By Dr Jaya Prakash Narayan, President of Lok Satta Party & former I.A.S. Officer

Bank loan waiver for small and marginal farmers and none-time settlement for other farmers will provide only temporal relief to a small section of farmers.  An overwhelming majority of farmers are outside the institutional framework and borrow from private moneylenders.  The waiver is also iniquitous in that it rewards only defaulters and lets down borrowers who have repaid their loans.

It may be recalled that farmers continue to commit suicide although Governments have written off farmers’ loans off and on.  Instead, the Government could have constituted a Rs 1,00,000 Cr agricultural fund to resolve farmers’ problems once and for all by taking steps for increasing productivity and ensuring remunerative prices. “We need to ensure credit to every farmer, small trader and labourer, improve marketing infrastructure, provide direct access to consumer, and add value o agricultural produce.  A one-time loan waiver will temporarily improve banks’ balance sheets, but the plight of farmers and rural poor will remain unchanged.  There is a real danger of rural credit system getting paralysed as it happened in 1990s.  The loan waiver, decided upon with an eye on elections, provides temporary relief for a microscope section of farmers at the cost of long-term gains.”

The central allocations to both education and health constitute 0.7% and 0.3% of the GDP in a country with a billion-plus population. Promotion of corporate hospitals and private educational institutions will not scratch even the surface of the crisis in the education and health sectors.  The Government ought to have made free and quality education and healthcare as the fundamental rights of the people.  Although many small schemes have been announced to benefit women, minorities and disadvantaged sections, the allocations are meagre.  Instead of squandering away precious resources on hundreds of schemes that have potential for large scale leakages, the Government could have come up with a single social welfare scheme to make a direct attack on poverty.

The raising of income tax exemption limits and reshuffling of the tax slabs, will pass more money into the pockets of middle classes and salaried employees.  The Government should also be complimented for meeting fiscal management targets.

However, there are signs of growth slackening in recent months. Infrastructure bottlenecks remain, and our cities are getting paralysed. An all-out effort is needed to improve roads, coal and power sectors and urban infrastructure. A massive effort to provide education of good quality for 12 years to all children, and free and quality healthcare to all are vital to enhance productivity, sustain growth and reduce poverty.  Rule of law and elimination of corruption are vital for high growth.  None of these problems has been seriously addressed in the budget.

By Justice Rangarajan, Former V-P, ITAT

Reality is still bad roads and bad connectivity!

TAKE the agricultural debt relief. It is of course a good policy for the public to absorb a private loss if such loss is from a natural calamity.

The public perception is that often bank loans are siphoned away. The modern approach is to have an evidence based policy. So  where do we see the evidence to justify this policy. What we are told in the speech is not enough.

The same thing applies to the claim that direct taxes have increased due to greater compliance and electronic supervision. I am very much interested to know the number of assessees categorised on the basis of those getting  salary only and those having other than salary income.

How many assessees were trapped into the net by electronic means? How many assessees are to go out of the tax net by the increase in the minimum threshhold is also not known.

The cash transaction tax has rightly been abolished but the claim that it has yielded information is again a matter for verification.

One item to be appreciated is the declaration that reverse mortgage will not be a transfer and the revenue stream will not be taxed as income. But the same kind of clarity has not been given to treat short term capital transactions as not a  business in securities.

Of course, individual tax payers will be happy that the threshold limit has been increased  and women and senior citizens get some relief. Now that there is a road map to go over to GST I feel that the time has come to abolish personal income tax altogether. Everyone's personal budget is expenditure and investment. If one is to pay tax for all goods and services by way of excise duty, import duty and service tax and sales tax, he would be already contributing a minimum of 10% of that part of his income. If he is to save and invest the balance he would pay transaction tax as well as service tax on that part too. So why have personal income tax at all?

The Finance Minister was frank enough to say that an outcome analysis would be put in place and that implementation of the welfare schemes is with the States. Increasing budget allocation for education by 20% and health by 16% is certainly to be appreciated. The economist Robert Chambers is quoted as saying: "Quantification brings credibility. But figures and tables can deceive, and numbers construct their own realities. What can be measured and manipulated is then not only seen as real; it comes to be seen as the only or the whole reality." Again I am left with the feeling that all the money allotted for various schemes are on paper and the reality is still bad roads and bad connectivity.

