BY INVITE: THE DREAM STARCAST REVIEWS AND CRITIQUES CHIDAMBARAM�S CREATION

ADITYA MITTAL ANAND MAHINDRA DEEPAK PAREKH KUMAR BIRLA MUKESH AMBANI NANDAN
NILEKANI PRAKASH KARAT SUNIL MITTAL YASHWANT SINHA
LOAN SURVIVOR SETS
OUT TO WIN VOTES
TARTING WITH FARMERS,
don�t leave out a single vote
bank. Give Sonia Gandhi the
option of going for an early
election this year. This is the
unstated agenda that finance
minister P Chidambaram has come up
with in a Budget that can be called intelligent
populism�combining populist sops
with sensible measures to stimulate
growth, through wide-ranging tax cuts
and big outlays on infrastructure
and knowledge
development. However,
the Sensex fell 246 points in
the aftermath of Budget
populism, which included a
hike in short-term capital
gains tax from 10% to 15%.
The Budget waived Rs
60,000 crore of loans for 40
million farmers, wooing
the biggest vote bank of all.
Opposition parties have for
months taken to the streets
shouting for a loan waiver.
Mr Chidambaram has
now stolen their election
plank, leaving them
speechless and sulking.
Like the last farm loan
waiver in 1990, the new
one will hit discipline in
bank lending, make honest
farmers who repay loans
look foolish, and encourage wilful default
in the future. Mr Chidambaram has made
no Budget provision for the write-off, and
says he will find ways to provide additional
liquidity of Rs 60,000 crore to banks
over three years. But additional liquidity is
not compensation for write-offs and bank
balance sheets will take a hit.
Election-year promises are peppered
across all vote banks. The wooing
of the Muslim vote bank is noteworthy.
Special development plans
for 90 minority concentration areas
get Rs 3,780 crore and 544
bank branches will be opened by
March in districts with a substantial
Muslim population.
Additional Muslim candidates
will be
hired by central
para-military forces.
Muslims will get prematric
scholarships worth
Rs 80 crore and another
Rs 45 crore for madrassa
modernisation.
Strong GDP growth has
yielded record growth in
revenues, enabling the finance
minister to cut tax
rates while expanding outlays.
For the coming year,
he has realistically assumed
a slower growth of tax revenue
� 22% in corporate
tax and 17% in income tax
against almost 40% for
both in the current year.
So, despite giveaways
galore, the Budget has
cut fiscal deficit to just
2.5% of GDP, below
the FRBM target of 3%.
This, says Mr Chidambaram,
leaves headroom for meeting
the higher wage and pension
obligations that will flow
from the imminent Pay
Commission award.
UNION BUDGET 2008-09
ET: This is virtually the last full Budget of the UPA
government. Looking back, how far do you think
the government has lived up to its promises in the
Common Minimum Programme (CMP)?
PM: I will be the last person to say we have completed all
that we set out to do, but I do think we have redeemed
our promises in large measure. Barring the promise of
reservation for women in Parliament, where we have
not had any success, we have initiated
action on almost everything we had
talked of in the CMP.
ET: But there are things such as
subsidies that the CMP had promised
would be made explicit and
provided for in the Budget where your government
has made no headway.
PM: Yes, I agree it is not the best way of treating subsidies,
but we have for the first time openly acknowledged these liabilities
transparently in the Budget documents. The finance
minister has also said he intends to ask the Thirteenth
Finance Commission to revisit the road map for fiscal
adjustment once the recommendations of the Sixth Pay
Commission are known, and at that time he will presumably
take these off-Budget items properly into account.
What does the man who brought Naya Daur
into the Indian economy, Prime Minister
MANMOHAN SINGH, think of the handiwork
of finance minister P Chidambaram? �He�s
done a great job,� he beams.The father of
reforms gets candid with ET�s MYTHILI
BHUSNURMATH in an exclusive interview:
Shaji Vikraman & Bakul Chugan
TEAM ET
THE FM HAS FINALLY REWARDED TAX-
