Perfect 10, almost, for Sinha
Blow to savers, break for borrowers
Great govt trim trick
Enter, an exit policy
Calcutta weather

New Delhi, Feb. 28: 
At the end of Yashwant Sinha’s nearly two-hour speech, businessmen were left blinking. Had they heard right? The stock market, always quick on the uptake, was in no doubt. It hitched the sensitive index to a wild bull run.

Not since Manmohan Singh’s path-breaking 1991 budget and P. Chidambaram’s big bang of 1997 has industry reacted with such ecstasy to this annual exercise.

In his fourth budget, Yashwant Sinha has played the reformer’s role with unexpected zeal, unleashed stimulants to turn around a faltering economy, shown fiscal rectitude of a level surpassing his predecessors and, best of all, done all this without touching the taxpayer for more.

He has also threatened some blood-letting in two holy cows — size of the government and labour laws.

Businessmen would have liked to give him 10 out of 10, but miserliness got the better of them and most settled for nine. “On all counts, the budget does not have a negative aspect,” said industrialist Kumarmanglam Birla.

The stock market gave the finance minister 178 points. “We have dodged the bullet,” said Ramesh Damani, a broker, betraying the market’s surprise at the richness of the fruit of Sinha’s labours. The sensitive index went up from Tuesday’s close of 4069 points to end the day today at 4247.

One number sums up his budget like nothing else. The finance minister is giving away Rs 2,951 crore more than he is taking through tax measures.

First among the tax breaks is the removal of all surcharges on income and corporate tax except the quake levy imposed recently.

His revival package for the economy consists of moving towards a lower interest-rate regime, slashing of dividend tax from 20 to 10 per cent, exemption from tax for long-term capital gains out of sale of securities and units if reinvested in primary issues of shares, and enhanced tax holiday for investment in infrastructure.

Except for imposing a special surcharge on cigarettes and other tobacco products, Sinha has almost shunned the path of fresh taxation. The ambit of service tax has been widened to include banking and financial services, authorised service stations for servicing vehicles, port services, and broadcasting, photographic and telegraph services. Postal rates have been raised.

In trying to spur growth through lower borrowing cost, the finance minister has been somewhat unkind to the salaried class and pensioners. The interest rate on small savings has been cut to trigger a lending and deposit rate reduction by banks.

Among Sinha’s big-ticket reforms, the foremost are the proposed amendments to labour laws, allowing easier retrenchment and hiring of contract labour.

There’s also a big push to privatisation with 27 units marked for selloff, from which he expects to garner Rs 12,000 crore in 2001-02. But there is a question mark over the figure: this year, the divestment target was Rs 10,000 crore, but the expected collection will be at most Rs 2,500 crore.

For the first time since the start of reforms, the government is touching agriculture. The bulwark of foodgrain economy management — price support — is sought to be dismantled with the Centre ceasing to procure at pre-determined rates from farmers. The responsibility of conducting price support operations is being shifted to states with the Food Corporation of India buying from the market only to maintain a buffer. What Sinha was silent about was whether the step could lead to shifting of some of the food subsidy burden to states.

Promise of power reforms, tying funds assistance to states to restructuring of electricity boards, a commitment to meet the deadline for dismantling petroleum price control and a phaseout programme for the fertiliser retention pricing mechanism — euphemism for control — form the rest of Sinha’s big ideas.

As the first step towards full decontrol of sugar, futures trading will be introduced. The retail price of sugar sold through ration shops is being raised to Rs 13.25 per kg from March 1. For the drug industry, the finance minister pledged a substantial shrinking of the span of price control.

A modest beginning in government downsizing was made with fresh recruitment limited to one per cent of the total civilian staff strength.

Sinha has progressed farther towards capital account convertibility. Indian companies can now invest abroad up to $50 million annually without government permission. Companies which have issued ADRs and GDRs can invest the entire sum abroad.

Back home, he has raised the 40 per cent limit on investment in a company by foreign institutional investors to 49 per cent.

The finance minister took pride in claiming to have met the fiscal deficit target of 5.1 per cent. This is a feat none of his post-reform predecessors had achieved.

For 2001-02, he announced a fiscal deficit target of 4.7 per cent of the gross domestic product.