By S Sivakumar

Mr PC disappoints me!

THE Finance Minister, Mr P Chidambaram, as widely expected, has presented an excellent election-oriented Budget.  My initial reactions on some of the important points...

• Farm loan waiver amounting to Rs 60,000 crores, benefiting about 4 crore farmers. This perhaps is the biggest bonanza from a FM who is all out to please his party’s electoral constituency. In all probability, this bill will be picked by the Banks who have lent these loans. I can’t but admire Mr PC’s smartness here. He has converted, what was a ‘fait accompli’ situation in which the farmers, given their current woes, would not anyway paid back these loans, into a major positive point for the Congress, by announcing a grand write off.  It would look like a significant portion of the farm loans would already have been provided for, as NPAs, in the Banks’ balance sheets. Undoubtedly, Sonia Gandhi will have a new ammunition for her ‘aam aadmi’ speeches.  
  
  

• Cut in excise duty to 14%, as a measure to boost the ailing manufacturing sector, is a good step. This would also help in the direction of the rationalization of the tax rates for service tax and excise duty.

• Luckily, no major addition to the list of 100+ taxable services. PC had announced in his speech that only four new services are being added to the list of taxable services. But a look at the Finance Bill which has just been uploaded on the Government’s site talks of ‘Information Technology Software Service’ being introduced as a taxable service. The Software Industry’s worst fears would seem to get true as this would mean that most of the software services industry could get covered under service tax. The only good issue in service tax is the increase in the initial exemption from Rs 8 lakhs to Rs 10 lakhs.

• Talking about service tax, I can see a bombshell in the Finance Bill, which talks about levy of service tax on ‘right to use goods’ use service, which is leviable on the services rendered in cases where VAT is not payable. I could see that this head could cover a whole lot of new areas. Frankly, I don’t know how the Central Government could assume powers to tax goods, which is a state subject. Of course, the Government would say it is taxing only services related to sale of goods. If renting of commercial property could be taxed, why not ‘sale of goods’ on which no VAT is payable?  By the definition given in the Finance Bill, goods are defined to include’ computer software’, incidentally.

• PC has not announced the extension of the tax holiday for 100% EOUs, under Sections 10A and 10B of the Income tax Act. Of course, it looks very unlikely that this extension will come about, in any subsequent announcement from the Government, given the importance attached to the issue. So, in so far as STP units are concerned, given the demand for the extension of the tax holiday, it does look that their hopes have been belied. Even in respect of 2008-09, STPs units would continue to pay Minimum Alternate Tax (‘MAT’).
  
  

• Decent increase in the initial exemption for income tax payers is welcome. Of course, PC surprised us by increasing the exemption limit to Rs 1,50,000- as against a projected figure of Rs 1,30,000-. The salaried class does have some benefit out of this.

• Despite robust direct tax collections, PC has not obliged the corporates by eliminating the surcharge. The corporate sector has very little to cheer about in this budget, vis-à-vis income taxes, FBT, etc. as none of their concerns have been addressed.
  

• There is a lot of negative news retail investors, in as much as, the short term capital gains tax now goes up to 15%. I don’t see a logical relationship between the short term capital gains tax and the Dividend Distribution Tax, in any case. This particular move to raise the short term capital gains tax is one of the worse proposals and I really hope that Mr PC reverses this.

• No significant changes in FBT, which will continue to haunt the corporates. FBT on ESOPs and a host of other items continues. Of course, some very minor payouts including expenses related to holding of corporate sports events will be exempt from FBT. No great deal, here.

These are of course, my initial reactions, without going thro’ the fine print. But it does look like, the devil is in the details. For instance, while the FM made a  mention of the service tax levied on customized software, the Finance Bill does talk about  service tax being levied on ‘Information Technology Software Services’. We will have to wait for more clarity on this.