payers for their improved compliance.
And how. He has raised the threshold income
when you start paying tax by a steep Rs
40,000 to Rs 1,50,000. For women, the exemption
limit goes up to Rs 1,80,000 and for senior
citizens to Rs 2,25,000. He has also expanded the
income brackets where the higher rates of 20%
and 30% kick in, to leave more money in the
hands of individuals, whether to splurge or save.
So, if your taxable income is above Rs 1.5 lakh
but below Rs 3 lakh, you could end up paying
just 10% income tax. A senior citizen with an
annual income of Rs 5 lakh now ends up saving
Rs 40,000 on tax outgo. Working women, on
the other hand, will tot up tax savings of around
Rs 45,000. For those earning Rs 10 lakh and
above, the savings work out to approximately
Rs 50,000. For the aged, there will be no tax liability
in reverse mortgage. They can also hope
their children to get additional health covers in
return for tax deduction of Rs 15,000. Clearly,
no one�s complaining.
Hike In Short-Term Capital Gains Tax Drags Down Sensex
Markets Don�t Have A Field Day
BY INVITE: THE DREAM STARCAST REVIEWS AND CRITIQUES CHIDAMBARAM�S CREATION
ADITYA MITTAL ANAND MAHINDRA DEEPAK PAREKH KUMAR BIRLA MUKESH AMBANI NANDAN
NILEKANI PRAKASH KARAT SUNIL MITTAL YASHWANT SINHA
LOAN SURVIVOR SETS
OUT TO WIN VOTES
TARTING WITH FARMERS,
don�t leave out a single vote
bank. Give Sonia Gandhi the
option of going for an early
election this year. This is the
unstated agenda that finance
minister P Chidambaram has come up
with in a Budget that can be called intelligent
populism�combining populist sops
with sensible measures to stimulate
growth, through wide-ranging tax cuts
and big outlays on infrastructure
and knowledge
development. However,
the Sensex fell 246 points in
the aftermath of Budget
populism, which included a
hike in short-term capital
gains tax from 10% to 15%.
The Budget waived Rs
60,000 crore of loans for 40
million farmers, wooing
the biggest vote bank of all.
Opposition parties have for
months taken to the streets
shouting for a loan waiver.
Mr Chidambaram has
now stolen their election
plank, leaving them
speechless and sulking.
Like the last farm loan
waiver in 1990, the new
one will hit discipline in
bank lending, make honest
farmers who repay loans
look foolish, and encourage wilful default
in the future. Mr Chidambaram has made
no Budget provision for the write-off, and
says he will find ways to provide additional
liquidity of Rs 60,000 crore to banks
over three years. But additional liquidity is
not compensation for write-offs and bank
balance sheets will take a hit.
Election-year promises are peppered
across all vote banks. The wooing
of the Muslim vote bank is noteworthy.
Special development plans
for 90 minority concentration areas
get Rs 3,780 crore and 544
bank branches will be opened by
March in districts with a substantial
Muslim population.
Additional Muslim candidates
will be
hired by central
para-military forces.
Muslims will get prematric
scholarships worth
Rs 80 crore and another
Rs 45 crore for madrassa
modernisation.
Strong GDP growth has
yielded record growth in
revenues, enabling the finance
minister to cut tax
rates while expanding outlays.
For the coming year,
he has realistically assumed
a slower growth of tax revenue
� 22% in corporate
tax and 17% in income tax
against almost 40% for
both in the current year.
So, despite giveaways
galore, the Budget has
cut fiscal deficit to just
2.5% of GDP, below
the FRBM target of 3%.
This, says Mr Chidambaram,
leaves headroom for meeting
the higher wage and pension
obligations that will flow
from the imminent Pay
Commission award.
UNION BUDGET 2008-09
ET: This is virtually the last full Budget of the UPA
government. Looking back, how far do you think
the government has lived up to its promises in the
Common Minimum Programme (CMP)?
PM: I will be the last person to say we have completed all
that we set out to do, but I do think we have redeemed
our promises in large measure. Barring the promise of
reservation for women in Parliament, where we have
