Budget reactions

F A VANDREVALA,
MD, Tata Power & Chairman, Tata Teleservices

Given the conditions and constraints and that It is only a less than 9-month budget, I guess this is the best any FM could do. With 8% growth last year and the need to maintain the growth rate this year, in addition to meeting the requirements of the CMP, what else could he do?

In addition to Roti, Kapda, Makaan, this Budget has moved to water, health, education and employment. How he will raise resources to meet these objectives is not clear, However his statement to reduce revenue deficit from 3.5% last year to 2.5% of GDP this year is laudable and commendable.

There are two concerns in the power sector - affordability and reliability. To make power affordable, we were expecting elimination of customs duty on import of fuels for power generation and other sops. On that score this Budget makes no contribution.

In an indirect way, the extension of 80-IA benefits for investments in the transmission and distribution sectors Is a very welcome move.

Ajay Sondhi,
Vice Chairman & MD, Kotak Investment Banking

The finance minister has focused on the priorities to enable and sustain accelerated long term economic growth and development.

As the Goldman Sachs BRICS report highlighted, India has the potential to become one of the world's top 3 economies in thirty years. The Budget focus on infrastructure, agriculture, health and education will build a robust foundation for India to realize itsdestiny.

The focus on Infrastructure is a holistic one. Timely and adequate debt financing for infrastructure by creation of the Inter-Institutional Group; increased FDI caps for the Telecoms, Civil Aviation and Insurance sectors; Section 80IA benefit continuance for projects in the Power sector; and an Investment Commission to make it easier to invest in India.

With a more conducive investment environment, private investment and private-public partnerships in infrastructure projects should see a definite pick-up.

Krishnamurthy Vijayan,
CEO, JM Mutual Fund

A realistic Budget is what we had hoped for and I think the finance minister did not let us down. Perhaps, never before has the market waited with more anticipation than it has for this budget, and hence, to some extent an initial feeling of mild disappointment was inevitable.

In my own view, however, he has surpassed expectations, by carrying out a fine balancing act between political compulsions and economic reality. Let us look at the most interesting aspects of this budget.

While it has indeed responded to the demands of the CMP (as the finance minister pointed out so often during the course of his speech), it has in reality just organized, re-shuffled and promised to rationalize "developmental" programs that have always been in place, and perhaps never really been implemented effectively.

The overall thrust on government spending on infrastructure, the defined contribution plans and sundry other provisions all point to the fact that we have a finance minister who means business - and that seems to auger well for business!

Kiran Mazumdar Shaw
chairman & managing director, Biocon Ltd

The Union Budget 2004-05 is essentially a directional budget and is extremely positive. It focuses on manufacturing, agriculture, job creation and primary education.

It is too early to comment on its impact on the biotech sector, as it briefly mentions and increased fund allocation and an extension on tax deduction for R&D.

It also mentions the special focus on vaccines and diagnostics, which could benefit the sector. All of the above are positive and promising.

P R S Oberoi,
chairman, The Oberoi Group

A commendable budget focusing on basic necessities such as water, health and education. Agriculture and agro processing should fuel growth. The progressive nature of the proposals presented by Mr. Chidambaram with regard to infrastructure are reassuring.

The increase in foreign direct investment in aviation, insurance and telecom show that liberalisation policies will continue.

Sam Ghosh,
country manager, Allianz and CEO, Allianz Bajaj Life

The impact of budgetary announcements on the insurance industry is good for the growth of insurance sector in India. By raising the FDI in the private life insurance to 49% from 26%, the government has provided financial flexibility to the insurance companies. This policy will henceforth make investments into insurance companies much more attractive.

The increase in the tax exemption limit on personal income i.e. 1, 00, 000 should increase the investible surpluses of individual investors thereby increasing their allocation to insurance products.

Deepak Ghaisas,
CEO India operations & CFO,
i-flex Solutions Ltd.

The Budget at the fiscal level looks good, based on first impressions, with a 7 to 8 % GDP growth and deficit restricted to 2.5 %.

At a macro level, the focus on education, infrastructure and water are steps in the right direction, though the method of implementation and how the initiatives will be funded remain areas of concern. But given that the finance minister had only five weeks to prepare the budget his intentions appear encouraging.

Pawan Munjal,
MD, Hero Honda

After several years, the Union Budget (of Mr Chidambaram) is addressing agriculture and social sectors comprehensively. Agriculture, education, health and food security are the main areas where solid proposals have been brought in.

Industry has been selectively benefited. The Budget for 2004-05 has made a good beginning to realise the components of the national Common Minimum Programme.

Dipak Gupta,
executive director, Kotak Mahindra Bank

The Budget concentrates more on pro-poor announcements as the government believes that by providing proper education, health and employment to poor would facilitate their full participation in growth process. The government has introduced a 2% education cess on direct and indirect taxes, which would be utilized for providing education to the poor.

