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Infrastructure set to escape Budget cuts

Last updated on: January 9, 2012 10:03 IST

Infrastructure set to escape Budget cuts

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Santosh Tiwari in New Delhi

The Budget this year will likely feature very few tax sops and a generally austere financial approach.

Finance Minister Pranab Mukherjee's fiscal constraints may shape his response to calls for a push to economic growth. Welfare programmes may, however, continue to roll. The food security scheme is set to come up amid a revenue crunch.

Government efforts for a consensus on economic reforms pertaining to pension, insurance and foreign direct investment in retail will go on. But, crucial tax reforms in the form of the direct taxes code and the goods and services tax are unlikely to see the light of day in financial year 2012-13.

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Image: Pranab Mukherjee.
Photographs: Reuters

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Infrastructure set to escape Budget cuts

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GST implementation missing another deadline is a foregone conclusion, yet the finance ministry may expand the list of services under the tax net, from 119 now, or announce a negative list (of exempt items).

As some states are not keen on a negative list, the Budget may go for the former, officials say. DTC provisions on controlled foreign corporations and general anti-avoidance rules to tighten tax loopholes may find a place in the Budget, they say.

Five state assembly election results on March 4 would weigh on reform announcements in the Budget, likely on March 16.

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Image: GST implementation missing another deadline is a foregone conclusion.
Photographs: Reuters
Tags: GST , DTC

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Infrastructure set to escape Budget cuts

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So would the UPA's relations with allies such as the Trinamool Congress. Pension and retail reforms had been deferred in the wake of Trinamool opposition.

Officials say the least possible tax sops would be extended but the infrastructure sector would surely get fresh incentives.

Raising infrastructure investment is being viewed as the main growth-booster formula. Measures to promote foreign investment in infrastructure and norms to ease the entry of foreign funds in the sector are expected, says a ministry official.

The total foreign institutional investment limit in corporate infrastructure bonds is set to be doubled to $50 billion from $25 billion at present.

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Image: Raising infrastructure investment is being viewed as the main growth-booster formula.
Photographs: Reuters

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Infrastructure set to escape Budget cuts

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A widening fiscal deficit, already 86 per cent of the Budget estimates for 2011-12 by November itself, will restrain any sizeable increase in the Plan outlay for ongoing social programmes.

Steps in this direction have been initiated with the Planning Commission having directed all Central ministries and departments to finalise their annual Plan proposals for 2012-2013 keeping in mind three alternative hikes of five, 10 and 15 per cent. Even a 15 per cent rise would be among the lowest in three years.

Officials say the plan is not to cut down the outlay for existing programmes, but limit the hike.

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Image: Widening fiscal deficit will restrain any sizeable increase in the Plan outlay.
Photographs: Reuters

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Infrastructure set to escape Budget cuts

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Bank recapitalisation may still get an allocation, with a committee headed by Finance Secretary R S Gujral assessing banks' needs for the next 10 years.

The Plan outlay is going according to the schedule. In eight months of this financial year, the expenditure stood at 50.1 per cent of the Budget estimates for the entire year.

It is the non-Plan expenditure that could give Mukherjee a headache. Food security alone should cost the exchequer more than Rs 100,000 crore (Rs 1 trillion) a year, according to the agriculture ministry.

The food ministry pegs it much lower, around Rs 28,000 crore (Rs 280 billion).

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Image: Food security alone should cost the exchequer more than Rs 100,000 crore.
Photographs: Reuters
Tags: Gujral , Finance , Bank

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Infrastructure set to escape Budget cuts

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Petroleum and fertiliser subsidies will compound matters. Faced with a widening gap between expenditure and revenues, amid lower than expected tax receipts, the government decided to raise its market borrowings by a little less than a fourth of the original amount of Rs 4.17 lakh crore (Rs 4.17 trillion) for the year.

Differences over disinvestment options will further impinge on government fund-raising. The government is yet to come out with a new road map to reach its fiscal deficit targets in the medium term.
The earlier targets expired in 2008-09.

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Image: Petroleum subsidy will compound matters.
Photographs: Reuters
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The 13th Finance Commission had recommended a timetable, whereby the deficit should be pruned to 4.8 per cent of GDP by 2011-12.

The government aimed higher and set the target at 4.6 per cent of GDP. However, given the aforesaid performance till November, ministry officials now concede it would be 5.5-5.8 per cent.

The commission's recommendation for 2012-13 is 4.2 per cent.

If the suggestion is not overlooked, Mukherjee's hands will be tied and hopes of an expansionary Budget dashed.


Image: Finance Commission wanted the deficit to be cut to 4.8 per cent of GDP.
Photographs: Reuters

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