not had any success, we have initiated
action on almost everything we had
talked of in the CMP.
ET: But there are things such as
subsidies that the CMP had promised
would be made explicit and
provided for in the Budget where your government
has made no headway.
PM: Yes, I agree it is not the best way of treating subsidies,
but we have for the first time openly acknowledged these liabilities
transparently in the Budget documents. The finance
minister has also said he intends to ask the Thirteenth
Finance Commission to revisit the road map for fiscal
adjustment once the recommendations of the Sixth Pay
Commission are known, and at that time he will presumably
take these off-Budget items properly into account.
What does the man who brought Naya Daur
into the Indian economy, Prime Minister
MANMOHAN SINGH, think of the handiwork
of finance minister P Chidambaram? �He�s
done a great job,� he beams.The father of
reforms gets candid with ET�s MYTHILI
BHUSNURMATH in an exclusive interview:
Shaji Vikraman & Bakul Chugan
TEAM ET
THE FM HAS FINALLY REWARDED TAX-
payers for their improved compliance.
And how. He has raised the threshold income
when you start paying tax by a steep Rs
40,000 to Rs 1,50,000. For women, the exemption
limit goes up to Rs 1,80,000 and for senior
citizens to Rs 2,25,000. He has also expanded the
income brackets where the higher rates of 20%
and 30% kick in, to leave more money in the
hands of individuals, whether to splurge or save.
So, if your taxable income is above Rs 1.5 lakh
but below Rs 3 lakh, you could end up paying
just 10% income tax. A senior citizen with an
annual income of Rs 5 lakh now ends up saving
Rs 40,000 on tax outgo. Working women, on
the other hand, will tot up tax savings of around
Rs 45,000. For those earning Rs 10 lakh and
above, the savings work out to approximately
Rs 50,000. For the aged, there will be no tax liability
in reverse mortgage. They can also hope
their children to get additional health covers in
return for tax deduction of Rs 15,000. Clearly,
no one�s complaining.
Hike In Short-Term Capital Gains Tax Drags Down Sensex
Markets Don�t Have A Field Day
YES, SEZS HERE TO SAY: PAGE 18
S
WRITTEN, PRODUCED & DIRECTED BY P CHIDAMBARAM
HOW WILL THE
BUDGET IMPACT
THE HOUSEHOLD
#SMALL CAR prices
drop Rs 8,000-16,000 as
excise duty cut to 12%
#ENTRY-LEVEL bikes cheaper
by Rs 1,000 and bigger ones
by Rs 1,500-1,800
#BASIC MOBILE handsets to
be marginally costlier on new
1% excise levy
#DAILY USE products like
soaps, detergents &
toothpastes cheaper by 2-3%
on Cenvat cut
THE INVESTOR
#LIQUIDITY IN markets to be impacted
by hike in short-term capital gains tax
#LOCAL PLAYERS hurt more as FIIs via
Mauritius escape short-term cap gains tax
#TRADING COSTS up for traders as
commodity exchanges now attract
CTT and service tax
#BRAKES ON money laundering as
PAN now must for insurance products
& personal loans
THE TAXPAYER
#BASIC EXEMPTION limit up
by Rs 40,000 for men,
Rs 35,000 for women and
Rs 30,000 for senior citizens
#SLAB LIMITS doubled: 10%
tax up to Rs 3 lakh, 20% up to
Rs 5 lakh and 30% beyond that
#EXTRA Rs 20,000 deduction
on medical insurance cover for
senior citizen parents;
Rs 15,000 otherwise
#TAX-FREE MONTHLY income
stream from loans under
reverse mortgage scheme for
senior citizens
YOUR BUSINESS
#DRUG PRICES to come
down on the back of excise
duty relief
#FOREIGN FIRMS acquiring
Indian companies may no
longer escape capital gains
tax. Vodafone, GE may be hit
#DIVIDEND TAX offset to help
infrastructure companies with
SPVs & large financial services
firms with holding companies
#CAPACITY EXPANSION
plans get a leg up with
customs duty cut on most
project imports
#TAX CUTS across the board
to boost demand and spur
economic growth
#FISCAL DEFICIT cut
overstated, but fisc still conducive
for macro stability
#CORPORATE BOND
trading hurdles removed,
fillip for investment growth
ELECTIONS
#UPA BLUNTS Left criticism
by showing adeptness in
compassion marketing �
goodies for farmers, children
& seniors
#EARLY POLLS could be on
the cards to tap the feel-
good factor; govt may press