The Finance Minister has announced two important policy directions for the banks, namely:1. Facilitating favourable legal environment for speedy recovery of non-performing assets (NPAs) - The foreclosure laws as enunciated in the Securitisation Act along with the Debt Recovery Tribunal (DRT) Act will be amended to restore the balance in the favour of lenders and enable them to make speedy recovery of Non-Performing Assets (NPAs). 2.

Increase in capital market lending: Banks with good risk management systems in place will be allowed to increase their exposure to the capital market segment.

This will facilitate increased credit disbursement by the banks in the capital market segment and enable them to improve their profitability. The intent of the government to give banks more flexibility in their lending operations is a positive, though the exact leeway given in this regard shall be notified by RBI later.

Both these policies are beneficial for the banking sector and shall help the banking sector in better management of their assets.

Anil Agarwal,
chairman, Sterlite Industries

Clearly this year's Budget is an attempt to balance multiple constituencies.

Within the boundaries defined by political and economic constraints this budget aims to achieve the social and welfare objectives set out in the National Common Minimum Program and at the same time consolidate and continue with the country's liberalization and reforms program.

Efficient application of the social sector initiatives in the Education, Health and Rural sectors will benefit a significant section of India's population.

The Rs 4,000-5,000 crore raised via the marginal education cess of 2% will afford a better access to quality education for a greater number of children. Upgrading of the 500 Industrial Training Institutes across the country will satisfy the dual objectives of creating jobs and a skilled workforce.

The initiatives in soft and hard infrastructure in rural India, especially in the form of credit and irrigation will help strengthen rural economy which still is the backbone of Indian economy.

Sanjay Jain,
country managing director, Accenture

The Budget takes the reform process to the next leg - from growth, it moves towards growth with equity. However, in the immediate term, there are several measures that might pinch such as the additional education cess of 2 per cent, the increase in service tax, the increase in excise duty on steel, etc.

The automobile industry will be directly impacted by the increase in the excise duty on steel form 8 per cent to 12 per cent and the application of the countervailing duty on imports of steel.

However, the industry has received a welcome entitlement to 150 per cent deduction on expenditure on in-house R&D facilities. Also, the agriculture sector is sure to reap benefits from the exemption of 16 per cent excise duty on tractors."

B S Nagesh,
Customer Care Associate, MD & CEO, Shopper's Stop Ltd.

The Budget definitely brings cheer to lower and middle class & senior citizens therefore the consumption in food groceries & mass market retailing should improve.

At the same time service tax & cess impact may have inflationary effect which has to be studied. All directions on investment and relief's are positive, we need to see the implementation mechanism as the budgetary supports being small, most of the amounts may get consumed in the administrative mechanism.

Lot of statements towards, agricultural programs have been made,we need to study in details to understand the implication.

Aditya Vij,
president & MD, GM India

The Budget is a positive one with lot of focus on agriculture, irrigation, education and health care. Since it addresses many of the concerns of the industry, going forward it should fuel demand and growth.

As far as the automobile sector is concerned, tax exemption of 150% on R&D activities and removal of excise duty on tractors are welcome decisions.

However, 4% increase in excise duty of steel and 2% cess on other tax proposals will put additional cost pressure on the manufacturers because of the cascading effect forcing them to share the burden with the customers.

Auto industry is one of the growth drivers of the economy and any additional burden will have the potential to dampen the upbeat mood in the sector.

Some of the other announcements made by the Finance Minister for manufacturing and R&D activities should enhance the competitiveness of the Indian industry.

H Gelis,
executive director, Siemens Ltd.

The proposals are well aimed towards uplifting the rural economy and giving a renewed momentum to the agricultural sector, which is definitely a priority for India. And if the programs are implemented efficiently, they will certainly spur overall economic growth on a more equitable and sustained basis.

After having focused on the needs of business and industry in the last few years, this budget is justifiably giving an added thrust to grass root level issues like food, education and health, while attempting to improve the fiscal responsibility.

Ranjana Kumar,
Chairperson, Nabard

The budget refers to a New Deal for Rural India and sets an enabling environment for achieving a sustained annual growth of 7 to 8%. -Both credit enabled private investment and public investment will get a boost.

Accelerated irrigation programmes, RIDF, renovation/repairing bonds/tanks, water harvesting schemes with subsidy, flood control, diversification and promotion of horticulture, floriculture and oil seeds, strengthening marketing infrastructure, agricultural research, streamlining agricultural insurance (health insurance are the major initiatives.

Further, the investments in health, education and /drinking water will make a big difference to the quality of rural life.

The budget has viewed all aspects of rural development in an integrated manner. NABARD has a coordinating responsibility for doubling credit flow for agriculture by RFIs.

The budget has provided support for rural infrastructure development, it has recommended agricultural diversification and value addition, emphasised on agricultural research, thought of agricultural insurance and traditional activities like coir, handloom, etc.

The budget as mentioned by the Hon'ble Prime Minister comes as a New Deal for Rural India.

