BJP’s first Budget expected to spur economy
Faced with low economic growth and sagging industrial production and exports, the first
budget of the BJP-led coalition government is likely to initiate major measures to restore
business confidence and spur the economy. The poor economic performance is reflected in
around five per cent gross domestic product (GDP) growth rate in 1997-98, the lowest in
the last five years, steep shortfall in revenue collections, low industrial production and
export growth rate of four per cent and depressed capital market. On top of this is the
fallout of economic sanctions imposed by the US and other developed countries following
India's nuclear tests. The Budget is expected to stimulate demand which is the main cause
of the industrial slowdown. It is almost certain that capital outlay is to be
significantly increased over last year. According to analysts, in this context it is
likely that the budget may come out with fresh initiative in the housing and construction
sector which has great potential for generating demand in a large number of industries
like steel and cement besides large scale employment.
This will mean a number of fiscal incentives, including according infrastructure status
to the housing and construction industry and making it eligible for five year tax holiday
and drastic changes in land acquisition and rent laws which have come in the way of
housing activity.
The budget is expected to provide larger allocation for the infrastructure sector,
particularly power, ports and roads. It is well recognised now that private initiative is
not enough in this field. In the area of direct taxes it is expected that the government
may retain the exiting rates. While there is a view in certain quarters that because of
the slowdown in direct tax collection a new slab may be introduced for super rich, others
feel this is unlikely to happen in the context of present industrial slowdown. The BJP's
national agenda has laid stress on stepping up savings.
The Budget is, therefore, likely to provide incentives for savings such as removal of
existing ceilings of Rs 60,000 on public provident fund and other enterprises investment
which is eligible for tax rebate. Industry circles are hopeful the government would either
remove tax on bond deposits or levy lower rate of tax on companies which have to
restructure as a result of liberalisation or globalisation as capital gains and gift tax
is levied on acquisitions, mergers, demergers, splitting, acquisitions and spin offs. To
facilitate reconstruction, the budget may exempt levy of such taxes, these circles say.
In the area of indirect taxes while NBO increase in import tariff across the board is
expected, the budget may freeze any further reduction in import tariff. Also it may ask
the tariff commission to relook at the import tariff of those products where the rates
have been brought down below the World Trade Organisation (WTO) commitments. Paper
industry is one such case where import duty has been reduced at 25 per cent while WTO
bound rate is 40 per cent.
Analysts say the Budget may provide another relief to the domestic industry against
cheap imports by streamlining countervailing duty levied on the same item when imported,
so as to include central sales tax, octroi and other state levies. The budget may also
consider reduction of excise duty on select items such as steel as this and some other
industries are facing lot of difficulties. Excise duties which at present have a large
number of slabs may be reduced to three or four to minimise classification disputes.
As demanded by the industry, MODVAT may also be extended to more products. The capital
market has been depressed for the last three years. To revive the market the Budget may
initiate a number of measures such as allowing to a limited extent the entry of pensions,
provident and insurance funds, liberalise lending norms against shares and non-voting
shares and remove ceiling on inter-corproate loans and investments.