for nuclear deal post-Budget 224466POINTS
SWAMINATHAN S ANKLESARIA AIYAR
�We�ll MoveAggressively OnListing PSUs�
�We�ll Move
Aggressively On
Listing PSUs�
THE ECONOMY
FM HAS SOMETHING FOR ALL VOTE BANKS: PAGE 18
BUDGET IMPACT ON SECTORS & COMPANIES: PAGES 11,12,13 & 14
IMPACT OF CHANGED INCOME-TAX SLABS ON YOU: PAGE 7
Q3 GDP GROWTH
SLIPS TO 8.4%
Sluggishness in
manufacturing, mining
& construction pushed
GDP growth to 8.4% in
Q3 of �07-08, slowest
since 2005. WPI inflation
moved up to 4.89% in
the week ended Feb 16
As Good As I-T Gets:
Exemption Limit Raised
SAVING
61.5%
SAVING
44.4%
SAVING
11.0%
3 lakh40,170 15,450
56,650
402,215
101,970
452,067
5 lakh15 lakh
TAXABLE
INCOME
TAX LIABILITY
[POSTBUDGET]
[NOW]
HANDING OUT A FISTFUL OF MONEY
BENNETT, COLEMAN & CO LTD
Vijay Gurav
TEAM ET
DALAL STREET SAW IT AS
patently unfair. The hike in
short-term capital gains tax
and scrapping of rebate on securities
transaction tax have hurt local investors
but left FIIs unscathed.
The Sensex shed 246 points to close
at 17,579 while the Nifty receded 62
points to close at 5,223. Roughly Rs
57,000 crore was shaved off the market
cap. Ironically, this is close to the Rs
60,000 crore of farm loans waived by
the FM. Sluggish global markets kept
bulls on the backfoot, and an uninspiring
Budget kept them from rallying
around. But bond prices rose as the
government borrowing figure was
lower than expected. The rupee closed
at 40.01/02 against the dollar.
AAHHMMEEDDAABBAADD||BBAANNGGAALLOORREE||CCHHAANNDDIIGGAARRHH||CCHHEENNNNAAII ||
HHYYDDEERRAABBAADD||KKOOCCHHII ||KKOOLLKKAATTAA||LLUUCCKKNNOOWW||MMUUMMBBAAII||
PPUUNNEEAAHHMMEEDDAABBAADD || BBAANNGGAALLOORREE || CCHHAANNDDIIGGAARRHH ||
CCHHEENNNNAAII || HHYYDDEERRAABBAADD || KKOOCCHHII || KKOOLLKKAATTAA ||
LLUUCCKKNNOOWW || MMUUMMBBAAII || PPUUNNEE
WWW.ECONOMICTIMES.COMWWW.ECONOMICTIMES.COM
FM prepares for the battle of the ballot. We have tried to capture PC�s ode to the
aam aadmi through the bestcinema classics by Oscar-winning Satyajit Ray and
Bollywood Badshahs Raj Kapoor, Guru Dutt & K AsifFM prepares for the battle of the
ballot. We have tried to capture PC�s ode to the aam aadmi through the best
cinema classics by Oscar-winning Satyajit Ray and Bollywood Badshahs Raj Kapoor,
Guru Dutt & K Asif
##Rs60,000-CRORE FARM LOANS WAIVED ##FISCAL DEFICIT DOWN TO 3.1% ##CENVAT CUT TO
14% ##PEAK CUSTOMS DUTYSTAYS AT 10% ##I-T SLAB CHANGES TO BENEFIT ALL ##MARKETS
SPOOKED BY HIKE IN SHORT-TERM CAPITAL GAINS TAX
##Rs 60,000-CRORE FARM LOANS WAIVED ##FISCAL DEFICIT DOWN TO 3.1% ##CENVAT CUT TO
14% ##PEAK CUSTOMS DUTY
STAYS AT 10% ##I-T SLAB CHANGES TO BENEFIT ALL ##MARKETS SPOOKED BY HIKE IN SHORT-
TERM CAPITAL GAINS TAX
**SSAATTUURRDDAAYY11MMAARRCCHH22000088||MMUUMMBBAAII||4400PPAAGGEESS||
PPRRIICCEERRSS55** SSAATTUURRDDAAYY 11 MMAARRCCHH 22000088 || MMUUMMBBAAII || 4400
PPAAGGEESS || PPRRIICCEE RRSS 55
HISAAB KITAAB
WHAT�LL COST YOU LESS
Small & Hybrid Cars
Two-Wheelers
Gems & Jewellery
Set-Top Boxes
Packaged Tea &
Coffee mixes
Wireless Data Cards
Drugs & Medicines
WHAT�LL COST YOU MORE
Mobile Phones
Non-Filter Cigarettes
ULIPs
Customised Software
CENVAT CUT FROM 16%
TO 14%
Producers are unlikely to pass on the
marginal price benefit on refrigerators,
ACs and washing machines. LCD/plasma
CTVs could be cheaper by Rs 500-2,000.
EXCISE DUTY ON SMALL
CARS, TWO- AND
THREE-WHEELERS REDUCED
FROM 16% TO 12%
Small car prices to drop by
Rs 8,000-Rs 16,000 and bikes by
Rs 1,000-Rs 1,800
EXCISE ON PACKAGING
PAPER REDUCED FROM
12%TO 8%
May result in a marginal 2-3% reduction in
prices of soaps, detergents, toothpaste.
Will also help stall price increases
CUSTOMS DUTY ON SET-TOP
BOX COMPONENTS REMOVED
May result in a drop in STB prices across
IPTV, direct-to-home and cable
digital television
EXCISE DUTY OF 1% ON
MOBILE PHONES IMPOSED
Duty on phones costing between Rs 1,000
and Rs 1,500 will rise by Rs 10 and
Rs 15 respectively
ROOPA PURUSHOTHAMAN
HEAD,
FUTURE CAPITAL RESEARCH
THE BUDGET MAY BE MODERATELY POSITIVE,
but we don�t see dramatic shifts. Tax breaks
