High on promises, low on ideas
Dotcom dollops with touch of bitters
Big-buck salute to Kargil
Clinton drops Atal one-to-one
Calcutta weather

 
 
HIGH ON PROMISES, LOW ON IDEAS 
 
 
FROM OUR SPECIAL CORRESPONDENT
 
New Delhi, Feb. 29 
Yashwant Sinha spoke of presenting the next generation of reforms. What he possibly meant was presents for GeneratioNext: cheaper computers, cheaper cellphones and cheaper raw film for Bollywood.

The finance minister had hinted at a harsh budget. What he possibly meant was: pick up the bill for Kargil.

Harsh he has been on some sections. First, he has raised the surcharge on personal income-tax from 10 to 15 per cent for people earning over Rs 1.5 lakh a year. It means the rate of taxation in this category will rise to 34.5 from 33 per cent. For the second year in succession, the personal income-tax rate is up, contrary to expectations of an increase in the exemption limit.

Industry will pay for the rest of the Kargil cost, which has led to the highest-ever growth in defence outlay. The minimum alternate tax on company profits will now be applicable to all; there will be no exemptions, though the rate of taxation has been lowered from 10 to 7.5 per cent.

The changes in income and corporation tax will fetch the finance minister Rs 5,080 crore a year. Through excise rationalisation and customs duty modifications, he will raise another Rs 1,824 crore, taking the total revenue impact of Sinha’s third budget to Rs 6,904 crore.

Riding high on expectations before Sinha took the floor, stock markets were driving up prices. Until the end of the first part of his speech, the trend held. Once he stopped for breath and a glass of water, the market went weak at the knees. The ground sank under its feet when he announced that export earnings of software companies will be taxed at 20 per cent to start with as exemptions are phased out over five years. At the end of the day, the Bombay Stock Exchange sensitive index was down 293 points.

Sinha has been soft on government expenditure, most of the criticism levelled by businessmen and economists against the finance minister relates to the lack of measures to narrow the gap between income and spending. He has attempted to prune food and fertiliser subsidies, but has caused widespread disappointment by not trying to do enough. The fiscal deficit, thought to be the main drag on the economy, is still too high. Sinha is targeting a fiscal deficit of 5.1 per cent of gross domestic product in 2000-01. Finance ministers have rarely met this target. This year is ending with a fiscal deficit of 5.6 per cent against an estimate of 4.5 per cent. It has not been higher since the crisis year of 1991-92.

As a result, the government’s borrowing requirement for the year will be a whopping Rs 100,000 crore to bridge the gap between its expenditure and receipts. High government borrowing keeps interest rates high which are not conducive to economic growth.

The budget, however, contains a signal to banks and financial institutions to lower interest rates. Sinha has cut the interest paid on provident fund from 12 to 11 per cent, which is unlikely to make him popular with salaried people.

Sinha is drawing flak for not trying to be bolder at a time when there is a stable government, the economy is growing robustly and the stock market is buoyant. Perhaps expecting this criticism, Sinha said in defence in his speech that he has tried to achieve a balance between fiscal consolidation and the need to nurture the recovery phase in the growth cycle.

He has been accused earlier of presenting a bureaucrat’s budget. Sinha is facing the same charge this time: there are no big ideas in the budget, though he intends to “take the country to a sustained, equitable and job-creating growth path of 7 to 8 per cent”.

By way of innovation, he has simplified the excise structure by introducing the central value added tax. It creates a single rate of 16 per cent, but tags on three special rates, leaving industry befuddled. Rahul Bajaj, president of the Confederation of Indian Industry, said: “The budget hides a lot. I am not being negative but not positive enough as well...It contains a lot of confusion on excise rates.”

In customs, Sinha has brought the peak rate of duty down from 40 to 35 per cent, in line with India’s international commitment to lower import barriers.

The biggest beneficiaries of customs concessions are the telecom, information technology and entertainment sectors.

Information technology will also get a boost from the relaxation of rules announced for venture capital funds. They will not need any approval from tax authorities. Their income will be exempt from tax, except when not distributed within a stipulated period. Income in the hands of investors in such funds will also be tax free.

But Infosys chief N.R. Narayanamurthy was not pleased. “I am not very happy with the budget as there has been no announcement on the issue of taxing (twice) stock option (given to employees).”

