Budget-making is always a challenge for the Union Finance Minister. But when the critical economic parameters that determine growth, investment and consumer spending are at risk, he has to walk the tightrope to garner resources for public spending and at the same time leave enough room for ensuring that private expenditure is not stifled.

True, the global economy is in turbulence. The lingering Eurozone sovereign debt crisis continues to nag major economies of the world as they struggle to claw their way out of the recession and high unemployment levels. The crisis has spawned volatility in capital flows and a slowdown in external demand. For policy makers, these are testing times.

Union Finance Minister Pranab Mukerjee has to contend with the decline in consumption and investment growth as the monetary and fiscal policy response in the past has been tuned to moderate domestic inflationary pressures.

Even so, getting back to a healthy growth trajectory is imperative. The recent Economic Outlook Survey by FICCI reveals that bulk of the respondents feel that growth in 2012-13 would be under 7 per cent.

There are concerns on the fiscal side too. The slippage in fiscal deficit in current year may be more than 100 basis points vis--vis the budgeted fiscal deficit, going by the estimates. However, more importantly, the consensus fiscal deficit estimate revealed by the FICCI survey in the next fiscal is 5.1 per cent, indicating that the process of fiscal consolidation will be long and arduous and it may be difficult to plough it back to the levels witnessed prior to the crisis.

The Budget for 2012-13, must, therefore, initiate new reforms with a view to energising growth. It is necessary to cast the direct tax net wider and ease the fiscal pressure by privatising coal mines, announce one-time amnesty scheme to encourage Indians to bring back their overseas wealth and build inventory of government assets other than PSUs that can be monetised.

To promote investments, North Block must use the instrument of direct taxes effectively. It should ensure that the tax administration is made assessee-friendly to improve compliance, restore investment allowance to enthuse entrepreneurs and motivate them to undertake productive investments.

Furthermore, the ensuing Budget needs to ensure that the cascading impact of Dividend Distribution Tax [DDT] removed, depreciation rate restored to 25 per cent and tax exemption of income from investment in infrastructure and other projects restored under section 10(23G).

It should be noted that capital intensive projects with long gestation period are unable to recover (Minimum Alternate Tax) MAT by way of set-off from future tax liability during specified period of 10 years. The MAT rate should therefore be rationalised from a high 20 per cent to a more reasonable level - not exceeding 50 per cent of corporate tax rate and units in SEZs and SEZ developers as well as Investment companies should be outside the MAT ambit.

The Budget proposals should also encourage R&D. One way of doing this is to make the amount of weighted deduction under section 35(2AB) deductible while computing tax under MAT and weighted deduction benefit under Section 35(2AB), which expires on March 31, 2012, should be extended for another 5 years. All expenditures related to research whether involving in-house facility or outside approved facilities should be eligible for weighted deduction and tax benefits should be given to units engaged in the business of R&D or contract manufacturing rather than just for in-house R&D facilities.

In view of the huge volatility in the foreign exchange rates, there a need to allow losses on account of foreign exchange as revenue expenditure including unrealised year end mark-to-market losses and forex derivative and hedging transactions should be specifically excluded from the definition of speculative transaction under Section 43(5)(d).

On the indirect tax front, Budget 2012-13 should introduce alternative measures in lieu of refund mechanism to ensure that refund is granted in time bound manner; show cause notices should be adjudicated within a defined or prescribed timeframe; CST rate should be reduced to 1 per cent; CST provisions to be aligned with SEZ Rules granting benefits to contractors and sub-contractors and Advance Ruling should be allowed even in case of transactions between domestic entities.

There is also the need to expand the scope of the term 'input services' under Cenvat Credit Rules, 2004 so that credit of all the services used in business is available; clarity on point of taxation in case invoice is raised or services are provided before services became taxable; threshold limit should be applicable even in case of payment of service tax under reverse charge; extension of time limit for revision of service tax return; recipient of service should not be made liable for non-issuance of invoice by the service provider in cases where liability to pay service tax is on recipient and adjustment of excess or short payment of service tax to be permitted within the same financial year, without any monetary limit.