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Sinha delivers a bundle of joy

Our Bureau

NEW DELHI, Feb. 28

THE Finance Minister, Mr. Yaswant Sinha, had in the run-up to the first Budget of the new millennium, spoken of how it would take two days for industry and the fickle stock market to understand the real implications of his proposals.

Corporate India and the stock market, however, seem to have thought otherwise. Within hours of its presentation, they have given the thumbs-up for Mr Sinha's fourth consecutive Budget.

The Finance Minister indeed kept his word in fulfilling a large part of the wish-list of India Inc, wilting under the pressure of a genuine economic slowdown and dismantling of Quantitative Restrictions (QRs), besides addressing the concerns voiced by fi scal experts.

The package was almost what the doctor ordered for the return of the `feel good' factor. A halving of the dividend distribution tax to 10 per cent, enhanced protection in certain sectors, including automobiles and the farm sector through higher import ta riffs, push for the long-neglected textiles industry, tax incentives for infrastructure sectors including housing, labour reforms through allowing hire-and-fire, structural reforms in petroleum, fertiliser, sugar and drugs and signalling of a lower inter est rate regime.

The give-away works out to over Rs 2,951 crore through removal of past income tax surcharges on corporates as well as individuals.

Mr. Sinha has also held out the promise of a future, where the next generation would inherit a lower debt burden. This, he has accomplished, by reducing the interest rates on contractual savings as well as keeping the Government's borrowing programme to manageable levels in the coming fiscal.

Industry would also get a boost through a 10.3 per cent step up in the Centre's Plan expenditure. This is even while targeting a lower fiscal deficit of 4.7 per cent of GDP in 2001-02. Mr. Sinha has gladdened the hearts of those who have been advocating pump-priming by raising the Budget support for Central and State plans from Rs 86,238 crore to Rs.1,00,100 crore.

Besides, the 1.5 per cent cut in interest rates on administered savings schemes is expected to translate into lower borrowing costs.

For the markets, the current investment limit of foreign institutional investors in companies has been enhanced to 49 per cent. Indian companies can also look forward to going Westwards again to boost capital flows, thanks to the limited liberalisation o f the capital account.

Peak customs duty: Peak rate of customs duty has been brought down to 35 per cent, with Mr Sinha withdrawing the 10 per cent surcharge, but retaining the 4 per cent Special Additional Customs duty (SACD). Thus, for a commodity with a basic customs duty o f 35 per cent, the effective customs duty will now work out to 40.4 per cent, against 44.04 per cent earlier. Mr Sinha has also committed to bringing down tariffs to East Asian levels in three years time.

The move towards a full-fledged Value Added Tax (VAT) system has been reflected in the rationalisation of the excise duty structure which now comprises a basic 16 per cent Cenvat and just one rate (16 per cent) of Special Excise Duty (SED).

Mr. Sinha has also managed to shift the burden of surcharge on corporates on to the tobacco industry, a sitting duck for such an impost. The industry has been slapped with a 15 per cent surcharge on cigarettes to replenish the National Calamity Contingen cy Fund. The growing services sector has also been targeted, with Mr Sinha bringing 14 new services a host of financial and telecom services under the tax net.

In keeping with the script fashioned largely by the Prime Minister's Economic Advisory Council, Mr. Sinha has gone in for dereservation of 14 items relating to leather goods, shoes and toys, which are reckoned to hold great export potential. He has taken one step ahead in the area of industrial restructuring by scrapping the BIFR and enhancing competitiveness by announcing labour reforms, tax incentives for promoters of special economic zones.

Fiscal deficit: On the fiscal side, he has credits on the scoreboard. After several years, the Finance Minister has managed to stick to the fiscal deficit and revenue deficit targets of 5.1 per cent and 3.6 per cent of the GDP respectively during 2000-01 .

The Government is hoping to achieve a further 0.4 percentage points reduction in fiscal deficit in 2001-02 by banking on higher revenue buoyancy and higher disinvestment receipts (Rs. 12,000 crore).

However, Mr Sinha has chosen to go slow in other sensitive areas. The urea price has been left untouched and neither have foodgrain prices been tinkered with. Allocations for food subsidy, grants to state governments, defence and pensions are higher than the revised estimates for 2000-01.

The Finance Minister has also taken a small step for downsizing the Governmental administration by announcing a limited voluntary retirement scheme (VRS) for staff identified as surplus in select departments.

He has also taken cognisance of the burgeoning pension liabilities of the Central Government, by making it compulsory for all new employees to adopt a defined plan. Thus, the onus for funding will shift to the employee from the Government.

Pic.: A TOUCH OF FRESHNESS: The Finance Minister, Mr Yashwant Sinha, caresses his grandchild on Budget day before leaving his residence for Parliament House.

Picture by Kamal Narang