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February 29, 2000
NEWSLINKS
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Govt 'fails' to keep word, Sensex crashes
The Union Budget 2000-2001 has brought in tough revenue measures without curbing government expenditure. That seems to be the general mood considering that fiscal deficit has been put at 5.1 per cent of the GDP as against the previous year's 5.6 per cent. "The government has thrown in the towel," P Chidambaram, former Union finance minister, told rediff.com "They have lost control over the fiscal situation. They have run out of ideas. I suspect they are too proud to take ideas from others." "The Budget is hard on the revenue collection side, but not on the expenditure side. And it is difficult to see how it will increase GDP growth from 5.9 per cent to over 7 per cent," Amal Ganguli, chief, PriceWaterhouseCoopers India, told rediff.com "There is no attempt to curb government expenditure," Dr B B Bhattacharya, director, Institute of Economic Growth, told rediff.com "The government announced its intention to curb the size of the bureaucracy in future through some technical studies on budgeting. But such intentions were pronounced a number of times in the past with no result." "The government has failed to fulfil the industry expectations after raising them sky high," Dr Isher Judge Ahluwalia, noted economist, told a television channel. "Look at the fiscal deficit. It is as bad as the previous year." "Agreed that you cannot do much in a coalition government like this, where the allies are bound to put pressure on the government. Then why raise expectations?" said Congress economic cell chief Jairam Ramesh. Reflecting the mood, the BSE Sensex has crashed by 351 points less than 20 minutes after the Budget presentation. The Sensex stood at 5389 -- a six per cent drop -- at 1620 IST. By 1730 IST, when trading closed, the Sensex recovered slightly, closing at 5447. Vikram Thapar, vice-chairman, Karam Chand Thapar & Bros, told rediff.com, "I think the market is down primarily because of the increase in dividend tax and overall taxes by small amounts here and there. "There is some reduction on subsidies, but it has been indirect. I am not very happy with the Budget. I think we have become satisfied with $33 billion forex reserves and therefore decided to tax export incomes which is a regressive step." As regards the capital market, Finance Minister Yashwant Sinha liberalised the tax regime and from now onwards the Securities and Exchange Board of India is to be made the single-point nodal agency for guidelines. Sinha further liberalised the policy for acquisition of companies abroad to enable Indian knowledge-based firms to have greater flexibility in undertaking capital account transaction. The ceiling under the automatic route for Indian corporates has been increased to 50 million dollars from the existing 15 million dollars. Under the existing policy, foreign institutional investors are permitted to invest up to 25 per cent of the company's capital. This can be increased to 30 per cent, subject to the approval of the board of directors. N R Narayana Murthy, chairman, Infosys, has told rediff.com , ''We have had a mixed Budget as far as the software and IT industries are concerned. On the one hand we have seen several positive moves like liberalising the venture capital regime, increasing FI limit from 30 per cent to 40 per cent and bringing down the prices of PC and components by 5 per cent points. ''On the other hand, several initiatives like enhancing the acquisition limit from US $ 100,000 to a much higher figure, taxing stock options at the time of sale of shares and removing the bonding requirement by custom authorities have not happened.'' Sunil Mittal, chairman and managing director, Bharti Enterprises, has told rediff.com that the telecom and entertainment industries have gained from concessions in both direct and indirect taxes. ''It is overall a very well thought of and well planned Budget,'' he said. ''The process of simplification has been carried forward and strengthened. There has been an acknowledgement of the fact that the IT and telecom industries are the key drivers of the economy in the new millennium. ''Software exports will also attract income tax from the financial year 2001 onwards. However, the spread is over a five-year period with a 20 per cent exemption withdrawn each year. ''The net profits of software companies will be affected to that extent like any other industry.'' ''In terms of the telecom sector, I would rate the Budget 7 out of 10,'' Virat Bhati, managing director, AT&T India, told rediff.com. ''Once we find out more details, that could probably be higher.'' G P Goenka, president of the Federation of Chambers of Commerce and Industry, told rediff.com, ''It is an extremely positive, strong, balanced and modern-looking Budget. ''There are many positive areas in the Budget as the finance minister has increased rural expenditure, taken care to look after the below-poverty line people. Special announcements for venture capital funding, the infotech sector and infrastructure will boost the economy. ''There are three negative areas in the Budget. Dividend tax has gone up, the surcharge on income has been increased and no solution has been proposed to bridge fiscal imbalances.'' Senior Congress leader Madhavrao Scindia came down heavily on the Budget. He said the government did not make any effort to control fiscal deficit and that it seemed