that the roadmap has been largely agreed upon. CII would have liked an announcement to reduce CST in preparation for institution of GST.

A key theme for CII for the current year is governance, and President welcomed the steps announced to improve delivery mechanisms and make procedures more transparent and accountable. The Unique Identity scheme, headed by Nandan Nilekani, is expected to come out with the first numbers within 12-18 months, and this represents private sector partnership in government schemes. The measure to exempt donations to electoral trusts to the extent of 100% will add transparency to contributions to political parties. Srinivasan said that such steps indicate strong commitment on the part of the government to increase efficiency of public services.

Special attention has been given to the sectors particularly affected by the global economic crisis. The stability in the indirect tax regime would help manufacturers, who have been suffering due to low external demand, said Srinivasan. Stress on infrastructure would aid upstream and downstream sectors such as steel and cement. CII had recommended that private R&D efforts be incentivised, and this has been accepted by the Finance Minister by extending 150% weighted deduction on R&D to all sectors except a small negative list.

For the export-oriented manufacturing sectors, FM has expanded the list of raw materials and equipment imported by manufacturers of leather, textile and footwear that are fully exempt from customs duty. Special measures have also been taken for micro, small and medium businesses to simplify administrative procedures for businesses with up to Rs 40 lakh turnover, extend additional credit of Rs 4000 crores through RIDF, and extend interest subvention of 2% on certain sectors. "These measures will help bring some relief to small businesses, which have been hit hard by the uncertain global environment," pointed out CII President.

CII had called for special emphasis to infrastructure, which has been adequately mentioned in the Budget. Commercial loans for public private partnership projects will be refinanced by IIFCL to a certain extent, while certain sectors such as road development under NHAI, railways, and urban development have received sharp hikes in funding. CII had also suggested setting up a monitoring agency for infrastructure project implementation and it is to be hoped that this will be considered positively at a later stage.

For ensuring energy security, the incentives given for petroleum pipelines have been extended to natural gas pipelines as well to create a National Gas Grid, which was a long-standing demand of industry. The announcement of extension of income tax holiday for companies involved in production of oil and gas will help in increased investments in indigenous production. The constitution of a committee to review deregulation of oil and gas prices is a welcome step to align domestic prices with global prices. The stress on clean fuel, duty reduction on import of biodiesel and the promise to provide funds for eight national missions is in keeping with the spirit of the National Action Plan on Climate Change, said the CII President.

CII also appreciated the steps taken on education, especially to reduce female illiteracy by half in three years. Interest subsidies for economically weaker students, including in vocational education, provision for Mission in Education through ICT and setting up of polytechnics as well as central universities in all districts will help add to India's human capital.

"On the whole, we are satisfied with the stimulus given to the economy and the long-term policy intentions announced by the Finance Minister in this Budget," Srinivasan said.

Tightrope Walking: FICCI

Harsh Pati Singhania, President, FICCI said “The Finance Minister has done a tightrope walk over a huge distance in a difficult situation – of a large fiscal deficit and a steep fall in growth rate. And he has done a good walk. It is an ambitious budget and a job well done in the most trying circumstances. The Finance Minister has placed his faith on growth. He has provided a stable tax framework with some reforms and simplification of procedures. He has not attempted an outright correction on the fiscal front which could have set back growth at this stage”.

“The Finance Minister’s growth strategy relies on three triggers – higher investments especially in the infrastructure sector to the tune of Rs. 1, 00, 000 crores , leaving more money in the hands of consumers by abolishing surcharge in the personal income tax and increasing agriculture production to hold the price line. Such a comprehensive approach will help India return to the 9% growth trajectory over next two years time”, said Singhania. The overall thrust of Union Budget 2009-10 has been on promoting growth and FICCI appreciates the government’s decision to continue with the stimulus measures. Some of the positives that we can pick up from the budget presentation include abolition of the Fringe Benefits Tax and the Commodity Transactions Tax, continued commitment to changeover to a Goods and Services Tax from April 1, 2010, larger investment in the agriculture sector particularly on developing the cold chain infrastructure, greater investments in the infrastructure sector & social sectors and an even higher target for agriculture credit in the year 2009-10.

The exporting community too has got further support in the form of extension of the interest subvention scheme, higher allocation for the market development assistance scheme and simplification of the service tax refunds mechanism. An area where FICCI would have liked the government to have come out with some concrete proposals is disinvestment. Although the Finance Minster alluded to the disinvestment process, no clear roadmap was laid out in this regard. Another area of concern is the impact of the large government borrowing may have on interest rate. Finally, sectors like tourism, textiles and health that generate huge employment did not see many of their demands getting addressed in the budget.

Aam Adami Budget : ASSOCHAM

The Associated Chambers of Commerce and Industry of India (ASSOCHAM) termed Budget proposals 2009-10 for `aam adami’ as it focussed on rural, agrarian and social sector, which will create huge demand for goods and services for Indian Inc. which is the need of hour. ASSOCHAM President Sajjan Jindal said, “abolition of FBT, Commodity Transaction Tax are especially welcome feature”. The Finance Minister gave sufficient indications for disinvestment to contain fiscal deficit and generate resources for infrastructure development”. Industry has been widely anticipating a road map for disinvestment and eagerly waiting announcements for abolition of FBT and CTT, added Jindal.

However, the ASSOCHAM Chief expressed concern saying that the Finance Minister’s treatment to MAT was against the expectations of industry as it has been increased. The ASSOCHAM had recommended a 7.5% ceiling for MAT. Likewise, the ASSOCHAM was expecting surcharge on corporate tax which has not happened since India is an economy which is competing with country like China, Hong Kong, Thailand, Malaysia and many other where corporate tax is much lower.

Supporting the increased allocation for the rural and social sector schemes, ASSOCHAM said that the Budget proposed by the government would hold up the growth signs began to be visible in these sectors. However, Jindal also stated that certain sectors which are severely hit by slowdown such as housing, tourism, IT should have been given adequate consideration in the budget.

The Chamber has appreciated the increased focus being given on national security through new measures such as Unique Identification number for citizens and enhanced budgetary outlays for Defence and internal security. The measures taken for the promotion of higher education in the Union Budget were found to be constructive by ASSOCHAM, however, thechamber stated that primary education got less than required attention in the Budget.