Financial Daily from THE HINDU group of publications
Friday, Mar 01, 2002
Industry & Economy - Budget
Sinha lands a knock-out punch -- Rs 12,700 cr extra taxes on individuals, corporates
NEW DELHI, Feb. 28
FOR an economy starved of fresh investments and jobs, Mr Yashwant Sinha, could probably have done much more than what he did today. Indeed, for a large section of Indian industry and consumers alike, the Finance Minister's Budget 2002-03 turned out to be a case of inflated expectations going awry.
Nowhere was the disappointment more evident than in Mr Sinha's excise and direct tax proposals. The widely expected reliefs in income-tax and cut in domestic corporate tax rate did not materialise. On the contrary, the Finance Minister slapped a higher five per cent surcharge on virtually all taxpayers to replace last year's two per cent Gujarat earthquake surcharge.
Even with regard to excise, Mr Sinha did not really oblige the industry, which was hoping for some sops to boost domestic consumption levels. Instead, in the process of further rationalising duties to move towards the uniform 16 per cent Cenvat, the Finance Minister's excise proposals are expected to garner extra revenues of Rs 6,700 crore in the coming fiscal. This, along with the estimated revenue gains of Rs 6,000 crore from his direct tax proposals, is feared to result in a significant contraction of effective internal demand.
Adding to the woes of the middle-class was the decision to further pare interest rates on small savings instruments by 50 basis points, along with a significant pruning of tax rebates on investments in these schemes. Mr Sinha also reverted to the earlier system of taxing dividends in the hands of shareholders, rather than companies and mutual funds - a move that triggered a near 150 point decline in the BSE-30 Sensex.
Perhaps the only beneficiaries of the Finance Minister's direct tax proposals were foreign companies, whose tax rates were reduced from the existing 48 per cent to 40 per cent. Compounding the domestic industry's problems was Mr Sinha's decision to bring down the peak rate of customs duty from 35 per cent to 30 per cent. The reduction in tariffs in line with the stated objective of moving to a peak customs rate regime of 20 per cent by 2004-05 is projected to result in revenue losses of about Rs 2,200 crore to the exchequer, apart from, of course, ruffling the feathers of the Swadeshi lobby.
But the real disappointment for industry came from the perceived absence of concrete measures to spur domestic investment levels, barring a few sops such as allowing companies to claim an additional 15 per cent depreciation on new plant and machinery.
Although the Central Plan outlay for 2002-03, at Rs 1,44,038 crore, is projected to be 12.7 per cent higher than last year's revised estimate, much of this is predicated on the ability of public sector enterprises to mobilise the necessary extra resources. The Centre's budget support to the Plan will be only Rs 66,871 crore, which is around 46 per cent of the total outlay. Again, expectations of a major boost to public investment and pump-priming measures to stimulate demand have proved to be a mirage.
The only silver lining in the Budget has been the various pro-reform measures, including the dismantling of the administered pricing mechanism for petro-products and the simultaneous announcement of phasing out subsidies on kerosene and LPG in the next 3-5 years. Capital account convertibility, too, was given a fresh lease of life, with the Finance Minister allowing free repatriation of all non-resident deposits, along with a doubling of the existing limit for overseas equity investments by Indian companies to $100 million.
Mr Sinha also announced a substantial increase in assistance to State Governments towards pursuing reforms in the power, irrigation and other infrastructure areas. This included making an additional provision of Rs 12,300 crore towards schemes.There were no major initiatives announced for agriculture, notwithstanding Mr Sinha's repeated promises that the Budget would give a "big push" to the farm sector. The Finance Minister refrained from taking any action on addressing the problem of mounting foodgrain stocks in public godowns.
Even on the fiscal front, there was nothing much by way of concrete measures to prune unproductive expenditures. The Centre's fiscal deficit for 2002-03 is expected at 5.3 per cent of GDP, which is a marginal improvement over the revised figure of 5.7 per cent for the previous year. More significantly, the revenue deficit, too, is slated to come down to 3.8 per cent, which is not a considerable improvement over the four per cent figure anticipated this year.
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