The Union Budget 2011-12 presented by the finance minister seems balanced and growth oriented with agriculture, infrastructure and social sectors being the focus areas.
The budget has sought to promote growth with an inclusive agenda. Consequently, substantial plan outlay has been devoted to social and rural development. The Finance Minister expressed his concern over the problem of generation and circulation of black money in the Budget Session and announced the implementation of a Five Fold Strategy to deal with the problem. Besides this the Budget 2011-12 laid the foundation for the roll out of DTC and GST. Proposed increased exemption limit was in-line with market expectations. Investment reforms for FIIs and FDIs came in as a surprise which has been a major cause of concern in recent months.
GST & DTC: Long pending reform: FM has restated governments' priority to implement GST and DTC by FY12, the most important reform in taxation policy. DTC Code is proposed to be effective from April 1, 2012 to allow taxpayers, practitioners and administrators to fully understand the legislation and adjust to the revised procedures. Unlike DTC, decisions on the GST have to be taken in concert with the States. As a step towards the roll-out of GST, FM proposed to introduce the Constitution Amendment Bill in this session of Parliament. Establishment of a strong IT infrastructure is essential to rollout GST successfully. On the direct tax front, reduction in surcharge on Corporate tax from 7.5% to 5% and an increase in tax limits on personal income tax from Rs. 1.6 lakh to Rs. 1.8 lakh is in line with principals of draft DTC.
Agriculture: Soaring food prices that are denting the disposable income have been a major cause of concern for the government lately. Consequently the Agriculture sector acquired utmost importance in the Union Budget 2011-12. The Finance Minister said that production and distribution bottlenecks for items such as fruits and vegetables, milk, meat, poultry and fish would be the focus area in FY12. Various Agro Schemes such as Rashtriya Krishi Vikas Yojana, Accelerated Fodder Development Programme have witnessed considerable hike in allocations. Besides this, access to agriculture credit has also been made easier for the farmers.
Social Sector: Social sector has been one of the focus areas in this budget too. The Finance Minister hiked the allocation for social sector in the Union Budget 2011-12 to Rs. 160887 cr. an increase of 17% over the allocation in previous budget. Allocation for Bharat Nirman is proposed to be increased by Rs.10,000 crore over the current fiscal at Rs. 58000 cr. Bharat Nirman includes the government's flagship programmes such as Pradhan mantra Gram Sadak Yojna, Accelerated Irrigation benefit programme, Indira Awas Yojna, Rajiv Gandhi Grameen Vidyutikaran Yojna. Besides Planned allocations for Health and Education have also been stepped up by 20% and 24% respectively.
Infrastructure: A strong emphasis on infrastructure is clearly visible in the budget. Allocation for infrastructure stands at 48.5% of Gross Budgetary Support to plan expenditure. The focus has been two pronged especially increasing refinancing through Indian Infrastructure Financial Corporation (IIFCL) while focussing on current national level infrastructure projects. IIFCL is expected to achieve a cumulative disbursement target of Rs 20000cr by March 31, 2011 and Rs 25000cr by March 31, 2012. In addition, FM proposed to allow tax free bonds of Rs. 30000cr to boost infrastructure development in railways, ports, housing and highways.
Fiscal Consolidation: The biggest surprise in the budget has been the fiscal defciit target for FY12 set by the Government which is encouraging for global investors. Fiscal deficit is expected to come down to an impressive 4.6% of GDP in FY12 as compared to 5.1% in FY11. The rolling targets for fiscal deficit are placed at 4.1% for 2012-13, and 3.5% for 2013-14. The targets do look ambitious, but a roadmap to achieve these targets is still to be watch out.