Three - point growth formula

Three - point growth formula

Union Budget 2013 managed to ward off the financial burden of populist measures given the last budget before the clarion call for elections in 2014. In fact, the FM also kept his focus in maintaining the fiscal deficit downwards and with that goal in mind has yet managed to provide some relief in the form of measures that would have impact only in the long term. From a short term perspective, there is very little that it has to offer to our industry.

The budget exercise has lost much of its past relevance as many of the actions which have an impact on cement supply and demand are now independent of the budget. The appointment of the road regulator will be yet another forum created which will hear the pleas of the roads & highways sector and offer redressal. Even though the FM announced the awards for 3000 km of roads, we have learnt by experience that at grassroot level unless 100 per cent of the land is acquired these projects do not take off. The impact of diesel will be ongoing as the prices would now be revised regularly. The rail freight hike of 5.79 per cent would hurt margins and in all likelihood will be passed on to consumers thereby causing a price hike. The demands of the real estate industry have yet to be met as the Real Estate Regulatory Bill is to be passed in the Parliament session. In fact, several important bills like Land Acquisition Bill and others are waiting to be passed in the sessions too. More would come out of the clearance of bills in parliament than that came out in the budget. But one must admit that the FM had many limitations due to a ballooning fiscal and current account deficit.

Amidst all this, FM has brought in one dynamic measure which was greatly needed. The manufacturing sector over last few years has suffered as the share of services in the GDP has been escalating. While the increasing share of services in GDP is no cause for worry by itself, it is the declining share of manufacturing in the GDP which needed attention. From a trajectory of 8-9 percent, manufacturing GDP growth has slowed to a compound aggregate growth rate of 2.5 percent over 2010-12 and has almost flattened (0.5%) during the first six months of FY 2012-13. This has ironically been after the announcement of the national manufacturing policy that included a bold vision for manufacturing to achieve 25 per cent share of the economy by 2022. The CII and Boston Consulting Group (BCG) report - titled "Reigniting India's Quest for Manufacturing Leadership", points out to an emerging window of opportunity for India which will mean looking beyond the low cost advantage. To motivate manufacturing, the FM has proposed a tax break in the form of an investment allowance at the rate of 15 per cent to a manufacturing company that invests more than Rs 100 crore in plant and machinery during the period 1.4.2013 to 31.3.2015. This would be a benefit for expanding plants and those that are setting up new plants.

To revive the economy, the government needs to 1) clear projects stuck for clearances 2) clear disputed amounts of contractors through a quick dispute resolution mechanism and 3) reduce rates of interest. If the three points are quickly resolved, we are sure to resume our journey towards a healthier GDP growth.

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