Propriety with progress

INTERIM BUDGET & THE ECONOMY/COMMENT

Enam Financial Consultant

It is a job done without jettisoning the constitutional propriety during a vote on account. Albeit, a lot of reforms such as reduction in excise and customs duties to increase competitiveness and reduced cost have already been announced.

The interim Budget gives a big boost to credit availability to farmers, small-scale enterprises and even bigger businesses through through IDBI.

This is a major step as it can lift those at the bottom of the heap by helping them in a responsible manner rather than merely holding a loan-mela.

The Budget has balanced economic imperatives with political needs. For instance, it has merged the dearness allowance with basic salary of Central government employees.

It also has some bold steps like the reduction of stamp duty and the substitution of income tax on shipping with tonnage tax. The finance minister has done the expected by extending the income tax exemption on new power projects.

The most heartening part is, of course, the saving on expenditure achieved in 2003-04 and, as a result, a lower fiscal and revenue deficit than what was projected earlier.

Also, the persistence with privatisation is helping the fiscal situation. I agree with the finance minister's judgement that going forward, the fiscal deficit will be contained by the growth in the economy.

The fears that the innovative efforts through rural roads, canals, kisan credit, life insurance for the poor and so on will be at the cost of inflation and high interest rates may not be well founded.

Propriety with progress is how I will sum up this Budget.

Harsh Goenka,
Chairman,
RPG Group

A no-tax Budget day

No surprises as expected. However, the finance minister has achieved a feat by reducing the fiscal deficit in the current year to 4.8 per cent against the projected 5.6 per cent in the last Budget.

This has been made possible, partly by increase in revenue and by a restraint on expenditure. What is important is that the deficit is proposed to be squeezed further to 4.4 per cent next year.

A series of schemes have been announced to ease credit to farmers and small scale industries that should help keep up the development of these sectors and generate productive employment.

The provision of funds for infrastructure, industrial development and defence modernisation is an effective means to stimulate progress in critical areas, which will have an excellent fallout effect on the rest of the economy.

Creditably, the finance minister has kept in mind the pending needs of long-term development, despite the demands of an election year. That should ensure that GDP growth remains high in future.

The decision to keep business process outsourcing operations out of the tax net is essential for a promising industry, although an unqualified exemption would have been more welcome.

The incentives for the power sector are very encouraging. The continuation of exemption on long-term capital gains tax helps keep the slate clean on what is clearly a no-tax Budget day.

Ruchir Sharma,
Managing Director,
Morgan Stanley Investment Management

For macroeconomic gain

The political cycle typically plays an important role in determining the economic and stock market cycle in most countries. Ruling governments try to ensure that the economy is going strong on all fronts in the run-up to an election.

However, in the case of India, the connection between macroeconomic and political success has not been taken too seriously, with only random "sops" handed out prior to an election; something that typically made for bad microeconomics.

That is beginning to change with the government making a political deal out of the improved macroeconomic profile. Also, the fact that the vote-on-account was largely a non-event is another demonstration of that change, given the absence of too many "sops".

A strong synchronous global upturn and a positive monsoon effect are providing enough momentum to the Indian economy and any additional tinkering may mean more harm than good.

Financial markets have long shown an indifference towards the biggest worry of economists "" the fiscal deficit.

The numbers provided by the finance minister in his speech prove that the markets have been right in not worrying much on that front as the deficit is naturally reducing due to lower interest rates and strong economic growth.

However, the somewhat negative reaction of the stock market following the speech again proves the point that the Indian market is mainly driven by trends in the global marketplace and the recent weakness is in line with the sharp corrections being witnessed in several other emerging markets.