'The vulnerability of the Budget is likely to be revealed by the impact of
the excise and customs burden'
S S Bhandare
Yashwant Sinha has addressed the
long felt need of the Indian industry to
provide a level playing field by the
imposition of the special import duty of
eight per cent. Indian industry
has for long pointing out the extent of
distortions due to various factors. For
example, while customs tariff was
reduced drastically, there has not been
similar reduction and rationalisation
of excises.
Many people were expecting
tremendous pressures on the fiscal
management due to the needs of
infrastructure spending, defence, the
social sector etc. Yet, without massive
resource-raising efforts, the FM has
done a good job in keeping the fiscal
deficit to 5.6 per cent of GDP. How
can he manage this?
One would have preferred that the
insurance sector be opened up to the
foreign companies too. But considering
the resistance from Indian
political groups and trade unions, the
effort is commendable. It will pave the
way for foreign companies to be
invited subsequently.
The Achilles heel of the Budget has
been revealed by the initial adverse
reaction from the stock market since
his disinvestment programme is
largely dependent on the vibrancy of
stock market sentiments.
Therefore, market players were
expecting that the Budget would
contain measures like buy back
options, incentives for saving etc
which are not there. This must be the
major disappointment...
The applicability of 8% import
duty on a 100% export oriented
business should not be there. If a
hardware end or communication
equipment is imported for domestic operations
with the increase
in duty, the landed cost will be more
expensive. My own feeling is for 100%
export units 8% would not be
applicable. I am not too happy
with the 8% additional duty.
The vulnerability of the Budget is
likely to be revealed by the impact of
the excise and customs burden,
aggregating to over Rs 80 billion.
Certainly, this will create cost
pressures on certain segments of
industry and may aggravate
inflationary pressures.
In recent
weeks, the inflation rate has been
going up -- it is already around 6.4 per
cent on a year-on-year basis. Further,
if there is going to be a setback to
agriculture once again, the supply
management will become critical
What I appreciate most in the Budget
is: First, the emphasis on
infrastructure investment; second, the
focus on the housing sector; third, the
effort to mobilise resources from NRIs;
fourth, the consideration for
reorganisation of the public sector
enterprises, offering safety nets to
employees; and fifth, the willingness to
reduce government stake in PSUs to
49 per cent.
Unless one sees the
Budget documents, it is difficult to
unravel the actual impact of the
sanctions. In the meantime, on the
basis of various expert opinions, it
seems that sanctions would have a
direct impact of not more than $ 1.5
billion to $ 2 billion in terms of
reduction in capital flows (Rs 600
billion to Rs 800 billion).
On
the basis of the package of measures
proposed for NRIs, there has been
some serious effort to generate
resources from this important source.
One has to see how the NRIs respond.
One hopes their patriotism comes to
the fore.
There is one question that needs to be
asked, despite the swadeshi posturing
the Budget does not deviate in any
significant way from the path chalked
out by Dr Manmohan Singh and P
Chidambaram.
It is almost impossible for any
finance minister to present the Budget
in a political vacuum. Here is a
worst-case scenario of a coalition
government of 18 parties with so many
divergent pulls from regional parties.
In such a situation, the task of the
finance minister is to provide goodies
to everyone.
S S Bhandare, chief economist, Tata Services, spoke on the Rediff Budget Chat.
Budget '98
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