If industry is regretting the finance minister’s misses, it has been left to lick the wounds inflicted by his hits.

The minimum alternate tax, bringing all companies within its ambit, is one. Another is the doubling of the tax on dividends distributed by companies from 10 to 20 per cent.

Of the next generation of reforms Sinha had promised, the most important is a statement of intent to sell to the public shares owned by the government in banks up to 33 per cent.

The second is a continuation of public sector reforms. Sinha made the bold declaration that sick units that cannot be revived will be closed down; government equity in all non-strategic units will be cut to 26 per cent and below; potentially viable units will be restructured and revived. These came with a promise of protecting workers’ interests.

These announcement are, however, bound to run into political opposition. Another effort likely to face such resistance is the cut in food and fertiliser subsidies through a combination of price increases and narrowing the target group.

Sinha proposes to continue the thrust given to the housing sector last year and extend the benefits already available for two more years, i.e. for houses or projects which are completed by March 31, 2003.    


 
 
DOTCOM DOLLOPS WITH TOUCH OF BITTERS 
 
 
FROM OUR CORRESPONDENT
 
New Delhi, Feb. 29 
Budget 2000 is the infotainer’s delight. Finance Minister Yashwant Sinha has promised major sops to the entertainment and information technology sectors. Also cheering the budget are cellular telephone businesses.

Computer sales are set to boom with major duty cuts in hardware. The government has reduced the customs duty on computers and components from 20 to 15 per cent.

Import duty on computer mother boards has also been brought down from 20 to 15 per cent. Duty on microprocessors, the brain in any computer has been slashed from five per cent to nil. The government has also brought down import duty on integrated circuits and data graphics display tubes for colour monitors for computers from five per cent to nil. The duty on floppy diskettes will now be 15 per cent, down by 5 per cent.

But Sinha feels that Indian software companies have matured enough. He has taxed their income from exports.

“Export earnings of various kinds presently enjoy exemptions from income-tax ranging from 50 per cent to 100 per cent. I have therefore decide to phase out these concessions over a period of five years,” he said.

The cellular telephone industry has been given a shot in the arm after customs duty on mobile phones and accessories was slashed from 25 per cent to five per cent. The duty on batteries used in cellular phones have been reduced from 40 per cent to 15 per cent.

According Cellular Operators Association of India, the cellular industry is expected to grow from 1.6 million subscriber today to about three million subscriber by end of the current year. “The reduction in handset duty is bound to increase the number of cellular subscribers in India,” said T. V. Ramachandran, executive vice chairman, COAI.

But it is the entertainment industry which is on a roll. With important spokespersons from the industry like Shatrughan Sinha and Vinod Khanna in the ruling party, the industry has been pampered.

Well-known film directors like Rahul Rawail of Bharat Film Works and Ramesh Sharma of Moving Pictures are crowing with delight after Sinha reduced duty on import of cinematographic cameras and equipment from 40 per cent to 25 per cent and on colour film rolls from 15 per cent to five per cent. Second, the 100 per cent exemption on export profits introduced last year has been extended this year to include non-corporate entities. At present, large sections of the industry are private limited or partnership companies.

Says Rawail: “These are good sops to the industry. Reducing the import duties on equipment will certainly bring down the cost of production and will help in modernising equipment.”

The broadcasting industry, however, is circumspect. All dreams of being treated at par with the infotech industry have been squashed.

G Krishnan, president, TV Today, says he is surprised that the whole thrust is towards cinema industry and broadcast industry is left out in the cold.    


 
 
BIG-BUCK SALUTE TO KARGIL 
 
 
FROM OUR SPECIAL CORRESPONDENT
 
New Delhi, Feb. 29 
The military establishment welcomed the 22 per cent hike in defence spending in the budget. This is the highest-ever increase in defence outlay.

Last year, Rs 45,000 crore was earmarked for defence, though an additional Rs 7,000 crore was pumped in after the Kargil war.

To maintain enhanced security on the Line-of-Control, the government proposes to increase defence expenditure to Rs 58,587 crore, a hike of Rs 13,000 crore from last year’s Rs 45,694 crore. It amounts to 2.8 per cent of the GDP.

