Stamp duty sop to aid CP issuers

The reduction in existing stamp duties by half will significantly reduce transaction charges and benefit issuers of commercial paper (CP), credit rating agency Fitch India said in its comments on the interim budget.

The agency added that mortgages, however, will not be affected by the stamp duty reduction.

The strong improvement registered on the fiscal front has induced the government to go ahead with a few large expenditure increases, notably, merging the dearness allowance (up to 50 per cent of basic) of government employees with their basic pay, which could lead to a potentially significant increase in the wage bill.

However, the process of fiscal consolidation is sought to be carried forward with Budget estimates for the deficit in 2004-2005 at 4.4 per cent of GDP.

"The Interim Budget 2004-2005 conveyed excellent news on the fiscal front. Aided by robust economic growth (GDP growth is estimated at 7.5-8.0 per cent in 2003-2004) together with buoyancy in both tax and non-tax revenues, the revised estimate of the fiscal deficit at 4.8 per cent of GDP (compared to the Budget estimate at 5.6 per cent of GDP) was better than expectation," said Fitch.

Constrained somewhat by the 'interim' nature of this budget, no changes have been proposed to the existing tax structure, although, the government has taken the opportunity to spell out its policy agenda, it added.

Although the budget speech contains proposals to restructure loans provided by public sector banks to the tea and sugar industries, it appears that the proposal may be finalised on prudential considerations after consultations with the RBI and may not negatively impact government banks.

While the primary function of the Interim Budget was to seek a vote-on-account to enable the government to discharge its responsibilities and meet all essential expenditure during the first four months of 2004-05, it also serves to highlight the priorities of the present government.

These include an emphasis on fiscal consolidation, further progress on tax reforms (including stamp duties, apart from direct and indirect taxes), and development of urban infrastructure.