A long-term vision document

COMMENT/ Sumant Sinha, president, corporate finance, Aditya Birla Group

'A Budget with a long-term vision' would best describe the fine balancing act performed by the finance minister on Thursday.

The minister has dared to dream about strengthening of the rural infrastructure and boosting agricultural growth, a trigger that is well placed to fuel activity in the manufacturing sector and the overall economy in the future.

Like his earlier attempt in 1997, the current Budget too appears to be focusing on longer term prospects than immediate growth triggers.

Understandably then, the agricultural sector and rural masses have been the main focal point. Improved credit flow, strengthening of irrigation and water bodies and the marketing infrastructure will no doubt trigger growth and productivity in the largest contributor to the Indian economy.

Simultaneous focus appears to have been on reinforcing reforms - amply evident from the increase in FDI limits for the key growth sectors of telecom, insurance and civil aviation, setting up of an Investment Commission, FIPB becoming a one-stop service centre for investors for securing approvals, increase in the list of sectors for automatic approvals and above all, commitment to ensuring fiscal discipline.

Admittedly, time was short to work out modalities of achieving zero fiscal deficit by 2008-09 and reforming direct tax policies, but these issues will hopefully be addressed in the next Budget, as promised.

These bold moves also give comfort on the government's ability to manage the coalition partners and take tough economic decisions.

Yet another positive aspect is the creation of softer infrastructure through emphasis on health and education.

It is applaud-able to note that despite these burdensome social responsibilities and other populist measures such as minority welfare, food for work, guaranteed 100 days of work for the breadwinner in every family, etc, fiscal deficit is forecast to be only around 4.4 per cent.

Efforts to widen the service tax net and exploring new sources of funds like recovery of arrears both in direct and indirect taxes are welcome initiatives.

Naturally, all these should be positive for the serious players in the capital markets, further benefited by the reduction in short-term capital gains tax as well as removal of long-term capital gains tax.

The abolition of long-term capital gains tax has also removed the domicile-related issues faced by the foreign investors.

However, the introduction of turnover tax will have an overwhelming effect in the short term, given the excessive dominance of speculators/traders in the markets on Thursday.

In sum, it is an exciting Budget that carries a long-term vision, but its success will lie in its implementation.