New Delhi, July 6 (Inditop.com) The union budget may not be a “please all” budget, but it is a fair effort by the government to achieve 9 percent growth while coping with the challenge of 6.8 percent fiscal deficit, says the research arm of Moody’s.
“India’s 2009-2010 fiscal budget may not please all, but is a fair effort by the government to address two important existing concerns,” says Sharman Chan, economist with Moody’s Economy.com.
“Policymakers took expansionary steps in a wide range of areas including trade finance, farm subsidies, rural health, food security for poor households and environment protection,” Chan said.
“However, given the heavy debt burden and yet another large fiscal deficit – projected at 6.8 percent of GDP – the Indian government could not afford overly aggressive moves. The latest fiscal boost are all relatively moderate.”
According to her, despite the challenges, policymakers have taken some much-needed steps like funding support by the India Infrastructure Finance Co for infrastructure development.
“This is a welcome step, as infrastructure bottlenecks have long choked India’s potential growth. Further to the long-term benefits of stronger economic fundamentals, infrastructure construction can also boost the economy right now by fuelling production and creating jobs,” Chan added.
“Spending on the National Rural Employment Guarantee Scheme will increase 144 percent this fiscal year, which should benefit the predominantly low-income households in the rural regions.”
Additionally, income tax reforms, which include giving higher thresholds for seniors and women, will also extend crucial support to some of the community’s most vulnerable groups.
On the flip side, Moody’s Economy.com said, the debt relief programme for farmers is not an efficient use of limited funds, and suggested that the government focus more on exploring the underlying problems and address what is causing debt accumulation.
On leaving corporate tax rates unchanged, Chan added: “Sitting tight appears to be the optimal choice for now, as a hike in taxes could derail economic recovery while a cut could put more downward pressure on the fiscal balance.”
However, she said, the plan to introduce a goods and services tax (GST) may need further consideration.
“Although a wider tax base could help to generate revenue and therefore contain future fiscal deficits, the GST is a regressive tax that hurts low-income households the most and may come at the expense of social stability,” Chan said.