I am disappointed that there are no specific proposals to the services sector. While one can take pride that this sector contributes to 55% of the country’s GDP, the fact remains that this sector represents one of the most taxed and harassed. There is a lot of talk about helping the manufacturing industry and the farmer. But, why does the FM does not think that the service provider also needs to be looked at, is anybody’s guess.

The stock markets are reacting, predictably, negatively, mainly on account of the lack of tax benefits for the corporate sector and the increase in the short term capital gains tax.  So much for now. We will discuss the issues threadbare, after reading ‘between the lines’ ,the budget provisions.

Mr PC has not disappointed us. We had expected him to deliver a political budget and he has just done that.

Prof. J.D. Agarwal, Chairman, Indian Institute of Finance

PROF J D Agarwal said that Budget 2008 is excellent, in tune with the need of economy and the people. The budget will take the country forward. The Finance Minister has distributed largesse to all sections of the society, much beyond the expectations of the people. His focus on agriculture, health and waiving loans of farmers is appreciable. He has been generous to provide massive relief to farmers, poor and others which will go a long way in the much needed support to the needy. However, the allocations for insurance for labour is appreciable but labour deserve more attention as farmers, soldiers and labour is the backbone of the economy.

Sajjan Jindal, President-elect, Assocham

IT is a neutral Budget and good for the common man. Industry, in any case, was not expecting too much from this Budget, as elections are round the corners. I would rate this Budget between 6.5 and 7 on a scale of 10.

By Shikha Sharma, Managing Director & CEO, ICICI Prudential Life Insurance Company

In the backdrop of growing uncertainty in global markets and some initial signs of domestic slowdown, the Finance Minister has delivered a budget firmly focusing on inclusive growth. With clear emphasis on areas like health and education – the true pillars of infrastructure in a service economy like ours – in addition to rural development, the Finance Minister has provided the right impetus to the India growth story.

Given the urgent need to provide both access and improved healthcare to the Indian masses, the government’s proposed initiatives in this segment is a move in the right direction. With a 1-year tax holiday for hospitals, the private sector will have a strong incentive to invest in the healthcare provider space, particularly in terms of higher hospital capacity in the country. The new tax exemption on premium paid for medical insurance of parents to the tune of Rs15,000 p.a. will provide a further boost to health insurance penetration in the country. These significant initiatives in the healthcare space should ensure a stronger healthcare system in the country.

By Milind Kale, Nicholas Piramal India Ltd

Budget 2008 though seems to be concerned about the farmers, agriculture, education, health and social welfare, people of India knows that it is politically driven. FM gave importance to overall health of the people and consequently excise duty on pharmaceutical products has been reduced from 16% to 8%. This could have been done even two years before. For all other categories, excise duty has been reduced from 16% to 14% with certain exceptions. TUFs continues to give boost to textile industry. Good step has been taken to discontinue NCCD applicable to Polyester Fibre Yarn. Automobile Industry was pleased by reducing the excise duty.

On service tax front, exemption to small providers has been increased from 8 lacs p.a. to 10 lacs p.a. On Income Tax front also, FM has tried to please common man by increasing the slab from 1.1 lacs to 1.5 lacs. So, this goodi goodi budget eyes at the General Elections to be held next year.

Mr Ajit Kamath, CMD, Arch Pharmalabs Ltd

Increase of outlay for HIV treatment : Very positive move since most of the Indian Pharma companies were looking more at export markets and local markets were hitherto ignored. This move will help recognise the ground level situation and help treat patients, as the pool will go up, at reasonable prices. Will also help Indian Pharma companies to look inward and be a part of this exercise.

R&D: No proposal - Negative for Pharma. TheIndiastory is bound to suffer in the Pharma World. Will not encourage fresh investments or initiatives.

Excise:

a. Reduction from 16% to 14% - Positive.

b. Specific reduction for pharma goods - extremely positive and will lead to a balanced industrial development in the pharma sector where there was lopsided development in tax havens like Himachal Pradesh, Sikkim and Uttaranchal. c. Excise waiver on Atazanavir (a HIV treatment drug) is welcome and positive.