could put more money in people�s pockets ��
back-of-the-envelope calculations indicate that
an estimated 15.5 million earners will move out
of the 10% bracket into the exemption zone, 15.8
million move into the 10% bracket from 20%, 4.3
million move to 20% from 30%, while 3.1 million
move from 30% all the way down to 10%. Once
you account for the proportion of individuals
across these brackets, the impact is somewhat
smaller. It takes time for tax breaks to work their
way through the system. The general cut in
excise duties across the manufacturing sector
will help mitigate inflation pressures to an
extent, which could be relatively a more
important event for the consumer.
In the long term, the focus on public expenditure
with a view to structural development ��
strengthening infrastructure incentives,
increased allocations to agricultural productivity
programmes, human resource building, R&D
and healthcare � is crucial to lift private
consumption (which has fallen to 57% of GDP in
2006-07 from 62% in 2003-04). However, beyond
increased programme allocations, we need to
move rapidly towards effective execution.
(With inputs from Rajesh Shukla, chief
statistician, NCAER)
UNION BUDGET 2007 - 2008UNION BUDGET 2008 - 2009 THE ECONOMIC TIMES SATURDAY 1
MARCH 2008 *WWW.ECONOMICTIMES.COM 2
Imposed a nominal duty
of 8% on jams, jellies,
sauces, soups, high value
pens & ballpoint pens
Lowered excise duty
rates for cocoa, coffee
toiletries, biscuits, glass
kitchen and table ware
Added three new excise
rates � 8%, 13%, 18%
Hiked cigarette and
bidi prices
CENVAT CUT FROM 16%
TO 14%
Producers are unlikely to pass on the
marginal price benefit on refrigerators,
ACs and washing machines. LCD/plasma
CTVs could be cheaper by Rs 500-2,000.
EXCISE DUTY ON SMALL
CARS, TWO- AND
THREE-WHEELERS REDUCED
FROM 16% TO 12%
Small car prices to drop by
Rs 8,000-Rs 16,000 and bikes by
Rs 1,000-Rs 1,800
EXCISE ON PACKAGING
PAPER REDUCED FROM
12%TO 8%
May result in a marginal 2-3% reduction in
prices of soaps, detergents, toothpaste.
Will also help stall price increases
CUSTOMS DUTY ON SET-TOP
BOX COMPONENTS REMOVED
May result in a drop in STB prices across
IPTV, direct-to-home and cable
digital television
EXCISE DUTY OF 1% ON
MOBILE PHONES IMPOSED
Duty on phones costing between Rs 1,000
and Rs 1,500 will rise by Rs 10 and
Rs 15 respectively
ROOPA PURUSHOTHAMAN
HEAD,
FUTURE CAPITAL RESEARCH
THE BUDGET MAY BE MODERATELY POSITIVE,
but we don�t see dramatic shifts. Tax breaks
could put more money in people�s pockets ��
back-of-the-envelope calculations indicate that
an estimated 15.5 million earners will move out
of the 10% bracket into the exemption zone, 15.8
million move into the 10% bracket from 20%, 4.3
million move to 20% from 30%, while 3.1 million
move from 30% all the way down to 10%. Once
you account for the proportion of individuals
across these brackets, the impact is somewhat
smaller. It takes time for tax breaks to work their
way through the system. The general cut in
excise duties across the manufacturing sector
will help mitigate inflation pressures to an
extent, which could be relatively a more
important event for the consumer.
In the long term, the focus on public expenditure
with a view to structural development ��
strengthening infrastructure incentives,
increased allocations to agricultural productivity
programmes, human resource building, R&D
and healthcare � is crucial to lift private
consumption (which has fallen to 57% of GDP in
2006-07 from 62% in 2003-04). However, beyond
increased programme allocations, we need to
move rapidly towards effective execution.
(With inputs from Rajesh Shukla, chief
statistician, NCAER)
UNION BUDGET 2007 - 2008UNION BUDGET 2008 - 2009 THE ECONOMIC TIMES SATURDAY 1
MARCH 2008 *WWW.ECONOMICTIMES.COM 2
Imposed a nominal duty
of 8% on jams, jellies,
sauces, soups, high value
pens & ballpoint pens
Lowered excise duty
rates for cocoa, coffee
toiletries, biscuits, glass
kitchen and table ware
Added three new excise
rates � 8%, 13%, 18%
Hiked cigarette and
bidi prices
No deals on
shopping
cart wheels

