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Friday, Jul 09, 2004

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Disappointing delivery

Anil Singhvi

THE 2004-05 Union Budget is more like an interim budget for the Finance Minister, Mr P. Chidambaram, who has set his sights on the next Union Budget in February 2005. If we were to believe that there was a vote for change, this Budget does not seem to be the face of that change. Perhaps his hands were tied by the Common Minimum Programme and the limited time available to him to bring forth a cohesive plan for the economic growth. Weighed against the very high expectations of him, the delivery is rather disappointing.

The major issue before the country is lack of capital formation and constraint of raising further resources. Unfortunately, the Budget has not addressed these two major concerns. The tax to gross domestic product (GDP) ratio has been stagnating at just around 9 per cent for the past several years. No attempts have been made to widen the net of tax collection. Tax paid by manufacturing sector is heavily loaded while the services sector contributes only 3 per cent of the total tax revenue and agriculture pays nothing. This has to change with wisdom and imagination, if we want to deliver the social commitments. The Finance Minister has placed his bets heavily on GDP growth of 7 per cent to 8 per cent for larger revenue collection, which is rather aggressive.

There is a positive note on the thrust to the rural areas be it irrigation, farming or housing. He has also taken the initiative to implement certain infrastructure schemes such as housing, irrigation, development of airports, seaports and augmenting power generation. The issue here is not of intent but of implementation. Our past experience on implementation of intents has been rather disappointing. The road sector, for example, is where we have seen sluggish growth in the last two years.

As far as the cement industry is concerned, the sector has witnessed slow growth where the demand has grown by just over 5 per cent during the previous year, which is one of the lowest in the last several years. In the current year, the growth is even slower. Cement demand has grown by just 2 per cent during the first quarter. The industry needs larger focus on construction sector, growth of which is rather sluggish. Implementing the intent is the need of the hour.

While in his speech, Mr Chidambaram said the problems that the public sector is facing needs to be addressed courageously, he can solve this by appointing as members on the proposed Board for Reconstruction of Public Sector Enterprises from the private sector, who can use their experience in running industry and offer guidance to the Government to handle sick and loss-making PSEs.

The abolition of Long Term Capital Gains Tax and introduction of Security Transaction Tax are welcome steps. These steps would boost revenue to the Government and also help in imparting depth to the capital markets. The proposal to permit higher FDI in telecom, civil aviation and insurance should see increased inflow of funds, he could have also added sectors such as housing and retailing where investments are needed.

The introduction of VAT has once again been reduced to declaration of dates rather than will. He could have done a better job by inducing the States on this issue by denying the Centre's share of additional funds to the non-complying States.

(The author is Executive Director, Gujarat Ambuja Cements Ltd.)

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