The armed forces had requested the Centre earlier this year that defence spending should go up to three per cent of the GDP. Last year defence expenditure amounted to 2.3 per cent of the GDP.

On the hike, Prime Minister A.B. Vajpayee said: “This was required in the wake of deteriorating security environment. After the Kargil war, India has to gear itself up,” he said.

“I am fully confident that the people will understand the country’s defence needs,” he added.

Though no Kargil tax has been imposed, finance minister Yashwant Sinha said the continuance of the 10 per cent surcharge on income tax and the increase of 5 per cent surcharge in those in the taxable category of over Rs 1.5 lakh per annum would help support increased the defence spending. “Having restrained myself from imposing any additional taxes during the course of the year when there was much talk of a Kargil tax, I now propose increasing the surcharge moderately,” he said.

Defence sources said on an average the government spends Rs 10 crore per day to maintain troops in Kargil. The government is going to spend Rs 1,800 crore on additional deployment of forces in the icy terrain where it is winter for six months.

The money would also allow defence forces some more shopping. Their wishlist is long and the government has to concede to several of the demands.

The Army for long has been asking the government to buy 300 Russian T-90 missile firing tanks. The Air Force is also demanding 60 advanced jet trainers and a handful of Mirage 2000 fighter aircraft. The Navy has a list of suggestions which includes a nuclear-powered submarine.

Some of these purchases, however, will depend on the Central Vigilance Commission’s nod. Defence minister George Fernandes has ordered a probe by the CVC into past purchases as well as post-Kargil buying plans for which negotiations have started.    


 
 
CLINTON DROPS ATAL ONE-TO-ONE 
 
 
FROM PRANAY SHARMA
 
New Delhi, Feb. 29 
Setting aside convention, US President Bill Clinton — who is scheduled to arrive here in three weeks — has made it clear that he will not have a one-on-one meeting with Prime Minister Atal Behari Vajpayee.

The only official interaction between the two sides will be at a delegation-level talk as Clinton is against an exclusive meeting with any Indian leader.

But the BJP-led government seems to be so enamoured of the fact that a presidential visit from the Unites States to India is taking place after nearly 23 years, that it is almost bending over backwards to accommodate the Americans and ensure that Clinton’s visit is a success.

The US President is scheduled to arrive in New Delhi on the night of March 19. Indications are he will put up at the Maurya Sheraton Hotel.

But the possibility of his staying at Roosevelt House, inside the American Embassy in Chanakyapuri, is also not being ruled out.

On March 20, Clinton will leave for Bangladesh to hold talks with Sheikh Hasina and other members of the Awami League government.

Though he returns to Delhi the same evening, the official part of his visit only commences from the next day after a ceremonial reception at the Rashtrapati Bhavan forecourt. Clinton will then begin his official-level talks with the Indian leadership.

The Americans have also made it clear that they will not let any Indian minister accompany the US President in his car — which, again, is the convention here — as Clinton has the habit of working even while travelling.

Washington has also said no to a proposed civic reception planned for the US President. Though Clinton has agreed to a joint address of Parliament, there is no scheduled press conference with the Indian media.

The only privileged ones among the media are the White House reporters and those accompanying the President.

Clinton, however, is planning to give a speech on environment at the Taj Mahal when he visits Agra on March 22. The next day he plans to go to Jaipur and also visit the Ranthambore reserve forest to see the tigers.

Though Andhra Pradesh chief minister N. Chandrababu Naidu may have beaten his Karnataka counterpart S.M. Krishna in the race to host the US President, Clinton will spend only half a day in Hyderabad before flying off to Mumbai.

Goa has already been taken off the presidential itinerary and Clinton is scheduled to spend nearly a day in India’s financial capital before leaving the country on March 25.

The discussions that the Indians have had so far with members of Clinton’s advance team have not thrown any light on whether he will visit Pakistan.

Although White House is yet to make any announcement in this regard, the possibility of Clinton landing in Pakistan for a few hours for a technical halt cannot be ruled out.    


 
 
CALCUTTA WEATHER 
 
 
 
 
Temperature: Maximum: 29°C Minimum: 15°C RAINFALL: Nil Today: Mainly sunny sky. Sunset: 5.36 pm Sunrise: 6.04 am Source: The Weather Channel Enterprises Inc.    
 

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