The Sharp Young Suits at the Indian School of Business in Hyderabad, India, have decided to give a 7 on 10 to Pranab Mukherjee’s Union Budget for 2011-2012.



I do not find this surprising at all, because the Sharp Young Suits at the ISB, who will be re-entering the job market at a fairly senior levl, are being trained, even as a speak, to conform. And these young suits believe they need to conform to get an edge in the mortal combat ahead, a.k.a. a corporate, white-collar job.



Here’s the ISB article, which appeared in the Indian online edition of The Wall Street Journal:





WSJ, Tuesday, March 1, 2011, 2:07 PM IST Budget Review From ISB



By Akshay Rajagopalan and Sanjeev Sharma





Akshay Rajagopalan:



Finance Minister Pranab Mukherjee’s sixth budget is not a spectacularly reformist one and does nothing to topple the economic applecart. It is both balanced and growth oriented, although it falls short in some key areas.



Managing fiscal deficit



The fiscal deficit target for FY2011-12 has been ambitiously pegged at 4.6%, down from 5.1% this year through March, but we question the feasibility of this target since various subsidies are believed to be under-reported. Improving the fiscal deficit is critical from the point of view of stimulating private investment and controlling inflation. It would also aid debt markets, thereby creating engines to fuel growth. The reduction in the deficit from 5.5% to 5.1% this fiscal year was aided by windfall gains from 3G spectrum allocations, and it will be interesting to see what instrument the government uses to achieve the target this year.



Taming inflation



Inflation is one of the major issues plaguing India’s economy, but surprisingly the budget didn’t have a clear focus on curbing prices. The exemption limit on personal taxes has been raised marginally to give some relief to aam aadmi (the common man), but there are no major budgetary measures to keep inflation in check in the short term.





Sanjeev Sharma:



Repatriating black money



It is also heartening to note that the fight against corruption and black money got a mention in the finance minister’s budget speech. A five-fold strategy has been announced. The most prominent initiatives are the formation of a Financial Action Task Force for anti-money laundering and a comprehensive national policy for taking legal action on black money from drug-trafficking. The intent is clear, but the efficacy of the proposals will depend on how well they are executed.



Personal taxes





On the personal income tax front, the finance minister announced a modest rise in the exemption limit from 160,000 rupees ($3,534) to 180,000 rupees ($3,976). In an environment of persistent inflation, this might be viewed as grossly insufficient. There is, however, a bonanza for senior citizens.



Industry Impact





The budget is largely positive for industry. On the indirect tax front, the finance minister has given industry a boost by maintaining peak excise duty at 10%. He has also reduced customs duty on inputs used for selective industries, which will help moderate the effect of rising input prices. We believe this will trickle down to consumers in the form of lower prices. Mr. Mukherjee plans to compensate for these sops by widening the service tax net and marginally increasing the minimum alternate tax, among other measures. However, the net effect to the exchequer of all the tax proposals is a loss of two billion rupees, which will make the attainment of the fiscal deficit target even more challenging.



Accelerating Infrastructure Development



The infrastructure sector has received a shot in the arm with an increase in planned outlay and the raising of the limit on foreign institutional investment in corporate bonds to $25 billion, among other measures. However, the real challenges to the infrastructure sector are on the execution side, so we are viewing the increase in funding with cautious optimism.



Reinvigorating Agriculture



It is common knowledge that inefficiencies in India’s food supply chain have led to tremendous losses in perishable food items. This budget brings an increased focus and higher spending on warehouses and mega-food parks, which will help cut losses and improve supply, helping cool food inflation. The budget also brings in measures to increase credit flow to the agriculture sector. The Finance Minister wants to improve rice-based cropping systems in India’s eastern states and he has also promised to remove bottlenecks in the production of wholesale price index-critical items, such as fruits and vegetables.



The allocation for the Rashtriya Krishi Vikas Yojana has been increased by 16% to 78.6 billion rupees, which should help funding agricultural schemes. But the real improvement has to come from better farm productivity that leads to increased production per acre of cultivable area.



Education



Education spending remains a mixed bag. The outlay on education has been raised by 24% to 521 billion rupess and more stress is being laid on vocational education, but no impetus has been provided specifically for higher education. Education loans should have been brought under priority sector lending to help young talent access better education.



Overall, the budget maintains the status quo, but it should still fuel India’s socio-economic growth trajectory.



We, at ISB, give it a 7/10 rating.



Puneet Jain, Sudeep Laad, Niloy Sadhu and Sidharth Malhotra contributed to this article.



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