The Hindu Business Line : Reforms on track

THIS is a carefully thought out Budget with due consideration being given to the poor. The thrust on agriculture, housing and water management is evident and necessary.

The proposed implementation of VAT, removal of exemptions, widening of the service tax, the scrapping of long-term capital gains tax and lowering of short-term capital gains tax to 10 per cent, the hike in FDI limit in insurance, telecom and civil aviation are welcome. Despite aggressively increasing the spend on social sectors such as education, health, agriculture and infrastructure, the Budget keeps in check the revenue and fiscal deficit.

The Budget will promote investment and growth, is non-inflationary and it continues with the broad reform process. The key challenge is how well the Government will be able to implement some of the measures as also how the numbers really add up at the end of the year.

With regard to the Mutual Fund industry I welcome the decision to plug the loopholes with regard to the dividend stripping and bonus units. However, an area of concern is the applicability of the turnover tax with respect to the mutual fund industry as the corresponding benefit in term of the capital gain amendment has not been extended to mutual fund investors.

On the debt side, one concern is that the turnover tax may prove to be a burden on the debt instruments considering their narrow trading margins.

The increase in dividend distribution tax for corporates reduces the attractiveness of the dividend options of fixed income schemes on a relative basis only as on an absolute basis they still are good options, especially from a short-term investment perspective. We also expect the dividend schemes of equity schemes to gain favour going forward.

(Reactions on the Budget by Rajnish Narula, CEO, Alliance Capital.)

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