Thursday, 28 February 2013

BUDGET FY13-14 - A Prudent and Populist Budget

Kiran Mazumdar Shaw, CMD Biocon

Mr. Chidambaram has proved to be a deft gymnast by maneuvering a delicate tight rope to carefully balance revenues and expenditure in order to reign in the fiscal deficit to 5.2% of GDP. The directional intent is good and the investment signals are positive.  However, implementation and fiscal prudence still remains a concern.  Mr. Chidambaram’s categorical recognition that FDI, FII & ECB are imperative to fund the Current Account Deficit of $75 billion is a strong message that export benefits will not be curtailed.   The budgetary allocation to rural development, skill development, rural healthcare, education and women addresses populist sentiments.  Prudency has been exhibited when it comes to announcing a tax surcharge on high income salaries above Rs: 1 crore, corporate profits exceeding Rs:10 crores  and Dividends, a necessary and acceptable measure to mop up revenues.  However, a serious worry is the spiraling fertilizer and food subsidy which is pegged at Rs:65,000 crores and Rs:85,000 crores respectively.  The budget also provides for an ambitious and unrealistic disinvestment plan of Rs:55,000 crores for FY2014-15 which is currently at Rs:24,000 crores, a downward revision from Rs:30,000 crores.   In summary, it begs to ask the question of whether we can deliver 6% growth and achieve a further reduction in fiscal deficit to 4.8% of GDP?

The Economic Survey 2012-13 has indicated some serious concerns around capital inflows, agricultural productivity and job creation.  The outlook for 2013-14 is not exactly upbeat even though the growth forecast is estimated to accelerate to 6.1-6.7% on the hope of a rebound of the global economy.  We need innovative policies to counter the global head winds that are slowing down the pace of our growth.  Food grain production is expected to decline from 260 million tons in FY13 to 250 million tons in FY14 at a time when we plan to introduce the Food Security Bill.  Power & fertilizer subsidies have not worked for the agricultural sector which accounts for 50% of employment but less than 15% of GDP.  This is simply unsustainable.  I for one had hoped for converting agricultural subsidies into incentives for co-operative farming that create economies of scale to enable technology adoption to boost productivity.  This has not happened.  I had hoped that NREGA jobs were replaced by manufacturing jobs in the MSME sector through soft loans and capital gains exemptions for investing in start-ups and SMEs.  The FM has addressed this to some extent, though NREGA, I believe, is a drain on the economy.  I do, however, welcome the proposed Rs: 1000 crore skill development fund which has an over-arching objective to focus on self-employment of youth.   Additionally, I am delighted that the FM has encouraged corporates to invest in Technology Incubators as a part of their CSR commitment.

Women have certainly occupied center stage in this year’s budget.  I welcome all the women oriented schemes announced by the FM.  The proposal to fund a Women’s only bank for and by women with a starting capital of Rs:1000 crores is a good step. However, a concern that I have is with reference to the capital infusion of Rs: 14000 crores in State run Public Sector Banks to comply with the BASEL III norms. I would have preferred a disinvestment or privatization route and use this allocation towards other expenditure.   

The manufacturing sector could have done with greater impetus.  A 15% investment allowance to incentivize capital investment is grossly inadequate given the high cost of capital and the sub-optimal infrastructure.

The Pharma and Urban healthcare sectors have been grossly neglected.  Drugs under price control need to be exempted from taxes and excises to compensate for forced discounts and increased manufacturing costs. Considering that 85% of Healthcare infrastructure is in the private sector, the FM would have done well to extend the allocation provided to AIIMS like hospitals to the private hospitals. 

All in all, given the constraints and challenges, I would rate this year’s Budget at 7/10. 

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