Direct tax concessions will result in a revenue loss of Rs 5,500 crore, which Sinha hopes to make up with tax buoyancy and increased voluntary compliance. In customs duties, the revenue loss is estimated at Rs 2,128 crore. Excise is the only area where he mops up an additional Rs 4,677 crore.

In excise, he has reduced the number of special rates from three to one. This means there will now be only two rates — a Cenvat of 16 per cent and a special excise of 16 per cent. Excise cuts spurred car and scooter makers like Maruti, Ford, Hyundai and Bajaj Auto to announce that they would slash prices from tomorrow.


New Delhi, Feb. 28: 
Yashwant Sinha today shoved the economy towards a low interest-rate regime, delivering to faltering industry the growth stimulus it was clamouring for and a blow to savers who put their money in conventional instruments.

Interest rates on small savings have been cut by 0.5 to 1.5 percentage points, bringing down the government’s borrowing cost. It is expected to cause a ripple effect across the financial sector, lowering lending and deposit rates.

Taking the cue from the finance minister, two private banks — ICICI Bank and IndusInd — have already cut rates. ICICI has reduced lending and deposit rates by 0.5 to 1.5 percentage points. Deposits of six months to a year will now fetch 8.5 per cent and over a year 9.25 per cent.

The signal to cut interest rates came from the finance minister in action as well as words. After the budget, he said: “I have done my bit by reducing interest (on small savings )... Now, it is up to the Reserve Bank and other banks to decide what they want to do.”

Sinha’s move, which affects post-office savings, public provident fund and the national savings scheme, will help align savings rates with bank deposit rates.

It removes the difference which had made small savings more attractive. Government guarantees and tax incentives for these schemes will continue.

Finance ministry officials estimate that the lower interest will help the government save Rs 2,500 crore a year. To cut costs, the government also plans to introduce a new pension scheme for government employees. It will be based on actual contribution and not on the current system of calculating pension on the basis of half of the last pay drawn plus dearness allowance.

Officials said the reduction in interest rates on the Rs 95,000-crore Special Deposit Scheme, which includes Employees Provident Fund inflows, will be worked out later. The cut could be about 1 per cent.

Finance ministry officials had been planning the interest reduction for some time but had stopped short because of pressure from states, including Bengal. Small savings schemes are administered by the Centre but hard-sold by states which are entitled to borrow up to 75 per cent of collections in their territories.

The schemes are huge money spinners. In the last financial year, over Rs 29,000 crore was collected through these schemes. The schemes are meant for small investors and are generally accepted as an innovative way of stimulating the savings rate in a developing country.


New Delhi, Feb. 28: 
Inside every fat man, or so the aphorism goes, there is a thin man struggling to get out. Inside Yashwant Sinha, there is a finance minister struggling to convert the Central government from a fat, bloated creature to a trim and slim servant of the people.

Sinha’s fourth budget talks a lot about wanting to fulfil the promise of downsizing the government; but read between the lines, the budget speech evokes the feeling that he has performed a magician’s trick of making appearance seem like reality.

For instance, he says in Part A of his speech that this budget is the first step towards achieving the goal of reducing the number of government servants by 10 per cent in five years.

But no Central government employee is going to lose his job. What Sinha said was: “All requirements of recruitment will be scrutinised to ensure that fresh recruitment is limited to one per cent of the total civilian staff strength. As about three per cent of the staff retire every year, this will reduce the manpower by two per cent per annum.”

Therefore, only those who retire will be sent home. The Centre will continue to be one of the biggest providers of jobs. The Union Public Service Commission will not close its huge doors.

There are also promises of downsizing. All those who are identified as “surplus” after an expenditure panel submits its report will be “transferred to the surplus pool”. The surplus pool — under the department of personnel — is a register of the names of all redundant employees.

Sinha said the surplus staff will be retrained and redeployed. He has also promised a voluntary retirement scheme. Government employees — except those due for retirement — have been hit with a two-year suspension of leave travel concession. They will also have to pay more for government accommodation.

Sinha goes so far as to say that he will abolish three secretary-level posts and two at the level of joint secretary in the Department of Economic Affairs, which is at the core of his ministry. The posts will be abolished but those who are in them now will just be transferred to other ministries.

Another 44 posts of directors and below will be abolished. The currency and coinage division will lose 1,675 posts and the National Savings Organisation staff strength will be slashed to about 25 from 1,191.


