Reactions

Union Budget – F10

The budget is a growth oriented budget. In FY09, if we had seen an Economic growth of 6.7% ,one of the major contributors to this growth was the government expenditure and the stimulus packages by the government. Since the budget provides for more than 35% increase in government expenditure, this alone is going to increase the growth rate of the economy in a big way. We can expect a growth rate at least 7.5% and as other segments of the economy start picking up , the economic growth may go even higher . If it reaches, 8 – 8.5% in FY 10, it should not come as a surprise. The government has done what it could do best at this moment. i.e., to stimulate the consumption and investment in the Economy. The consumption push will come 1) From increased government expenditure 2 ) From rural areas since agricultural credit is likely to be increased substantially and the coverage of NREGS has been widened 3) From the salaried class including government employees due to VI commission and reduced tax levels. The investment push will come from increased focus on Urban Development and Infrastructure development. The push on both consumption and investment is likely to increase the demand for other industries.

The budget deficit looks big but at this moment . At present it is not clear , how this is likely to be bridged. The expected announcements regarding relaxation in FDI norms for various sectors, big sized PSU Disinvestments were not announced. But, government must have plans to raise resources from non conventional sources and the announcements are likely to be made during the year.

The government could look at the following targets , which would help to reduce the pressure on fisc .

1) Look at an FDI of $ 40 bn and accordingly identify the sectors for further liberalisation. The sectors which could help to achieve this target include Telecom, Insurance , Airlines and Retail.
2) Set a target to attract remittances of $ 35 bn from Indians living abroad.
3) Float a tax free infrastructure bond for Rs.50000 cr and those who invest in these bonds could be exempt from declaring the source of income .
4) Set a target to achieve disinvestment proceeds of Rs.50,000 cr.
5) Additional resources raising from Telecom Sector . Rs.50,000 cr. Auctioning of spectrum and other revenues including additional revenues from growth of this sector.
6) Generate additional revenues from capitalizing the land resources available with Railways and PSU's. The additional income generated by these entities could be paid to the government in the form of dividend. The government could target a dividend income from PSUs of Rs.40000 cr a year.
7) Government can raise resources through direct land sale.
8) Quantitative easing can generate another Rs.1,00,000 cr. This strategy has been adopted by many countries in the world today .
9) For Infrastructure and Urban Development , the government can target to raise not less than $ 10 bn from aid agencies like World Bank, ADB and Partner countries like Japan.

The above measures would help to keep our currency stable and stock markets buoyant. The companies can raise capital for their growth. We can expect to bring another $ 7 - $ 8 bn of FII money into the country.

Profile of Mr.R.Kannan

25 years experience in Management Consulting and Corporate Head Quarters of Industrial Houses . At present advising Hinduja Group on Finance and Strategy related issues at the group level and Heading Corporate Performance Management /Monitoring of all the group companies in the Group in India. Was a member of Expert Committees in CII/ Bombay Chamber of Commerce and Industry and Indian Merchant's Chamber on Committees relating to Industry, Economy, Banking, Transportation, Environment, etc. Since interested in Economic Development of India, shared the details of emerging trends in the Global Economy and the various industrial sectors with the Government Stake holders from time to time.

Address : R.Kannan
Flat. No. 102, Tejas Heights
Plot, 245, Sion Matunga Estate
Tamil Sangam Road
Sion - East Mumbai - 400 022. rajakannan@rediffmail.com





R.Kannan
Mumbai
98203 53825