The Hindu Business Line : A budget for the rural masses

We live in good times. If we see the stock market as indicator of the condition of the underlying economy, then we had not seen better times than these. It is important not to change the underlying recipe. In fact, we must accept that the changes to the economy over the last decade are now irreversible.

What is also encouraging is that for the last three consecutive years there has been a reduction in the fiscal deficit. This factor should enhance the confidence of global investors and bring in more foreign investment.

Overall, this remains a cautious budget. The budget is rural centric and hopes to finance this by dipping in to the pockets of urbanites by bringing more services including ATMs under the service tax net. The realisation that this was a budget for the rural masses took corporate India by surprise.

More IITs needed

Though the budget speech mentioned `education' several times, there was no major policy announcement for the promotion of new institutions like IITs and IIMs. We need such new institutions to feed the next ten years of growth in the IT industry.

Fifty four per cent of the GDP comes from services, so it is logical that services should be taxed. Also the Minister indicated that both goods and services will be taxed at the same rate by 2010. This means that the tax rate on services is unlikely to come down. Our main concern, however, is that the export of services should not be affected.

There was a belief, before the budget, that the fringe benefit tax would be abolished and it would be replaced by a one per cent increase in the corporate tax. The only concession offered is that he exempted from FBT contributions of up to Rs 1 lakh to an employee's superannuation fund.

The IT industry was expecting an announcement for the creation of special economic zones. There was no announcement which makes planning for expansion by IT companies more difficult.

Good news

The good news in the budget is that the government has committed to making substantial IT expenditure.The only other significant mention of the software industry was an increase in excise duty on packaged software though I do not think this will have a significant impact - my only fear is that this will increase piracy.