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Friday, Mar 01, 2002

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Opinion - Budget

From dreams to implementation

S. Mahalingam

MR YASHWANT Sinha, who presented a "dream" Budget last year, appears to have changed track this time, concentrating on agricultural diversification and food processing. There is also an impetus to the infrastructure sector, though the size of the intervention is not at the required scale. He has progressed towards the goal of dismantling the administered pricing mechanism, boldly moving away from subsidies. All in all an "implementable" Budget.

The focus on agriculture and rural development has presented the industry a clear directional approach — they need to reorient themselves by providing services relevant for the rural sector. The move away from administered and subsidy-driven pricing towards market-determined pricing should serve to make the industry more competitive.

To survive in the market economy, industry has to become a lot more efficient. This will require much higher sophistication in the management and use of IT. The industry was demanding the reintroduction of investment allowance to achieve productivity gains through the infusion of IT. This has not materialised. The provision for additional depreciation goes some way, but the Finance Minister could have served the cause of IT industry and technology more effectively. There are no direct sops to the IT industry, but the market may give a boost.

Market sentiments seem to be adverse, at least as first reaction. With the primary market already down, the current Budget has not really served the interest of the secondary market. This is mainly because of the reversal of earlier decision on taxation of dividends. Though the Budget does not seem to have generated an overall "feel good" factor, as was the case last year, select sectors such as tourism, shipping, textile machinery, textiles, entertainment, hospitality and construction appear to have benefited.

The life insurance industry will be adversely impacted by the extension of service tax to life insurance products, including auxiliary services. The life insurance companies can make their mark by introducing products to take care of risk factors and by providing better return to the insured. Therefore, they will have to become attractive vehicles of risk mitigation rather than as tax-saving instruments. This industry is coming alive only now and this Budget may not adversely affect the fortunes of the industry.

Bankers can become less risk-averse due to the proposed financial sector reforms. The product portfolio is undergoing changes and it is difficult to predict the future product composition. The software industry has been the saviour of the Indian economy in the last few years.

When the global economy is under recession, taxing the software export sector, however minor it may be, may not be a prudent measure. While the golden goose may not have been killed, slow poisoning at this stage may not be exactly the right thing to do.

The Budget does not do anything directly to enhance the level of computerisation in India, which can help Indian software companies move up the value chain.

There are possibilities for acquisition of companies abroad through easier norms — however, it requires exceptional risk taking and managerial capabilities. How many will have such capability remains to be seen.

As an IT professional, I feel that more incentives could have been given to enhance the competitiveness of the Indian industry. While our software industry is making the world more competitive, in India, we have not created the right conditions to make use of our undoubted capabilities in this area.

(The author is Executive Vice-President, Tata Consultancy Services)

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