Excise duty cuts will have no

rub-off on consumer goods

Ratna Bhushan
TEAM ET

THE STERN HOUSEWIFE WILL FROWN BECAUSE MR

Chidambaram has not done enough to make FMCG companies
cut prices. After all, breakfast cereals, corn flakes, muesli
and sherbet are unlikely to become any cheaper despite the
excise duty slash to 8% from 16%. Additionally, excise on
packaged coconut water, buns, puffed rice, milk containing
edible nuts, tea and coffee pre-mixes have been exempt from
the prevailing 16%, but there�s negligible impact on consumer
prices. Let�s face it: it could have been worse. At least,
prices won�t rise.

�The measures could, at best, contain inflationary pressures

the sector has been witnessing over the past few years,�
said Godrej Consumer Products� executive director Hoshedar
Press. Ruling out reduction in consumer prices, Mr Press
added, �The impact of Cenvat cut and excise reduction on
packaging paper is negligible. It may save us a few crores but
that will only offset some other costs. There has been no
change in the duty on palm oil, which would have really cut
costs for us.� However, P&G chairman Bharat Patel said, �The
reduction in Cenvat will have a direct impact on the industry
and the end consumer.�

Though the excise and Cenvat cut

would help the sector, the direct impact
is not enough to pass on to consumers
by way of cheaper prices in
the prevailing inflationary environment
of raw materials, industry
players say.

Said Henkel MD A Satishkumar:

�The reduction in packaging materials
would only give the sector
insurance against any future DOWN
price increases.�

THE AISLE

Players in the Rs 50,000-60,000crore

processed foods sector also said Experts say the
while the excise reductions would measures could at
fuel the sector�s growth, they would

best contain the

be unable to drop prices because of

inflationary pressures

rising raw material costs.

Breakfast cereal leader Kellogg In-the sector has been

dia�s MD Anupam Dutta said, �The facing in the pastreduction in excise is a
positive move,
few years

as such products are now being perceived

as mass consumption. It is also
a fillip to foods in the health and nutrition space.� Bagrrys
Group promoter Shyam Bagri said, �As far as the muesli industry
is concerned, there is only a general reduction from
16% to 14%... The industry gets no relief.�

The exemption of import duty on bactofuge equipment

(used to remove harmful bacteria from milk) from 7.5% to nil
will also have a negligible impact on prices. Said Amul�s chief
general manager RS Sodhi: �The equipment costs Rs 1.5-2
crore and will have marginal impact on prices. Also, there
aren�t too many bactofuge machines in the country.�

The exemption of 16% excise on cold-chain equipment

with a capacity of two tonne and more will improve storage
infrastructure and quality of milk, but there will be no impact
on consumer prices.

The Budget also takes a rather tough line on people who believe
in smoking small, filter-less cigarettes. The excise duty on
non-filter cigarettes, which do not exceed 60 mm in length,
has been increased nearly five times to 82 paise per stick from
the earlier approximate 17 paise per stick. All these smokers
will now have to either quit � a good thing � or start smoking
longer, filter cigarettes � not a very good thing. An ITC
spokesperson said, �The move is expected to drive users to
revenue inefficient forms of tobacco products.�

A SIX-PACK HOME
SHANTI HOME

JOY IN TECHNICOLOUR: Saheb, biwi and the extended family remain

intact, but they have choices like never before. Household incomes are
slated to triple over the next two decades, and from being the 12th largest
consumer market, India will become the fifth in the world by 2025.

IT�S A SUPERHIT FOR THE GREAT INDIAN HOUSEHOLD

A
A
SLOWING GLOBAL
and US economy
have made the finance
minister flag off
the gravy train for consumers.
The 204
million-odd Indian
households can buy

manufacturers will not increase prices just

yet. Some of them have been planning
price hikes before the Budget.
There should also be a general cheer in
many homes because small cars, two-wheelers
and their tyres (!) will now be cheaper.
For the struggling 7.5 million-unit two-
wheeler market, the reduction in excise will
translate into price cuts between Rs 1,000
and Rs 1,800, enough to jump start this
hugely price-sensitive market.

A similar excise duty cut for small cars

(less than 4 metres in length) translates into
Rs 8,000 to Rs 16,000 in savings for the buyer,
enough to rev up the 1.4-million passenger
vehicle market into the 20%-plus growth
trajectory again.

