Date:01/03/2006 URL: http://www.thehindubusinessline.com/2006/03/01/stories/2006030103101100.htm

Back Continuity in momentum

Shanti Ekambaram

The Budget announcements were good for textiles, cement, construction, energy, synthetic fibre, food processing and software. Overall, it struck a positive note and laid the foundation for a sustained 10 per cent economic growth.

Given the current momentum in economic growth, a `no surprises' stable Budget is a great positive.

The Finance Minister did not `rock the boat', so to speak, and broadly kept within `anticipated measures'.

The Budget gave a lot of emphasis to social sector expenditure — agriculture, education, health and employment.

Emphasis was laid on infrastructure, though perhaps more could have been done to strengthen this backbone of the economy.

Given that 60 per cent of the population depends on agriculture for their livelihood, the continued assurance on flow of credit to agriculture was expected and welcome.

If India is to achieve 10 per cent economic growth, as envisioned, then it is critical that all three segments of the GDP — services, manufacturing and agriculture — grow and contribute.

The reduction in fiscal deficit and revenue deficit estimates for the current year and the 3.8 per cent estimated fiscal deficit for the next year is positive and salutary, if indeed achieved.

The increase in tax to GDP ratio to 10.5 per cent is also encouraging

From an industry perspective the Budget announcements were positive for textiles, cement, construction, energy, synthetic fibre, food processing and software. Small cars benefited from the sharp reduction in excise duties.

As anticipated, service tax was increased to 12 per cent and more services brought under the service tax net.

This segment has yielded bumper tax collections last year, way ahead of Budget estimates and this trend is likely to continue.

MAT was increased to 10 per cent and STT by 25 per cent. In absolute terms, the increase in STT is marginal and not likely to impact markets.

FII caps on investments in Gsec and Corporate Bonds were increased to $2 billion and $1.5 billion respectively.

This opens up more avenues for the debt markets but given the kind of investments required for infrastructure more could have been done for opening up of and deepening the debt markets.

Overall, a positive Budget, intent on sustaining the current momentum in the economy, and laying the foundation for a consistent 10 per cent economic growth.

(The author is group head Corporate & Institutional Banking, Kotak Mahindra Bank)