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Saturday, Mar 01, 2003

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Opinion - Budget

The package is `growth-oriented'

R.V. Joshi

THIS year's Budget tries to give a big boost to infrastructure by roping in both public and private participation. There has been an attempt to boost textiles, gems and jewellery sector, IT and telecom industry by reducing Customs duty on the import of their requirement of capital goods and machinery.

The new dimension has been the emphasis on high-tech precision farming and diversification into horticulture and floriculture.

Understanding the current constraint of timely availability of adequate credit and its importance for the development of rural economy and agriculture there is a move to encourage private banks to open branches in rural areas, to service both farm and non-farm sectors.

In an overall aspect, the current Budget is a growth-oriented one.

Reduction of surcharge on corporate tax from five per cent to 2.5 per cent is a welcome measure for the corporate sector as a whole. Dividends made tax free in the hands of investors and abolition of long-term capital gains on listed equities will give a fillip to the equity market. The banking sector is slated to witness a flurry of activity due to the raising of FDI cap to 74 per cent though confined only to private banks and the proposed amendments to the Banking Regulation Act to remove restriction of 10 per cent voting rights. It is a bold decision to move further in bringing down administered interest rates by one per cent on Public Provident Fund, relief bonds and other small saving schemes in line with the falling interest rates.

The proposed scheme of retiring high coupon Central Government securities signals a further step in active public debt management and aligning the yields. The continued large borrowing programme and the State Government debt swap will act as deterrents for gilt security markets. It is also fraught with better credit pick up from the bank and the inability on their part to go for gilts like in the last two years.

The gilt traders themselves, therefore, have to tread their path cautiously especially in the face of rising inflation and expected industrial recovery.

The author is Managing Director, STCI.

Article E-Mail :: Comment :: Syndication

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