Custom Duty: Lowering of duty and exemption for life saving drugs and exemption of excise and cvd- Positive for pharma companies. However, similar concession could have been extended to import of intermediates by Bulk Drug producers who manufacture Life Saving Drugs. This could have put the Indian Bulk Drug Industry on a even platform withChina/other countries. Reduction of duty on Project Imports - Positive. Will boost new projects and upgradation efforts.

Tax waiver for Hospitals: Positive for Health Care sector. Will expand the reach and widen the net of a larger population in provision of healthcare.

Ajay Mahajan , Group President, Financial Markets, Institutions & Investment Management , YES BANK

The Union Budget for 2008-2009 is a powerful stroke by the Finance Minister in the midst of difficult global economic conditions that have raised the spectre of seriously impacting Indian growth. Most of the world is facing slower growth with strong inflationary expectations, & India is likely to be no different. Against this backdrop, the FM has provided strong fiscal stimulus to the Rural Economy and put more money in the hands of the common man, both in rural and urban India, which will do well to stoke domestic demand.

As for markets, we believe the budget is marginally positive despite the increase in short term capital gains tax to 15%. Corporate Debt markets have been given the necessary impetus; implementation, hopefully, will follow. Pronouncements relating to introduction of exchange traded bond, currency and interest rate derivatives will surely help increase broad based awareness and transparency. The Bond markets have every reason to cheer. The debt markets are surely relieved with the continued commitment to FRBM, fiscal deficit at 2.5% and a net borrowing of only Rs 100,000 crores, way below market's expectations.

There is no gainsaying the fact that there have been populist measures announced, including the write-off of farmers' loans. However, there is a silver lining there for the banking system who will possibly get to clean up their balance sheets and look even healthier, going forward.

Mr Satish Reddy, MD & COO, Dr Reddy's Laboratories Ltd

From a pharmaceutical industry perspective, Mr Chidambaram's remarkable budget is of considerable interest.

Firstly, I expect the reduction in excise duty to be largely passed on by the industry to the consumer and there will therefore be an immediate and direct benefit to patients.

Increased Government spending on healthcare is bound to make an impact in more ways than one. The small and medium scale sector makes substantial supplies to Government and they will benefit from increased volumes, as also bulk drug suppliers for these products. The increased awareness of health issues and access to medical care, coupled with increasing household incomes, will positively impact rural demand for drugs and medical services.

One major concern for industry, particularly export intensive pharmaceutical companies, is the appreciating rupee. Export growth in the first 9 months of the current fiscal is 19.9%, down from 24.8% in the corresponding period of the previous year, the lowest since 2002. Chemicals (which include pharmaceuticals) have suffered a steep drop, from 28.4% to 10.2% and have contributed to this decline. Some attempt has been made to provide relief to exports that are employment intensive but in general, industry has been exhorted to improved efficiencies to remain competitive. This is easier said than done, when some of the key sources of competitive disadvantage are direct consequences of Government policy or infrastructure.

Overall:

We are now a trillion dollar economy, the result of compounded growth over the last 5 years at more than 8.5%. The confidence that this growth rate is sustainable is evidenced by the official adoption of a 9% growth rate for the eleventh plan period, beginning 2007-08. Such robust and sustainable growth provides the leeway to governments to make transformational moves and the Finance Minister has seized this opportunity with commendable vigour.

Mr. Tulsi Tanti, CMD, Suzlon Energy Ltd.

Overall, I rate the budget as a 7 on a scale of 10. The lower and middle class have received special attention, with significant savings from personal taxation.

Buoyancy in tax collection seems to be having a beneficial effect on the agriculture sector, on education and health.

Speaking from the industry's perspective, the manufacturing sector is likely to receive a boost from the reduction in Excise duty, from 16% to 14%, and CST, from 3% to 2%. This will benefit sectors where CENVAT credit is not allowed due to exemption of end product. In our view, Rationalization of DDT is good move helping tax efficiency in holding Company structure.

In the Power space, the creation of a National Fund for Power Transmission and Distribution is a very positive move.

