The Hindu Business Line : A boost to consumerism

The Budget proposals will provide a welcome impetus to the agricultural, infrastructure, and the Small and Medium Enterprises sectors. However, few of the proposals will have a negative impact on the corporates involved in growth and knowledge industries.

The focus on agriculture is definitely welcome, especially the significant increase in irrigation outlay. Additionally, emphasis on rural credit, by increasing the farm credit target to Rs 2.25 trillion, will help the sector. However, the confirmation of the ban on forward contracts on wheat and rice will deny farmers the ability to mitigate unforeseen risks. Markets, farmers, and regulators will also no longer be able to understand future price signals/trends without such contracts in place.

Urban development continues to be a dire need for our rapidly growing economy. Thus, the increase in funding for the Jawaharlal Nehru Urban Renewal Mission (JNURM) is welcome. By permitting mutual funds to launch and operate dedicated infrastructure funds, the Finance Minister is providing an impetus to the much needed, fund flow to the infrastructure sector.

On the capital markets front, allowing PAN to be made the sole identification number for all participants seems to be the highlight. The market will also find agreeable the policy on allowing short selling and settlement by delivery. Credit ratings will receive a boost with the Finance Minister specifically asking banks to regard the credit ratings of SMEs, when providing credit to the sector.

The proposed regulation for creating of mortgage guarantee companies will provide great comfort to lenders in the rapidly growing real-estate sector. The creation of the Indian International Development Corporation, which will provide cooperation to other developing countries, is a testament to India's development and its ability to provide assistance to other emerging nations.

On the tax front, the Budget is a mixed bag. The continued effort to phase out the central sales tax (CST), with the announced reduction of CST to 3 per cent, is good move. Also welcome is the proposal to cut the peak rate for non-agricultural products, reduce ad valorem excise duty on petrol and diesel, exemption of coking coal from duties, and other similar levy-cuts.

The SME and SSIs also receive significant relief, with a rise in the tax exemption limit from Rs 1 crore to Rs 1.5 crore. They (companies with income of Rs 1 crore or less) will also benefit from the removal of the surcharge on income-tax. However, the extension of the Minimum Alternate Tax (MAT) to the IT sector and the inclusion of ESOPs under the fringe benefit tax (FBT) are not positive moves.

Both these proposals will prove to be a hindrance to the high growth and knowledge industries. Similarly, the increase in the dividend distribution tax to 25 per cent will negatively impact the capital market.

Overall, the proposals set down will boost consumerism, which is a priority for the country today.

(The author is Managing Director and CEO, CRISIL. E-mail: ravimohan@crisil.com)