Whatever be the fiscal merits of the Rs

60,000-crore loan waiver for small and marginal
farmers, the FMCG industry � which
garners almost half of its sales from rural India
� is sure to witness a rural demand upsurge.
The BSE FMCG Index rose around
1% on Friday when the broader Sensex declined
1.38%.

Retail prices of medicines across the

board may come down by approximately
4%; the drop may be a lot more for drugs
under price control.

Budget 2008-09 has made every aspect

of a consumer�s life � in health or illness,
consuming at home or moving around �
a little easier on her pocket. And that�s no
mean achievement.

Shailesh Dobhal
& Shishir Prasad

You better start shopping around

The Budget Will Benefit All Income Groups, Help Reverse Slowdown In Consumption

Which are the specific income tion during the first loan waiver also help rural
consumers, which What is your view on the overall
groups that will benefit? in 2004? will add to consumption. consumption story?
The Budget will benefit all income I don�t think the loan waiver will be a There
was a slight slowdown in con-
groups. First, the reduction in Cen-major problem if it is financed by the The
common man had con-sumption in the past three months.
vat rate from 16% to 14% will ben-government. However, I don�t think cerns about
rising consumer pr-The Budget provisions will help reefit
all consumers because goods it would be good if public sector ices. Do you think
the Budget verse the slowdown and revive con-
will become cheaper. Secondly, the banks are asked to foot the bill. has addressed
the concerns aro-sumption. The slowdown hap-
increase in exemption in income tax und inflation? pened because interest rates
rose
from Rs 1,10,000 to Rs 1,50,000, Do you see more disposable in-I do feel the
Budget will be anti-in-and people chose to be a little cauand
the higher exemption for come for rural consumers? Will flationary. The biggest
issue for price tious with their spending. But again,
women, will also benefit a large it help consumption? rise in consumer goods was
the the Budget has addressed this with
number of consumers. There will be considerably more dis-Cenvat rate. But the
Budget has ad-the cut in Cenvat rate. Also, because

posable income in the hands of rural dressed that with the 2% cut. That is the
slabs are raised, there�ll be more
Will loan waivers affect the ru-as well as urban consumers thanks a huge anti-
inflationary step and money for consumption. So I be-

ADI GODREJ

ral credit culture? Did you see to the raise in the income-tax ex-has sorted out
the main issue lieve the consumption story will be

CHAIRMAN, GODREJ GROUP

any major impact on consump-emption limit. Debt waivers will regarding inflation.
revived by the Budget.

cheaper soaps, detergents,

mobikes, small cars, direct-to-home
(DTH) satellite TV connections, medicines.
And yes, a cleaner glass of drinking water at
home will also come cheap.

Smokers of non-filter cigarettes will pay

more as will people planning to buy mobile
phones. However, both consumer sets will
not have a problem � smokers because
they are addicted and mobile buyers because
they are unaffected � as the price increase
of 1% is too little to have any impact.

The finance minister has at one go addressed

the objectives of inflation control
(currently hovering just under 5%) as well
as spurring consumer demand, which has
been flagging in a host of sectors for the past
one year, most notably in two-wheelers.
The finance minister seems to have heeded
the results of the ET-Hansa Pre-Budget Mood
of the Nation poll, which said most people
were worried about stagnating living standards
and rising prices, and consumer confidence
was down.

Mr Chidambaram�s tax proposals should

push up consumer confidence. As he
said, consumption drives production, and
that in turn drives investment. The 13million
middle-class households (annual
household income between Rs 2 lakh and
Rs 10 lakh), many of whom pay income
tax, have got significant relief from the revision
of tax slabs and an increase in exemption
limits. While a good amount of

this extra income will end up as savings, a

happy and confident consumer is likely to
splurge as well.

Mr Chidambaram has ensured that

broad swathes of consumers will benefit.

Couch potatoes will be delighted because

they can now switch to set-top boxes and
watch better quality programmes. But this
measure may drive the stay-at-home wives
of TV junkies into a rage. To keep the