Global warming and the effects of climate change are now a global crisis and we feel it's high time that we mitigate the risk by implementing a strong renewable energy initiatives programme. We believe that more successful mechanisms to develop RE are essential. One such mechanism is the Transferable Tax Credit (TTC), in our view there is an immediate need for the introduction of TTC to drive growth in the Indian wind energy market, which remained flat in CY 2007 as compared to 2006.

Kris Gopalakrishnan , CEO & MD, Infosys Technologies Ltd

Overall economic growth has averaged 8.8% in the last four years. GDP growth rate for the year is estimated at 8.7% with services leading the growth at 10.7% and manufacturing growing by 9.4%. Tax revenues have been extremely buoyant, increasing to 12.5% of GDP, fiscal deficit is down to 2.5% next year with revenue deficit at 1% of GDP. The economy is on a roll. This has allowed the Finance Minister to make significant investments in agriculture, education and social sectors. However, we see inadequate allocation for higher education once again.

In terms of direct taxes the Finance Minister has given significant relief. This will help corporate India reduce wage inflation. Excise duty has been reduced across the board and coupled with the reduction in direct taxes, consumption and production should increase significantly, boosting growth.

The budget has not been positive for the IT industry. Smaller companies should have been given tax relief in this budget to counter the impact of a sharply appreciated rupee. The increase in excise duty for packaged software will lead to increased piracy.”

Moosa Raza, President, Indian Steel Alliance

Indian Steel Alliance welcomes the budget.  It is a positive budget and will go some way to stimulate steel demand in the country. Increased allocation in various sectors such as Infrastructure development under rural infrastructure fund (Rs.14,000/- crores), National Highway Development project (around Rs.12,660/- crores), Bharat Nirman Yojna (Rs.31,280/- crores) etc. will further go to stimulate the steel demand in the country.

Additionally, reduction in import duty for project imports from 7.5% to 5% will help in reducing capital cost of the on going steel projects in the country.  So also reduction in Excise Duty from 16 % to 14%, and waiver of import duty on some inputs will partially meet the demand of the Steel industry. CST reduction from 3% to 2% will generate positive sentiments in the market.

However, the Steel industry is disappointed that its request for taking both physical and fiscal measures for the conservation of iron ore resources for the benefit of the country has been overlooked.  This is essential as the Steel industry apprehends that the iron ore resources in India may not last for 20 – 30 years if exports of ore continue at the current rate.

Steel industry hopes that its demand will be kept continuously under consideration by the Government.

M. S. Abraham, Sr.Corporate Manage (Taxation & Compliance), Anabond Ltd. Chennai

The Budget has been good but not outstanding. Raising of Personal IT exemption limit is good but no relief in Corporate Tax.

Chandy C Thambi, Company Secretary, M/s International Flavours and Fragrances, Chennai

The general reduction in the rate of Excise Duty from 16% to 14% will give a boost to both manufacturing and consumption. However, something on the lines of a three or five year period on rates will enable business to take a long term view, instead of the annual 'game of chance' that the Union Budget ritually turns out to be. The time has also come to start active consultations with industry if GST is to be seamlessly introduced in 2010. On the whole the Budget is like a tasty morsel of food, it whets your appetite and leaves you craving for more!

V. B. Vyas, Sr Manager, Indian Corporate

Chak de FM who has made a smart move by presenting a luring Budget keeping in mind the forthcoming elections in May, 2009. He has succeeded in driving the point that it has taken care of minority community, education, health sector, interest of farmers by waiver of loan, mid-day meal for school children, PDS through Smart Cards in Haryana & Chandigarh and by making middle class also happy by increasing threshold limit not chargeable to tax so as to reduce Income Tax burden marginally.  He has cleverly reduced Cenvat duty by 2% and also reduced abatement to the same extent in respect of most of the goods assessed to duty on MRP basis. It is a matter of hidden surprise as to how he is going to garner the funds for various allocations made by him.

His introducing “OR” instead of “AND” between “labelling or re-labelling of containers and re-packing” in almost 21 Chapter Notes shall certainly open pandora's  box.