desperate to divest its stake in several public sector units. The finance minister announced that the government equity in all non-strategic PSUs will be brought down to less than 26 per cent. He said the government would go ahead with its divestment programmes in the areas of telecom, ports and airports next year. He said the plan outlay for Central public sector units had been increased from Rs 76.26 to Rs 91.94 billion. ''If this (the government stake is reduced) is done, they will no longer be PSUs and no questions can be asked in Parliament,'' said an expert in a television interview. All PSUs which cannot be revived are to be closed down, but the finance minister said the workers' interests would be protected. However, potentially viable PSUs are to be restructured and revived. ''The 2000-2001 Budget presented today is bureaucratic in conception, retrograde in consequences and represents a major setback to the economic reforms,'' Subramanian Swamy, Janata Party president and former Union commerce minister, told rediff.com. ''The Budget does not address itself to the fundamental problems of recession in the industry, the growing bottlenecks in infrastructure and the sharp decline in the rate of investments.'' ''There is nothing for the NRIs. In fact there is very little for FDI which has been declining in the last two years. The peak was in 1997 of $ 5 billion when China was getting $ 45 billion annually.'' The defence allocation has seen an unprecedented increase -- from Rs 456.94 billion last year to Rs 585.87 billion this year. P Chidambaram, former Union finance minister, told rediff.com, ''This represents an almost 29 per cent increase. This is a real increase. Whether India can afford such an increase and whether we should go in for such extensive military spending are debatable issues.'' ''The hike in the Defence Budget was very much expected after the Kargil effect,'' Dr B B Bhattacharya, director, Institute of Economic Growth, told rediff.com. ''The Defence Budget next year would probably be more than three per cent of the GDP. It would have two macro effects -- one, increase the fiscal deficit and two, raise the volume of imports because much of the capital equipment in the Defence Budget is now imported from abroad. But this is a price we will have to pay till the security threat normalises.'' ''It is inevitable that adequate security measures need to be taken in order to ensure that the people of the country can pursue their lives under an umbrella of security,'' Lieutenant General Satish Nambiar (retired), director, the United Services Institute told rediff.com. ''Personally, I would have liked to see an allocation which would have taken the Defence Budget to nearer 3 per cent of the GDP and I say this because there was a need to make up for neglect of the defence requirements over the last decade-and-a-half.'' The Central sector plan outlay has been increased from Rs 1035.21 billion to Rs 1173.34 billion. The gross budgetary plan support has been increased from Rs 770 billion to Rs 881 billion. As for subsidies, the finance minister has rationalised fertiliser prices. Thus the price of urea has gone up. The allocation of foodgrains to those below the poverty line under the public distribution system has been doubled. There will be no allocation of sugar under the PDS for income tax assessees. The finance minister announced that the government would not close any public sector bank. However, weak banks are to be restructured. Banks would be allowed to raise capital from the market to expand operations and for meeting capital adequacy norms. More debt recovery tribunals and debt recovery appellate tribunals are to be set up. The finance minister also lowered interest rate on general provident fund by one per cent to 11 per cent with effect from April 1, 2000. There are several pronouncements for the small scale sector. The limit of collateral-free loans for the sector has been increased from Rs 100,000 to Rs 500,000. Rs 500 million has been provided in the Budget for a technology information forecasting and assessment council for taking up technology vision projects and boosting cooperation between universities and institutions doing research and development. An equal amount has been provided for a new millennium Indian technology leadership initiative. The finance minister said that a task force would be set up to review all existing laws and government schemes pertaining to the role of women in the economy. To be headed by an eminent person, the panel will chalk out specific programmes for observing 2001 as women's empowerment year. With the objective of bringing down the fertility rate by 2001, Sinha increased the allocation to the department of family welfare from Rs 29.20 billion in 1999-2000 to Rs 35.20 billion. Sinha said a new scheme for providing assistance to state utilities would be introduced. Under the scheme, additional Central plan assistance of Rs 10 billion would be provided to states and Union territories. To reduce the debt burden of the state electricity boards, a scheme with the support of the Central government had been finalised. The Central support would be linked to reforms in the SEBs. Infrastructure bottlenecks in power, road, ports, telecom, railways and airways would be removed through rapid growth of exports, higher foreign investment and prudent external debt management. Additional reportage: UNI
Sinha delivers on his promise to 'bite the bullet'
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