Assuming an average inflation of around 5 per cent in the next fiscal, Finance Minister Jaswant Singh has projected a growth in real GDP of around 6.3 per cent -- the nominal growth projected is 11.28 per cent for 2003-04.
His strategy to achieve this growth is essentially two-fold. One, Singh has adopted a contra-cyclical fiscal stance to catapult the economy into a high growth trajectory. This has prompted him to increase government-led expenditure in key infrastructure sectors, which have strong forward and backward linkages in the economy.
Second, announcing high tax cuts in excise and customs for growth-generators like motor cars, for instance, is expected to generate high consumer demand. For 2003-04, the government has set aside around Rs 2,000 crore for infrastructure development in roads, railways, seaports and airports.
This would be leveraged to invite private investment. If you go by the budget targets, public-private partnerships are expected to raise Rs 60,000 crore for funding projects in infrastructure over the next two to three years.
The infra funding initiative includes construction of 48 new roads at a cost of Rs 40,000 crore, National Rail Vikas Yojana projects worth Rs 8,000 crore, renovation and modernisation of two airports, and two seaports at a cost of Rs 11,000 crore and setting up two global standard international convention centres at a cost of Rs 1,000 crore.
It is proposed that all the projects will be developed by the private sector on a BOT basis. Where the government will step in, however, will be to make good the shortfalls. So, let's say a road project is to be completed, and the government fixes the tolls that can be charged for this.
If, however, this is too low for the project to be attractive, the government will step in and add some sweeteners to the project. Another possible area of intervention could be in providing low-cost loans for the projects -- in this case, the government will lower the effective interest rate by offering to pay part of it.
In order to ensure the projects take off on time, Singh has linked the release of public funds only to achievement of specific and well-defined milestones in completion of the project in physical terms.
It also entails sharing of the risks with the private promoters and financiers. The finance minister has also categorically stated that the government would not provide any open-ended guarantees at any stage.
Singh has also taken advantage of the low GDP growth base of 4.4 per cent in the current fiscal to project a near 7 per cent economic growth in real terms in 2003-04. In the current fiscal, while agricultural production declined by 3.1 per cent, manufacturing registered 6.1 per cent growth and services grew by 7.1 per cent.
In a bid to increase the disposable income of households, he extended standard deduction of Rs 30,000 to individuals with annual income up to Rs 5 lakh and did away with the 5 per cent surcharge on individuals with up to Rs 8.5 lakh annual income. He also retained the Rs 1,50,000 tax deduction available on housing loans since it aids growth in core sectors like steel and cement.
To lend a feed good factor to the markets and induce consumption, the finance minister has slashed the excise duties on ACs, motor cars and aerated soft drinks from 32 per cent to 24 per cent.
He has also halved the surcharge on corporate taxes to 2.5 per cent besides done away with long-term capital gains tax on listed securities bought after March 1, 2003 and sold after a year or more.