Financial Daily from THE HINDU group of publications
Monday, Mar 18, 2002
Will industry rise to the challenge?
THE Finance Minister, Mr Yashwant Sinha, and his team should be congratulated for avoiding theatrics and getting down to business. He has not played to lobbyists, or to the gallery. He believes that the pace of growth will accelerate on its own momentum. For this, a strong foundation is essential to support long-term economic growth. This cannot be achieved singularly by a handful of large corporations Indian or global.
The Finance Minister has done well making no bones about giving the industry the basic structure to show their performance. It is the responsibility of the large corporations to develop, train and nurture the viable enterprises in the small sector both urban and rural. Unless this happens, generating demand will not be easy.
Mr Yashwant Sinha has defined clearly the thrust towards the social and physical infrastructure, agriculture and agro-based areas, education and health. At the same time, he has not retracted on the reforms process. In fact, this is the first time there is a more holistic approach to the Budget exercise. Look at a comparison of some projections made by the author (`Budget 2002-03: View from the Gallery', Business Line, February 28) with the announcements:
Extract from the article (E): We need not speculate on the Budget any more. The transparency is much more in evidence. The lobbyists are decreasing. In such a scenario one can stick one's neck out and say the following for the 2002 Budget...
Budget proposals (P): No surprises. Augurs well for stability, consistency and continuity. The concept of a road map has finally caught on. The less the surprise the more the continuity.
E: Protection will give way to competition. Import tariffs will be reduced progressively. Ultimately, to a single or a dual duty structure. The overall average duty will be brought down. Additional and special duties will be withdrawn.
P: Peak import tariff reduced from 35 per cent to 30 per cent. Much against a strong anti lobby, the Finance Minister has demonstrated his own thinking. Moving towards a dual rate in two years with peak rates of 20 per cent for finished goods and 10 per cent for raw materials, components and sub assemblies. The writing is on the wall. The Industry better prepare itself. The next few years will see polarisation and exits on a scale never seen before.
E: Excise duty structure will be rationalised heading towards a single or dual duty structure. More items from the exempt and 8 per cent rate may be brought to the 16 per cent rate, keeping in mind the revenue requirements.
P: Moving to a single and flat 16 per cent rate.
E: High focus on agriculture, food and agro products, infrastructure.
P: Increased allocations to agricultural produce and rural marketing, power, roads, railways, ports and airports, private sector participation and management.
E: High focus on education and social infrastructure and Defence.
P: Several measures announced. Highest-ever allocation to Defence, education outlay up 30 per cent, encouragement to women in various fields, resources for improving city infrastructure, rural electrification, and so on.
E: Acceleration in the privatisation process, special measures to attract FDI.
P: Strategic divestment process for the PSUs, NRI incentives, FDI opened to almost all sectors.
E: Encouragement to exports through measures that comply with the WTO.
P: Increased support through SEZs, increased allocation to States to provide infrastructure, increased outlay for the Commerce Ministry to promote exports.
E: Reduction in interest rates.
P: A reduction of 0.5 per cent announced. Some wanted more. The direction has been set.
E: Expansion of the tax net through selective segmentation of areas left out.
P: Very clearly exploited by widening the tax base through the Services sectors, exports, across the board surcharge of 5 per cent, barring individuals and others.
E: The industry largely will be left to fend for itself by building and strengthening the key growth sectors. Sops to be withdrawn.
P: The Budget has provided all the basic ingredients on which the industry has to build itself through its own efforts. The Finance Minister has been considerate in providing depreciation incentives, protected the steel industry, encouragement to the drug industry, entertainment industry and others. He has identified areas of India's potential to grow globally.
E: Reform process may gather speed. The process will be set once the Government implements the labour reforms announced recently.
P: A very focussed strategy of the reform process with a gradual stepping on the accelerator, while keeping the interests of the people living below the BPL. Clearly endorsed through the various fiscal reforms full convertibility on NRI deposits, prepayment of ECBs, dismantling of the APM, corporatisation of the stock exchanges, easier housing loans, rationalisation of taxes and duty structure, modified luxury hotel tax on room rent only easier rural loans, social security schemes, credit card scheme extension.
The Budget is often expected to `spur growth'. It can only be an instrument that facilitates the implementation of a programme. It is the overall policy and roadmap which defines the broad parameters to stimulate an economy. It is left to the industry to perform profitably and add value to the stakeholders and the society. The Government has done its bit. It is now the industry's turn.
(The author, an industry analyst, is a former vice-president, Ford India.)
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