Union Budget 2010-11 encourages investments without being evangelical about it. The effective reduction in direct taxes on individuals and corporations will sustain the investment plans of enterprises. The budget effectively reduces the taxes paid by individuals, and so, increases discretionary purchasing power of households. Enterprises will directly benefit. Confidence in future demand is the key driver of their investment decisions.
The reining-in of the fiscal deficit will send positive signals to investors, particularly foreign ones, that India remains committed to fiscal discipline. The minister has also promised to improve the investment environment, particularly for FDI. Buoyant consumer demand and lower direct taxes, along with these positive signals, should encourage the flow of foreign capital.
The government promises to spend 46 per cent of its plan allocation on infrastructure. It has doubled the allotment for power. Total government expenditure will rise. This should strengthen consumer spending, the key driver of investments.
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