Budget 2012-13: Will agriculture and infra be key beneficiaries?

The Union Budget for 2012-2013 will be an interesting one to watch, not just for the local audience but for foreign observers as well.

India’s gross domestic product threatens to expand by a lowly 7 percent in the fiscal year ending March 2012 and investors, businesses and consumers will be watching to see if the government takes any confidence-boosting steps to reverse that trend.

According to a report in The Economic Times, they won’t be disappointed.

It predicts Finance Minister Pranab Mukherjee will introduce a reforms-studded budget to spur investments and economic activity.

[caption id=“attachment_184601” align=“alignleft” width=“380” caption=“Investments in agriculture will be particularly welcome because they will go a long way in reducing wastages, improving output and most importantly, curbing food inflation. Fayaz Kabli/Reuters”]  [/caption]

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The measures will, in particular, include sops for infrastructure, as well as incentives for investments in sectors such as fertilisers, cold chains and agricultural supply chains. “Driving investments will be one of the key areas. The focus would be on measures for sectors such as infrastructure and those that benefit agriculture and employment generation,” a government official is quoted as saying by the newspaper.

About time too. Large-scale investments have practically stalled in the country due to a toxic mix of regulatory hurdles, environmental and land acquisition issues and high interest rates.

Investments in agriculture will be particularly welcome because they will go a long way in reducing wastages, improving output and most importantly, curbing food inflation, which, notwithstanding the current and possibly temporary dip in food prices, seems like it will be around for quite a while.

Earlier, the government had sought to improve the agricultural supply chain by allowing foreign retail giants like Wal-Mart and Carrefour to open shops in India if they invested a certain portion of their funds in back-end (supply) infrastructure.

However, that proposal backfired after intense political opposition to foreign entry in India’s multi-brand retail sector forced the government to retreat on the idea.

Nevertheless, the fact remains that agriculture is crying out for investments and reforms for the sector will be a big plus for the economy - and the government, which, in recent times, has been accused of being ‘policy comatose.’

Ditto for any measures to promote infrastructure, which has felt the brunt of a drop in investment proposals (they dropped to a five-year low recently). There is absolutely no argument over the fact that India needs more roads, ports and railways.

Of course, this possibly reformist zeal to further throw open the doors to private investments is, no doubt, being stoked by the fact that on its own, the government has very little to spend to prop up the economy.

A yawning fiscal deficit (the gap between government revenues and expenditure) has left the government with little choice but to depend on increased private investments to lift economic growth into a higher orbit.

In other words, the reforms, if they take place, will be the result of a cash-strapped government whose back is against the wall - much like when the first round of reforms were introduced in 1991-92.

In a story last month, Firstpost had already said that the chances of seeing a reformist budget are high in March.As the story noted, “… it makes more sense for Pranab-da to bite the reforms bullet this year rather than next, given that 2013 will be too close to the general election, which the Congress would like to use as a platform to project Rahul Gandhi into office. That is likely to be a blockbuster year for welfare policies and giveaways. In effect, therefore, Pranab-da has a very small window to get his reforms act together.”

It’s now or never for the government’s reformist zeal to strike.