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Budget a good combination of long-term vision and short-term stimulus measures

Y.M. Deosthalee     March 2, 2016

The Union Budget is a fine balancing act by the Finance Minister, who was caught in a difficult situation of balancing the mutually conflicting needs for higher capital expenditure and higher revenue spending, while staying true to fiscal deficit targets.

As expected, there is a distinct rural flavour to the budget, with allocation to both capital creation and welfare schemes being increased. The allocation of Rs 17,000 crore for irrigation and the thrust on fast-tracking projects will, in the long term, reduce dependence on monsoons. As the same time, the allocation of Rs 38,500 crore for MNREGA will help in reducing short-term rural distress brought about by consecutive seasons of deficient rainfalls.

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On the revenue front, while many will be disappointed by the announcements on the dividend distribution tax and the Krishi Kalyan cess, it should be appreciated that the finance minister cannot deliver higher government spending and low fiscal deficits without adequate tax revenues.

As an NBFC, we are glad that there is movement towards bringing about tax parity between banks and NBFCs, with the FM allowing NBFCs to claim 5 per cent deduction on provisions for bad loans.

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The move towards smoothening resolution of disputes and contract renegotiations for Public Private Partnership (PPP) projects is a sign that the PPP regulatory regime in India is finally attaining a fair degree of maturity.

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The government has allocated just Rs 25,000 crore for recapitalisation of PSU banks in FY17 against the Economic Survey's estimate of Rs 1.8 lakh crore over the next three years. Given that PSBs have limited avenues to raise additional capital due to the precarious condition of their balance sheets, one was expecting a higher financial commitment from the government.
Overall, however, the budget is a good combination of long-term vision and short-term stimulus measures that the economy needs under the current difficult global economic environment.


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