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 IT industry welcomes telecom reforms in budget  (Go To Top)

          New Delhi: India's booming IT industry welcomed ambitious telecom reforms announced by the communist-backed government expansionary first budget. Finance Minister P Chidambaram's cautious budget raises foreign investment caps in the telecommunications, insurance and aviation sectors, and increases-but did not specify-investment in state power and telecoms firms. It also slashed prices for personal computers mainly to allow for larger IT penetration in the rural sector. "No tax on computers, that's going to be a good thing for the IT industry as well as all industries and also computer penetration in rural areas, that's excellent," Vivek Kulkarni, chief executive officer of the Bangalore-based B2K and former IT secretary with the government of Karnataka, said. "And in infrastructure there are two positive features. In telecom the foreign direct investment limit has gone to 74 percent that means telecom infrastructure will be even more better and will be good for the industry and good for the people. Even civil aviation industry, we get lot of foreigners to Bangalore, if we improve this sectore it will be very good," Kulkarni added.

          Many in the industry feel that continuing and not tampering with the heavily pro-IT policies of the previous government was imperative to ensure sustained growth in the sector. India's software service industry and the accompanying Business Process Outsouring (BPO) sector have been growing aggressively. The industry's exports, based on strong English language skills and cheaper wages, grossed 9.5 billion dollars in the year to March 2003, and are expected to grow at least 26 percent in the current fiscal year to March 2004. "There isn't too much for the IT industry barring the infrastructure oriented sops, which we are talking about telecom related areas. But what strikes me more from a specific IT industry perspective is that they continue on it so far as policies are concerned. There's a long term issue here. I don't think the budget is so much in regard to short term," KK Swamy, deputy managing director of Toyota Kirloskar, said. Chidambaram's budget increases spending in the current fiscal year by 100 billion rupees over the previous government's interim budget in February, largely to deliver the Congress-led coalition's promised "new deal" for rural India, which brought it to power. But there were no major surprises or shocks. Many of the measures were largely expected, including a rise in tax on services-which account for 50 percent of GDP-to 10 percent from 8 percent, the abolition of some excises, including those on tractors and computers, and a revival of a rural infrastructure fund with 1.7 billion dollars.

Markets, stocks, bonds fall on tax proposals (Go To Top)

          Mumbai: Indian shares and bonds fell sharply on Thursday, rattled by a tax on exchange transactions proposed by the newly elected government in its otherwise investor-friendly federal budget. The disappointment rubbed off on the rupee, pulling it from a high reached after the left-backed government announced a slew of measures including greater spending on welfare and incentives to investment aimed at boosting economic growth. The 30-share Bombay Stock Exchange Sensitive Index closed 2.26 percent lower at 4,843.84 points, while the key 10-year bond's yield rose a steep 10 basis points to 5.8347 percent. The rupee closed at 45.8400/8600 per dollar, little changed from high of 45.7200.

          While analysts broadly welcomed the budget's implications for Asia's third-largest economy, the proposal to tax exchange transactions of both stocks and bonds weighed heavily on markets. But Nimesh Kenia, a consultant with the Bombay-based Wealth First Advisors Ltd, hoped the markets will improve in near future. He said there were several positives in the budget. "I think all in all, on the fiscal deficit side in terms of infrastructural reforms the finance minister has delivered what the market expected. But the higher expectations of the market itself is something, which is now weighing down on the market. One thing is good now with the budget in place, the uncertainty is going to end and you will see people now looking forward to monsoons and the quarterly results for future direction, which I think will definitely put the market on a stable footing. If not one way up, I think the market will be much more stable and likely to be rangebound, as and when the monsoon news is going to be good. If its good and the results are as expected the markets might trend upwards," Nimesh Kenia, a consultant with the Bombay-based Wealth First Advisors Ltd, said.

          In line with the government's objectives to boost tax revenue to pay for additional welfare spending, the budget also included an additional 2.5 percent levy on corporate profits, which hurt investor sentiment. The Congress-led coalition government, which assumed power in late May, presented an expansionary first budget on Thursday, vowing to maintain strong growth and cut the fiscal deficit while allocating billions of dollars for the poor. Key budget measures included raising the ceiling on foreign direct investment in telecommunications to 74 percent from 49 percent, and in insurance to 49 percent from 26 percent. Shares of Bharti Televentures, India's second- largest mobile phone services provider, rose 2.3 percent, in sharp contrast to the losses on the Bombay index. Duty cuts on commodities and technology equipment were also welcomed as they could help ease inflationary pressures in the rapidly growing economy.

