Walking the talk as elections near will be key

While preparing the Union Budget,finance minister P Chidambaram had two options before him.

While preparing the Union Budget,finance minister P Chidambaram had two options before him. He could have either gone the populist way to placate voters,given that India goes to the polls next year,or walk the tight-rope of fiscal consolidation. I believe he has taken the more responsible route of fiscal consolidation.

However,whether the measures will actually result in concrete outcomes will depend on their implementation and the government sticking to its expenditure roadmap as the elections draw near.

The big positives to have come out of the Budget are largely in housing and textiles. Although the finance minister did not offer any tax incentive to the man on the street,the first-time home buyer has some reason to cheer.

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New loans up to Rs 25 lakh for first home will be eligible for an additional tax deduction of Rs 1 lakh for interest payments. This should revive demand for affordable homes,and have a cascading effect on linked sectors such as cement and steel,and also on the housing finance business.

The textile sector in India also has much to look forward to. The proposal to extend the TUFS (Technology Upgradation Fund Scheme) with Rs 2,400 crore will enhance investments to upgrading technology.

This will make our textile exports more competitive.

The Budget continued to place focus on developing the capital markets and infrastructure sectors. For the capital markets,the good news was the exemption of the Securitisation Trust from income tax.

This will encourage financial institutions (such as mutual funds),which had stopped investing in these papers because of tax implications,to return to this sector and is a big positive for the debt markets.

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Within infrastructure,the finance minister has expanded the focus beyond building roads and ports to warehouses and industrial corridors to attract private investments in these areas.

Urban infrastructure will also receive a big boost through the allocation of nearly Rs 15,000 crore for the JNNURM (Jawaharlal Nehru National Urban Renewal Mission),nearly double of the current year.

The Budget also envisages private participation in the coal sector in partnership with Coal India. However,given that previous Budget targets regarding infrastructure have seldom been met,one is inclined to be cautiously enthusiastic.

The finance minister has covered a lot of ground on fiscal prudence with this budget. However,he has to be on the ball right from the beginning to monitor expenditure,and also revenue which is aggressively targeted to grow at 23.4 per cent.

Falling prey to populism may yet undo his efforts.

Roopa Kudva,MD & CEO,CRISIL