Nimesh N Kampani,
Chairman, JM Morgan Stanley

The Finance Minister has lived up to his reputation and presented a pro-reform budget. The budget has also placed increased focus on the social sector (in accordance with the UPA government's common minimum programme), without deterioration in the fiscal position as was being feared.

The biggest positive for domestic long-term investors is in the form of abolition of long-term capital gains tax on securities and reduction in short-term capital gains tax rate to 10%.

However, at the same time the volumes in the capital markets may be impacted by the levy of the transaction tax of 0.15%.

The negative impact on market segments such as options, futures, government securities and other debt securities will be very significant. The government may consider levying the proposed transaction tax only on delivery-based transactions in listed equity shares.

Vallabh Bhansali,
Chairman, Enam Financial Consultants Pvt Ltd.

This is a Budget with a difference. For obvious reasons, the FM could not press too hard on the reforms accelerator. But he has made his long-term intentions quite clear.

A case in point is the Rs. 4,000 crores he expects to raise from disinvestment. Privatization may be on the backburner, but it is certainly not off the agenda altogether.

Without going into the nitty-gritty of the various measures announced, the rural drive needs to be commended. This is important in the long run.

There also appears to be an understanding of the real needs - for example, relating rural housing payments to the crop cycle, weather insurance, and water harvesting. It's not just the normal livestock and crop. The outlays are large.

The problem will come up in the delivery mechanism. But that too the FM seems to have realised. Industry need not feel too left out. Growth for industry will come eventually from rural areas alone.

Ajay Bagga,
CEO, Kotak Mahindra Mutual Fund

The market was looking to the Budget to provide clarity on the direction and pace of future reforms in the Indian economy.

The finance minister has performed a fine balancing act by increasing Plan capital expenditure, targeted subsidies, financial support to states and rural credit, while holding the revenue deficit at 2.5% of GDP and fiscal deficit at 4.4% of GDP.

The announcement of VAT implementation by the next fiscal, the endorsement of the defined contribution pension scheme and the intent to streamline the Securitisation act are positive indicators for fiscal reforms.

Deven R Choksey,
MD, K R Choksey Shares and Securities Pvt Ltd

It appears as a restrained act of an intelligent FM while balancing CMP of UPA with economic rationale in pursuing with reforms.

Budget is positive on several fronts right from the management of fiscal deficit to implementation of far reaching measures of agronomy, industry and even taxes.

It has all ingredients to lead the country to a 7-8 % GDP growth. The investors too got their dues in terms of continued policy on dividend plus long term capital gain tax exemption.

Pankaj Razdan,
MD, Prudential ICICI AMC

This is a Budget that could be called the "Common Man" Programme. The budget is oriented at equitable distribution of continuing Indian growth with increased focus on agricultural sector to maintain consistency of growth. The is a pro-growth budget with path-breaking long term vision.

To start with, the government has focused on agricultural infrastructure including traditional irrigation practices and expanding water harvesting, watershed development and micro irrigation schemes. These have traditionally worked well and have met with environmental approval as well.

The other aspect is that of improving rural credit in terms of access, as well as increasing accountability and practices of Regional Rural Banks.

T V Mohandas Pai,
CFO, Infosys

The finance minister has recognized that a strong emphasis on education would enable the economy to grow on a sustained basis. Liberalisation has marginalised a large percentage of our population from the benefits of an open economy as they lack the skills to take advantage of the same. The education cess is a welcome move and is most required.

It has been recognized that India is the one of the major destinations for industry in the next 50 years. I was looking for enablers such as better infrastructure, easier procedures in the day-to-day tax administration and such else.

Clearly, there are no major announcements in this direction. We are way behind in this area and need a massive push. Improvements in infrastructure will increase productivity and growth.

Rajnish Narula,
CEO, Alliance Capital

This is a carefully thought out budget with due consideration being given to the poorer section of the society. The thrust on agriculture, housing and water management is evident and necessary.

The proposed implementation of VAT, removal of exemptions, widening of the service tax, the scrapping of long-term capital gains tax and lowering of short-term capital gains tax to 10%, the hike in FDI limit in insurance, telecom and civil aviation are welcome moves.

It sends a strong signal to the overseas investors that the reform process is very much on track and will be persisted with.

Harsh Goenka,
Chairman, RPG Enterprises

The finance minister has presented a budget that should promote growth with stability and administer equity at the same time.

The emphasis on agriculture, agro-processing industries and employment generation are clearly evident.

With the limited time at his disposal a full review of the tax system was undoubtedly difficult. But a beginning has been made with the increase in exemption limit in respect of income tax and a restructuring of capital gains taxation.

Short term capital gains will be taxed at 10 per cent and long term capital gains taxation will be replaced by a transaction tax.

Though the markets have shown a knee jerk reaction, I am hopeful that the new system of capital gains taxation will motivate the investor and gradually give a lift to the markets.