Financial Daily from THE HINDU group of publications
Saturday, Mar 01, 2003
This Budget will put economy back on reform path
THE proposals announced in the Budget have a definitive tone of:
Focus on infrastructure projects,
Rationalisation of indirect taxes,
Continuation of soft interest rate regime and
Introduction of tax reforms.
The Budget proposals gain significance from the fact that despite increasing crude prices, geopolitical tensions in the international arena and slowdown in domestic agricultural economy, the impetus towards reforms has been maintained.
On a macro scale, the proposals are expected to:
Continue the momentum of industrial demand from infrastructure projects & housing,
Kick-start consumption in certain segments (such as housing and passenger vehicles),
Introduce VAT from April 1 2003 and
Enthuse investor confidence in capital markets
The proposal to add further 10,000 km for four-laning of roads (3,000 km in 2003-04) at a cost of Rs 40,000 crore will extend the momentum on the NHDP.
The cess of Re 0.50 per litre imposed on diesel and motor spirits that will contribute to the funding of this project, marks the Government's realisation of the success of infrastructure funding mechanism achieved in the recent past.
The Budget has also earmarked additional funds for the rural roads from the collected cess. The announced plans for port (both air and sea) modernisation is a good beginning.
Continuation of interest exemption on housing loans is expected to remove the recent overhang on the housing demand and should help in maintaining the growth momentum in the construction sector (estimated growth of 7.1 per cent in 2003).
The Government has clearly realised the potential impact of the reduction of excise duty on the consumer demand and its cascading impact on the overall economy. The reduction of SED from 16 per cent to 8 per cent will benefit the passenger vehicle sector to a great extent.
The proposed excise duty reduction on passenger cars and utility vehicles from 32 per cent to 24 per cent has the potential to kick-start demand in these segments that have witnessed sluggish demand trends in the last couple of years.
Although, the imposition of National Calamity Duty of one per cent on these segments will take away some sheen but the net-net impact of reduction should be positive for the industry. This coupled with the indication of the continuation of the soft interest rate regime, should drive the demand here.
The introduction of VAT from April 1 will go a long way in rationalising the tax system in the country by reducing the cascading effect of tax on tax. The budget proposal to reduce the CST from 4 per to 2 per cent in 2003-04 will lower the double-taxation incidence in the transitionary phase of migration to VAT.To sum up, the measures announced in the Budget balance the current difficult external conditions and consolidation of the industrial growth achieved in 2002-03, and take the economy forward on the reform path.
The author is Executive Director (Finance & Corp. Affairs), Tata Engineering.
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