           The Indian economy-one of the fastest growing in the world-expanded by 8.2 percent in the last year to March and is expected to grow strongly this year too. The budget estimated the fiscal deficit at 4.4 percent of gross domestic product, against last year's 4.6 percent. The budget proposed steps to increase foreign bond investment in the market and to contain its borrowing programme, briefly boosting Indian federal bonds. At 903 billion rupees, the new government's net borrowing programme is marginally below the 905 billion planned by the last government in February before it was ousted in a shock election result in May. The government also proposed lifting the ceiling on foreign fund investments in the local debt market to 1.75 billion dollars this financial year instead of 1 billion dollars.

Defence spending raised to buy new arms (Go To Top)

          New Delhi: India, saying it could not delay modernising its military, announced a 16.7 percent increase in annual defence spending on Thursday (July 8) to buy combat trainer jets, airborne strategic radars and an aircraft carrier. Finance Minister P. Chidambaram announced defence spending of 770 billion rupees in the budget for the year ending March 2005, a sharp spike from the amount set aside by the previous BJP-led government in its interim budget in February. Analysts said the substantial increase in allocations pointed towards the government's committment to carry out a long overdue modernisation of the 1.2 million- strong military, the world's fourth-largest, even though tensions between India and Pakistan had reduced considerably. "The capital component of the defence budget has gone up by 60 percent, whereas the overall amount of the allocation has gone up by 18 percent.

          So what this would suggest is that India has now finalised two major deals, one is the AJTs (Advance Jet Trainers) for the Indian airforce. Second is the Gorshkov, for the Indian Navy. Whenever you contract for major equipment from abroad, there is a certain sequence of payment. So this would suggest that the capital component of the budget this year has adequate budgetary support to carry out the payments we need to make to go ahead with these two major deals," said Uday Bhaskar, defence analyst. Earlier this year, New Delhi finalised a 1.5 billion dollar deal for the purchase of an old Russian aircraft carrier Admiral Gorshkov aimed at ensuring the navy was a key player in the Indian Ocean, with an edge over giant neighbour China. India and Israel-which has emerged as India's second biggest arms supplier after Russia-have also signed a deal to mount Phalcon radar systems on a Russian-made aircraft that would enable the Indian air force to pry deep into Pakistani airspace.

          The Phalcon deal, estimated to be round 1.1 billion dollars, is similar to the one Israel made a few years ago with China after which the United States forced Israel to cancel the agreement. pay for the purchase of 66 Hawk trainer planes from Britain's BAE Systems Plc. to help train rookie pilots. The 1.7 billion dollar deal was cleared last year after 15 years of on-off negotiations. Analysts however cautioned against the disturbing trend of the funds allocated to the defence sector being returned unused to the government, saying it could impede the sector's progress. Despite the increases in defence allocation India, however, still remains one of the lowest spenders on defence in the region specially when compared to Pakistan's defence spending of 4.6 per cent of the GDP and China's 5.5 per of the GDP.

North-east feels neglected by budget (Go To Top)

          Guwahati: The strife-torn north-east felt disappointed as the United Progressive Alliance government, which proposed masive spending for the poor in an expansionary first budget on Thursday, announced little for the region. Comprising seven mountainous states, the north-east is a cauldron of ethnic and political violence spawned by economic backwardness and tensions between tribals pitted against other groups, and immigrants. The federal budget promised an investment of 58.23 billion rupees in the region through a slew of schemes but it is felt the measures were not enough. "For the northeast, this budget is a big dissappointment. It has become customary for the finance minister to talk about the northeast many times in his speech, in fact first he talked about northeast at three places, first about the flood control and erosion Assam is facing from the mighty Brahamaputra he said and it would be tackled but only 30 crore rupees is peanuts when compared to what is required," Abhijit Baruah, secretary of the Assam state council, said in Guwahati.

          Though endowed with rich natural wealth, including, coal mines, oil fields, minerals and timber, the region has most of its people living in absolute poverty. The rebels, who accuse the federal government of looting the state's rich resources and neglecting its economy, often blow up railway tracks, target government and industry workers, literally stalling development. India's left-backed government unveiled a pro-poor budget that promised a slew of measures to boost farm growth and improve the lives of millions of farmers in Asia's third-largest economy. In the new Congress-led government's first budget, Finance Minister P. Chidambaram said the administration would reform the agriculture credit system and give priority to investment in rural infrastructure. Announcing a raft of programmes for education, health, jobs to farmers, and housing, the new budget aims at boosting investment and business to achieve his growth target and to fight poverty.

