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Wednesday, Feb 04, 2004

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Opinion - Editorial


No surprises

AS GOOD AS it can be. That about sums up the mood of Mumbai's industrialists who were huddled in front of TV sets at Hotel Oberoi dissecting the Finance Minister, Mr Jaswant Singh's Interim Budget 2004-05. Mr R. Ravimohan, Crisil chief, was quick enough to decode the message of a low interest rate regime in the fiscal deficit for 2003-04 being placed at 4.8 per cent of GDP (budgeted estimate 5.6 per cent) with 2004-05 to see a further drop to 4.4 per cent. The lower fiscal deficit is obviously based on a higher growth in the GDP, now put between 7.5 per cent and 8 per cent. In the near term, of six months, market yields need not go up (they might even drop) with the Government expected to prune borrowings, and the inflation rate expected to pull back from over 6 per cent to a safer 4-4.5 per cent.

That explains the Finance Minister pushing banks to lend to the farm sector at 9 per cent or lower, and telling various funds, such as for infrastructure and agriculture, to offer loans at two percentage points below the PLR at 10.25 per cent (the SBI rate). A member of the Confederation of Indian Industry hoped the Government would not indulge in targeted lending and skew the banking system, while some analysts felt bank profits could run thin. But that need not be so if the banks play the volume game and push ahead with lending to the farm sector, which any way was the enabler for the NDA Government to mount the India Shining campaign. If banks can offer loans at 6 per cent to corporates linked to average market rates on sovereign paper, they cannot deny the same to the farming class. Unlike earlier times, Mr Jaswant Singh insists on quality against quantity lending, with banks free to reject applications of defaulters.

When the Rural Infrastructure Development Fund, with some Rs 30,000 crore, is waiting for projects to fund, is there any need for pursuing the idea of Agriculture Infrastructure and Credit Fund? Ditto for the Small and Medium Enterprise Fund and the Industrial Infrastructure Fund. It would have sufficed for the Government to ask banks to lend to these sector at two percentage points below the PLR. The confusion over the structure of the IDBI continues. Will it be a bank or a lead development finance institution? With the Reserve Bank of India allowing banks to issue long bonds to fund infrastructure there is no need to place a leash on the process of IDBI becoming a bank.

Confused must also be the investing class over the tax benefit accruing on dividend from mutual funds stretching beyond March 31. A word on extension could have helped; as done with the three-year extension given on the regime of listed securities acquired on or after March 1, 2003, being free of long-term capital gains tax. As significant as the drop in fiscal deficit is the proposal of a tonnage tax for the shipping industry and a 50 per cent slash in stamp duty levied by the Centre. The tonnage tax of 2 to 8 per cent in lieu of the corporate tax has excited shipping circles and the Finance Minister has opted for an international practice, even if it could lead to some revenue loss. Mr Jaswant Singh has found enough reason to pursue the logic of lower taxation yielding higher revenues and growth. He has left little for the cry-babies.

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Stories in this Section
No surprises


Nature's caprices and state's tyranny
Unveiling an interesting future
A misnomer of a Budget
Interim Budget 2004-05: Understated, yet promising
Prosperity in sight, but miles to go
A public relations exercise
Sailing strong on shifting tax wind
Sugar: Juicy plan
Tourisms and hotels: Thrust on infrastructure
Capital goods: Countering import competition
Tea: Sweetened cup
Personal investment, taxation: Hopes belied
Bowing to the inevitable
Unnecessary loans
Capital account convertibility
Food adulteration



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