The Budget has come as no surprise for me. Finance minister P Chidambaram had to overcome counter-pressures of making the Budget economically sound as well as populist, keeping in mind the elections next year and, I think he has managed it well. For the industry, while there are some positives, the Budget has largely been disappointing.
The tax holiday extended to the power sector is a very positive move. The sector has been facing many critical problems, but the tax holiday is welcome. The second positive is the investment allowance extended to the industry, which will motivate it to invest more.
But there were a lot of disappointments. I felt that the FM did not do anything to stimulate demand or supply. He could have announced his intention to bring down interest rates. Although it is the RBI that takes a call on interest rates, the FM could have announced an intention to bring rates down. This is critical to stimulating supply. On the demand side, the minister did announce measures on housing, warehouse construction and road construction. But he missed out on the mining sector as he could have said something about the intention to lift the mining bans. He also missed out on some sort of safeguard duties, which would have been beneficial for the local manufacturers.
Prima facie, the FM measured well on all accounts. But the Budget did look more like a statement of intent rather than one backed by arithmetic. The expenditure has increased, but no clear sign as to how the government plans to fund this expenditure. This causes a bit of concern. In today’s volatile times, when public sector companies are losing value, it was disappointing that there was no announcement on disinvestment. Disinvestment could have raised some funds for the increasing capital expenditure of the government. For corporates, effectively taxes have increased by 3.5%; so, that takes away our ability to invest through equity and we would have to depend more on debt.
In the first half-an-hour of his speech, the FM sounded like the minister of banking. He clearly wants banks to increase penetration and have more cooperation with insurers. I was already expecting these disappointments, so I?m not surprised. It seems like a status-quo Budget with some cosmetic changes.