Report by India Education bureau, New Delhi: ASSOCHAM today said the Finance Minister Mr P Chidambaram should stick to his basic Budget philosophy of fiscal consolidation and not get bogged down by short-term reaction in the stock market or clamour in certain political quarters for loosening the purse strings in an election year.

“The stock market’s negative reaction was on one or two specific issues. While its expectations from the Finance Minister for a non-adversarial tax regime is understandable, it is a pity that no attempt has been made to reach a big picture which Mr Chidambaram has tried to correct,” ASSOCHAM President, Mr Rajkumar Dhoot said.

He said the biggest takeaway from the Budget is that even at the cost of paying double the rate of surcharge, the corporate India should feel relieved that the looming danger of India getting downgraded to a junk investment grade by global rating agencies has been thwarted.

“The consequences of rating downgrade would be disastrous as it would have led to a sharp currency depreciation, interest rate increase in the domestic market and high cost of external commercial borrowings and high import-related inflation,” said ASSOCHAM.

By sticking to the fiscal deficit targets of 4.8 per cent for the FY 14 and 5.2 per cent for the current financial year, the Finance Minister has ensured that India would continue to enjoy steady investment status. Mr Dhoot expressed the hope that the confusion arising out of a new explanation on tax residency certificate would soon be cleared by the Finance Ministry. 

The ASSOCHAM also pointed out that since elections in several states and for Parliament are due in the next one year, clamour for sops at the cost of fiscal prudence is but expected.

But, “we would impress upon the Finance Minister not to yield to such demands and remain focussed on the big picture since the Indian economy is at the vulnerable juncture in the face of adverse global environment.”

The efforts to contain the current account deficit which is expected to be five per cent of the GDP should be doubled by containing crude oil consumption (by reducing subsidies), incentivising shift of investors from gold to innovative saving channels and giving major sops to the merchandise exports. Even the services exports such IT should be facilitated, the chamber said.

The budget will revive the manufacturing sector which had come under stress. The biggest takeaway for the sector is the investment allowance. Besides, the boost to the infrastructure sector in terms of raising of the limit for tax free bonds to Rs 50,000 crore for 2013-14 will have a positive spillover for the overall economic growth,” said ASSOCHAM.

 Besides, a genuine attempt with the help of Power Minister Mr JyotiradityaScindia is being made to remove bottlenecks in the power sector. The other infrastructure sectors like roads and highways are also getting government attention which will revive the investment sentiment.