Govt to tap tax arrears to raise money for schemes (Go To Top)

          New Delhi: India would raise an estimated 180 billion rupees from arrears in direct and indirect taxes to fund various schemes announced in the budget, finance ministry officials said on Thursday. "What we do expect collect money from arrears as everyone knows that huge amount of arrears are pending in both departments. Many of them get stayed by the courts, many of them become irrecoverable because it perhaps is not feasible. There is a large amount of arrears I would say in direct taxes. There would be over 15,000 crore (150 billion rupees) which could be recovereable and in the indirect taxes also, it is about 3,000 crore (30 billion rupees)," said Vineeta Rai, Revenue Secretary, Communist-backed government presented its inaugural budget in Parliament. Finance Minister P,.Chidambaram unveiled billions of dollars in spending for the poor on Thursday in an expansionary first budget that taxes the rich but did little to tackle a nagging deficit. Finance Secretary DC Gupta said the new budget has given emphasis to several sectors, vital for the overall growth. "Its a growth oriented budget consistent with the objectives of the National Common Minimum Programme. Its a pro-reform budget. It clearly shows we are continuing the reforms in various sectors. The difference in this budget would be basically with regard to sectoral emphasis especially which has been given to certain sectros of economy, which are so vital for the growth," Gupta said.

          Announcing a raft of programmes for education, health, jobs to farmers, and housing, Chidambaram said boosting investment and business was vital to achieve his growth target and to fight poverty. The 2004/05 budget contains few concrete measures to boost investment. It imposes a 2 percent levy on all taxes, an additional 10 percent surcharge on people earning more than 19,230 dollars a year and lifts corporate taxes by an extra 2.5 percent. Chidambaram's budget increases spending in the current fiscal year by 100 billion rupees over the previous government's interim budget in February, largely to deliver the Congress-led coalition's promised "new deal" for rural India, which brought it to power. Many of the measures were largely expected, including a rise in tax on services-which account for 50 percent of GDP-to 10 percent from 8 percent, the abolition of some excises, including those on tractors and computers, and a revival of a rural infrastructure fund with 1.7 billion dollars.

A rehashed version of the previous budget: BJP (Go To Top)

          New Delhi: The Bharatiya Janata Party (BJP) on Thursday criticised the federal Budget presented by Finance Minister P Chidambaram for the fiscal year 2004-05, terming it a rehash of previous budget. Former Finance Minister and a leader of the BJP, Yashwant Sinha said that the incumbent finance Minister has just juggled with the various schemes introduced by the BJP-led National Democratic Alliance (NDA). "Everything that Mr Chidambram has talked in this budget is just a rehash,- where he is talking of new schemes, he is amalgamating existing schemes, taking allocations out of them, combining, that is what he has done, there is nothing new," Sinha told reporters in New Delhi. The Communist-backed Centre for Indian Trade Unions (CITU) also slammed the federal budget for appeasing multi-nationals and corporate houses.

         "Some of the concessions made in the name of investment has been made mainly to big industrial houses i.e, corporate houses, foreign multi-national companies. Some of them are not justified and they have been allowed to export, their profit, their tax burden has been reduced and they have been given a number of other concessions in the matters of investments, that also has to be reviewed properly by the government," said CITU president MK Pandhe. The left parties are a key ally in the Congress-led United Progressive Alliance (UPA) which came to power after upsetting the NDA in the recent parliamentary polls.

           Announcing a raft of programmes for education, health, jobs to farmers, and housing, Chidambaram said boosting investment and business was vital to achieve his growth target and to fight poverty. P Chidambaram had termed investment both foreign and domestic as key to growth. The 2004/05 budget contains few concrete measures to boost investment. The small-scale industrial units in Punjab said the budget goes against the promises made in the Common Minimum Programme, the policy blueprint of the ruling UPA government. "The announcements that had been made through the common minimum programme does not hold true for Small Scale Industries. We were expecting some kind of policy in steel rates which will benefit us but instead they have increased the excise duty from 8 percent to 12 percent," said Bhairon Pal, a trader in Ludhiana.

         The Finance Minister also announced a special senior citizen saving scheme where an interest rate of 9 percent was promised on saving, but the move seems to have failed to appease the senior citizens. Madhusudan Tripathi, a retired government employee in New Delhi, said: "They have reduced the rebate on government Provident Fund (GPF), so it is back to same level. They have given from one hand, taken back from other hand. "The pinch of the bugdget which was supposed to help the commonman was felt even by housewives. "They have not shown concern for hosusewife, they have raised 20 rupees on cylinders (cooking gas). So if a family has two cylinders, it would cost 40 rupees more, so it is costing us dearly," said Roopa Malhotra. Chidambaram's budget increases spending in the current fiscal year by 100 billion rupees over the previous government's interim budget in February, largely to deliver the Congress-led coalition's promised "new deal" for rural India, which brought it to power. Many of the measures were largely expected, including a rise in tax on services - which account for 50 percent of GDP-to 10 percent from 8 percent, the abolition of some excises, including those on tractors and computers, and a revival of a rural infrastructure fund with 1.7 billion dollars.