BUDGET 1999-2000
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BUDGET 98-99
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Sinha took what he wanted without pinching common man

A N Shanbhag

The Budget is innovative. Yashwant Sinha took what he wanted without making the common man feel much of the pinch. Reasonable and fair.

There is nothing disputable about the surcharge on corporates. A dispute arises when there are differing views. About the surcharge -- no one's happy! But then you win some, you lose some. Think about it -- it could have been worse had he raised the taxes.

Let's look at what the common man's got out of the Budget -- tax-wise. The deduction on interest on housing loans has been raised from Rs 30,000 to Rs 75,000. More importantly, long-term capital gains tax has been made almost negligible at 10 per cent.

Even this can be saved by taking a 54EA, or EB recourse. Mutual fund/UTI income is 'free from tax' . Well, it is not strictly free, but almost. These steps will boost the market in their own way. The common man should not have too much to complain about.

But I expect the capital markets to go ding-dong.

The excise and customs step is pragmatic. It was so far promised but not delivered by estwhile Budgets and FMs. Last year, Sinha had promised to water down the so-called Inspector Raj but nothing concrete followed. I think the concensus is that these steps would reduce transaction costs, check corruption and widen the tax-base.

A rose by any other name smells as sweet. So, whether the Budget is pro-India or pro-Bharat, take it the way you like it.

The steps taken in the Budget should see the retail investor getting more interested in mutual funds than he was yesterday. It would depend upon the kind of funds that mutual funds are able to generate with their new 'tax-free' status. If that happens, then yes, mutual funds / UTI would become aggressive players

As of now, I do not have any reason to believe that indexation has been abolished. But I have to read the fine print.

Where will I invest my money, so to say? Well, I shall plump for MFs. Fixed deposits of companies or banks are neither tax-efficient nor flexible. Last year, dividend on shares was made tax-exempt. Now with the same sop made available to MFs, they should become the favourities.

The salaried class would do well to concentrate on PPF and infrastructure bonds for saving taxes. Remaining investible funds should be put in open-ended pure growth funds which give benefit of capital gains. Until last year, debt-based funds were attractive as the market was more or less listless. Now the market may start looking up. You may also consider equity based growth funds.

The pathetic condition of Indian economy in 1998 came about because of extraneous factors Pokhran blasts, instability of the government, south-east Asian crisis etc. These factors are independent of the financial well-being of the country.

About equity-based funds launched in 1994 and earlier: as an investor, you should stay with debt-based funds putting up a consistently good performance.

In this year's Budget, what has been actually reduced is the capital gains tax which indeed was a pleasant surprise. Structure-wise, excise and customs slabs have been rationalised which again is welcome.

Some people seem to think that the Budget has bailed out UTI. People had lost confidence in the fund management capacity of UTI. Hence the large withdrawals, isn't it? How is freedom from tax connected to this mindset? All the same, I tend to believe that the decision to exempt income from UTI is good and the tax-free status is not only UTI-specific. It is applicable to the MF industry as a whole.

I only wish that punishment to scamsters is made just and swift. The common man has lost a lot of money. I hope unscrupulous characters would be made to pay for their sins. At the macro level, this would make the market a more honest place.

The Budget did touch on US-64, albeit superficially. Surely, the Deepak Parekh committee must have made many recommendations which were not discussed by the Budget. Given time, these will be considered for implementation by the government.

I find that some of the suggestions have been carried out. Others may require some time. Paramount amongst them is what you already thought of about the PF money. The aim should be to boost the lost liquidity in the market.

A N Shanbhag is a well-known investment and tax consultant in Bombay
Budget 1999-2000

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