In this photograph taken on March 4, an Indian engineer gives instructions to a cable crane operator through a wireless set at the site of the under-construction world’s highest railway bridge over the Chenab river in Kauri, in Jammu and Kashmir state. Indian engineers are toiling in the Himalayas to build the bridge which is expected to be 35 metres taller than the Eiffel Tower when completed by 2016 and which will link sections of the spectacular mountainous region of India’s northern Jammu and Kashmir state.—AFP

A LOT was expected of the maiden full-fledged budget of the Narendra Modi-led National Democratic Alliance government, that was presented to parliament on the last day of February by Finance Minister Arun Jaitley. And considering the hype that was built around the budget — by business lobbies and some observers — it proved to be a letdown for many.

Budgets are eagerly awaited by industry and trade lobbies, business houses, professionals and even the salaried class because finance ministers have over the years made it a high-profile exercise, where they either shower the different constituencies with gifts in the form of tax breaks, or inflict them with pain by raising duties and taxes.

Jaitley too had a lot of goodies to offer businesses and individuals, the affluent and the not-so-well-off. The biggest gain for the corporate sector was Jaitley’s promise to cut tax rates from 30pc at present to 25pc in about four years, making Indian businesses competitive, vis a vis rivals in Southeast Asia.

According to Shaktikanta Das, revenue secretary, India’s present corporate tax rate is not competitive and businesses have the option of relocating to countries such as Thailand and Indonesia. The government has also tried to deflect criticism that it has given concessions to big business by justifying that the move to slash taxes is complemented by the decision to withdraw all exemptions.

Many companies today pay far less than even 25pc thanks to the slew of exemptions that industry enjoys. Tax experts have for years been calling for a pullback in all exemptions. Indeed, with India heading for the goods and services tax (GST) regime, it will have to withdraw all tax exemptions and concessions, both to corporates and individuals.

The budget also saw Jaitley raise the service tax from 12.36 to 14pc as part of the move towards GST. Jayant Sinha, the minister of state for finance, points out that many steps need to be taken in the area of service tax and excise (which is levied on manufactured goods) to ensure the smooth rollout of GST. There would necessarily be an increase in service tax to bring it on par with the revenue-neutral rate, he adds.

While Indian business lobbies appeared happy with the changes, international credit rating agencies felt the government could have done a lot more to enthuse the global investor community. The major objection was to the finance minister’s decision to go easy on meeting the fiscal deficit targets.

While in the current fiscal, he will maintain the goal of limiting the fiscal deficit to 4.1pc, Jaitley will not be able to do so over the next two to three years. For fiscal 2015-16, the original target, which Jaitley had endorsed last year, was 3.6pc of the GDP. However, he chose to ignore that target and opted for a 3.9pc fiscal deficit in order to boost public spending on infrastructure. He also delayed the fiscal consolidation programme — of achieving a fiscal deficit of 3pc — by a year, by postponing the target date to 2017-18.

Last week, even Reserve Bank of India (RBI) governor Raghuram Rajan red-flagged the move. “In the short run, the postponement of fiscal consolidation to the3pc target by one year will add to aggregate demand,” said Rajan. “At a time of accelerating economic recovery, this is, prima facie, a source for concern from the standpoint of aggregate demand management, especially with large borrowings intended for public sector enterprises.”

JAITLEY was under pressure to boost spending on infrastructure, which has been a major concern for the government. India’s GDP is expected to grow at 7.4pc in the current fiscal. Next year, it is projected to expand between 8.1pc and 8.5pc, making it the fastest-growing large economy in the world. However, Modi and Jaitley want to push this to double-digit levels in a few years.

And that can be achieved only when there is a huge increase in investments in infrastructure, especially in sectors including power, telecommunications, roads and highways, ports and airports. The minister announced the setting up of a National Investment and Infrastructure Fund, with the government contributing Rs200bn.

He also announced tax-free bonds for investments in the infrastructure sector, especially railways, roads and highways and irrigation projects. India’s power sector is ailing, with many states facing acute shortage of electricity. Jaitley decided to pursue the previous United Progressive Alliance government’s policy of encouraging the setting up of ultra-mega power projects.

Five such projects, each of 4,000 MW, will be promoted, drawing investments of a trillion rupees. The NDA government has an ambitious programme to ensure that all Indians get electricity connections by 2019-20. About 20,000 villages across the country still do not have electricity.

The earlier experience with ultra-mega power plants has been disappointing with many of the projects getting unduly delayed and disputes arising over various issues, including the use of imported and costly coal for the plants. The projects are being executed under the public-private partnership model, but many of the private producers are demanding higher tariffs, which state electricity boards are refusing to accept.

And of course, the biggest challenge to such projects is acquisition of land. The NDA government tried to rectify some of the excesses of the Land Acquisitions Act that was introduced by the previous UPA regime. But it has been facing stout resistance from opposition parties including the Congress, who have been trying to raise the bogey of the government pursuing an anti-farmer stance.

In the absence of any change to the land acquisition act — which makes it nearly impossible for a business entity to acquire large tracts of land at reasonable cost and within a stipulated timeframe — the success of the new ultra-mega power plants project is uncertain.

The NDA government, which enjoys a comfortable majority in the Lok Sabha, the lower house of parliament, is in a minority in the Rajya Sabha, the upper house. While this should not prevent it from pushing through key legislation — for instance, by calling a joint session of the two houses — it will always be a source of agony for the government as passing bills will be a complicated process.

Published in Dawn, Economic & Business, March 9th, 2015

On a mobile phone? Get the Dawn Mobile App: Apple Store | Google Play