New Delhi, Feb. 28: 
Ten years after liberalisation started, the Centre picked up the hot potato called labour market reform that successive finance ministers had shelved.

Yashwant Sinha today announced that units employing less than 1,000 workers need not seek state permission to lay off or retrench employees. He also announced that employers would have the right to hire labour on contract for their “non-core” businesses.

Given the complexities of carrying out labour market reform, Yashwant Sinha’s proclamation is little more than a statement of intention.

If, however, Sinha succeeds in pushing through the amendment to the Industrial Disputes Act to allow retrenchment, labour unions would lose a battle they have been fighting for a decade, conceded M.K. Pandhe, general secretary of the CPM’s labour arm, Citu.

“The exit policy we have been resisting for so long would come to stay,” he said. The Citu has been spearheading opposition to the amendment fist proposed by the Narasimha Rao government when it set reforms rolling. “P.A. Sangma, the then labour minister, had wanted to raise the number from 100 to 300. We stalled it. Now, it has been raised to 1,000,” Pandhe said.

An overwhelming majority of businesses employ less than 1,000 workers. Hundreds of thousands of workers across the country — especially in Bengal, Maharashtra and Tamil Nadu — could lose their livelihoods if employers in small and medium enterprises decide to use the “freedom to manage” granted to them by the finance minister and downsize workforce.

The total workforce in the country (according to the 1991 census) is about 370 million. Quick estimates suggest that of this, 35 million are in the organised sector, comprising the public sector (3 million), small and medium enterprises (23 million) and large private enterprises (9 million).

An overwhelming 335 million are in agriculture and services — the sectors untouched by the proposed changes. (There are about 20 million landless labourers for whom there is no structured wage policy). Since the freedom to retrench is proposed to be given in the organised sector only, a conservative estimate is that the provision will apply to some 28 million workers.

The immediate reaction to the finance minister’s announcement from the unions is the call to observe protest day on March 2.

“This is the most anti-labour, no-growth budget in recent years,” Intuc president G. Sanjeeva Reddy said. “Moreover, the finance minister has overshot his jurisdiction and sought to influence the working of the second national commission on labour.”

The commission has been set up to suggest amendments to labour laws. Unions were preparing for battle with the commission whose brief they saw as a camouflage for initiating a hire-and-fire policy. Sinha appears to have pre-empted that. The commission’s report, expected in October, could now be only a rubber-stamp job.

The Bharatiya Mazdoor Sangh (BMS), the labour wing of the BJP, too, has reacted sharply against the proposals. “There is no way this can be allowed,” said its secretary, A.N. Dogra. “We think this has been done under pressure from MNCs.”

The BMS national executive meeting in Vadodara, Gujarat, later this week will chart a programme of cooperation with other unions to oppose the measures.

The other contentious announcement is the proposed amendment to the Contract Labour Act, which the unions view as an attempt to transform “formal” jobs into “informal”.

Citu’s Pandhe cited the example of the steel industry. “Workers who are given VRS return to the same unit on contract.” The amendment will dispense with the concept of permanent jobs, he added.

Having got used to governments avoiding the explosive issue for 10 years, managements received Sinha’s unexpected announcement as a bonus. “This is something we have been demanding for a long time,” said Arun Bharat Ram, president of the Confederation of Indian Industry. “It will allow Indian businesses to be more competitive.” In private, though, most employers felt the finance minister’s proposals could turn out to be largely unworkable, given the intensity of opposition.

The process through which the changes have to be carried out is complicated. Sinha said the labour minister, Satya Narain Jatiya, will introduce a Bill to amend Chapter V-b of the Industrial Disputes Act. Chapter V-b makes it mandatory for all units employing more than 100 persons to seek permission of the state government to lay off or retrench workers.

Permitting contract labour flies in the face of a Supreme Court verdict two years ago that abolished the concept. However, many major companies continue to outsource their “non-core” activity to service providers that hire labour on contract.

Sinha has sought to sugar-coat his labour market reform by asking managements to pay a compensation of 45 days’ salary per worker for every completed year of service. The current norm is 15 days’ salary. Sinha also said a new scheme of group insurance for employees drawing up to Rs 10,000 per month was being drawn up.

But even this is unlikely to be accepted by unions. “These so-called social security schemes actually offer very little,” said Dogra.




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