The Hindu Business Line : Shot in arm for infrastructure

FOR the corporate sector, this budget promises to deliver a significant boost. A number of initiatives whose impact is quite predictable and not subject to the whims of an inefficient delivery system will add to both top line and bottom line growth.

Starting from the bottom, the significant change is in the reduction of the corporate tax rate from 35 per cent to 30 per cent. With the exemptions still in place, this is a straightforward windfall from the earnings point of view and the reaction of the equity markets in the post-budget trading clearly reflects this.

Although there is a proposal to tax collective fringe benefits in the hands of the employer, it should not be too difficult for companies which might be affected by this to re-orient their perks to the non-taxable categories.

From the expenditure perspective, the budget continues its thrust towards rural infrastructure and development, particularly with respect to water supply.

These initiatives will contribute to the reduction of volatility in rural incomes over a period of time, which is good for rural consumption and the companies that serve those markets.

However, these and some other programmes are always subject to the unpredictability and inefficiency of the delivery mechanisms.

The one infrastructure programme that seems to have defeated these constraints is the highways programme.

The Finance Minister has has increased the cess on petrol and diesel by 50p, without apparently impacting the retail price of these fuels.

This money goes directly to highway development. He has accomplished this by reducing the customs duties on these products

At the end of the day, highway allocations are up by Rs 2,800 crore to Rs 9,300 crore. The textiles industry is provided with a variety of reform initiatives, encompassing capital subsidies, de-reservation and a reduction in customs duties on capital goods. The net impact of these on the industry is likely to be positive, but it must be remembered that issues like labour laws are still going to prevent this sector from realising the full benefits of these fiscal instruments.

Likewise, some concessions to the sugar industry recognise the problems this sector faces with distortions in their input price structure and attempts to put them on a more level financial footing.

Finally, the decision to recognise new instruments in the financial markets such derivatives and securitised loans including mortgage-backed securities significantly improves the market potential for these instruments.

This will significantly improve the ability of market participants to manage their portfolio risks through market transactions. Overall, there is virtually nothing in the budget that one can complain about.

What is done is generally positive and what is not done may well be a reasonable price to pay to satisfy fiscal and political compulsions.

(The author is Managing Director, CRISIL)

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