peace at home, the finance minister has

made sure that fast moving consumer
goods like soaps, detergents, toothpastes,
and so on may see a marginal 2-3% price
cut � may be not even that � but consumers
can take comfort in the fact that
THAT THE NANO IS A REFLECTION
of the common man�s aspiration is visible
in the fact that even the finance
minister has chosen to recognise it in
the Budget by way of duty cuts on small cars.
But small cars apart, automotive has been one
of the few sectors that have found this Budget
extremely favourable.
The finance minister has cut duty on two-
and three-wheelers, besides announcing steep
mark-downs for green and hybrid vehicles.
Commercial vehicles, too, stand to benefit, thanks
to the excise reduction on buses to 12%
and trucks to 14%. This will bring down prices
by Rs 20,000-Rs 40,000. �The excise benefits
signal the government�s intention to encourage
the growth of public transport,� said Ashok Ley-
land managing director R Seshasayee.
Thanks to a 4% cut in excise duty (from 16%
to 12%), small cars will cost Rs 7,000-16,000
less. As for two-wheelers, the price cuts are likely
to be modest � around Rs 1,000-Rs 1,300 for
executive-class motorcycles like Splendor Plus
or Platina, and Rs 1,500-Rs 1,800 for top-end
performance products like the Pulsar.
Already, the top players in the small car market
� Maruti, Hyundai, GM, Tata Motors � have
announced mark-downs. Tata Motors is reducing
Indica and Indigo base prices by Rs 13,000, and
Maruti by Rs 6,500-Rs 18,000. However, if you
are waiting for the Nano to cost less than Rs 1 lakh,
keep dreaming. According to sources, the Rs 1lakh
tag wasn�t excise-centric to begin with (it was
firmed up when excise on all cars was 24%). The
excise lolly will only, as one analyst puts it, �shore
up the project�s profitability�.
In two-wheelers, market leader Hero Honda
will lower prices by Rs 1,000-Rs 2,400. Others
have indicated price cuts ranging from Rs
600 to Rs 3,000. Says Kinetic group chairman
AN Firodia: �We will reduce prices effective
Friday, but there will be an adjustment period
since our dealers hold stock on which excise is
paid at the old rate. Mopeds, which have an
end-customer price of Rs 15,000, will get
cheaper by Rs 600. Scooters and motorcycles
in the Rs 30,000 price bracket will see a Rs
1,200 reduction, while premium products in
the Rs 40,000-Rs 60,000 range should see a
price reduction of Rs 1,600-Rs 2,000.�
However, two-wheeler company chiefs believe
the 4% cut is too little. Says Hero Honda
MD Pawan Munjal: �We will look at a price
change, but the duty reduction is not enough.�
Analysts say a Rs 1,500 reduction on a top-end
bike like the Pulsar works out to a Rs 40 reduction
in a monthly EMI of around Rs 500. Even
for an entry-level bike, the monthly ownership
cost is around Rs 3,000, and a 4% excise cut
means a Rs 1,000 mark-down or Rs 30 off the
EMI. Most analysts see this as an insignificant
reduction. There�s good news on the green vehicles
front too. Hybrid duties are down from
24% to 14%, but for the soon-to-debut Honda
Civic hybrid, the relief is negligible as it is fully
imported, says a company official.
However, it is a matter of time before a flurry of
global green wheels hit the road. �India is no
longer a follower of GM products, but a place to
lead with in terms of future technologies like hybrids,�
says GM India president & CEO Karl Slym.
As for the homegrown e-vehicle Reva, the
reduction in excise duty on the vehicle to zero
won�t help. For this will mean the company
will not be able to take modvat credit. Net net,
the impact is negative, say company officials.
Nandini Sen Gupta & Lijee Philip
(With inputs from Chanchal Pal Chauhan
& Gouri Agtey Athale)
IT�S A
ROUGH
CUT
CARAT CHASE
Bullock carts
to bikes, we�ve
gone the mile
PIYUSH PANDEY
EXECUTIVE CHAIRMAN, O&M INDIA
Excise duties on small cars and two-wheelers have been
cut from 16% to 12%. Do you think this will have an immediate
impact?
It�s a nice, tight slap on the faces of those who were cynical
about Tata Nano�s implication on traffic management. They
were those who believed that the roads were only built for their
big cars. It is also a kick in the butt for those who had a view that
villagers shouldn�t wear dark glasses as it spoils the cultural
look of a village. Now, the same villager will take his child to
school on a motorcycle instead of the
�oh-so-cute� bullock cart. I am also
very happy for Maneka Gandhi, since
it is most likely that fewer people will
ride donkeys, camels and elephants.
If you read the loan waiver to marginal
and small farmers and I-T exemption
limit hikes for women
and senior citizens together, do
you see a rise in consumer confidence
� home loans, durables, healthcare and education
in particular?
I don�t see the farmers� loan waiver and tax benefits to the
elderly and women from a shopkeeper�s or a banker�s eyes. I
see it as an extremely positive move in enabling people who
have been having a tough time. This move will help the people
participate in a growing economy in a more significant
fashion. Yes, in the process they will upgrade their farms and
homes, and be able to educate their children better. And in
the process, those providing home loans and education will
be able to do more business. But the key question we have to
ask ourselves is: should we see it as a business opportunity or
as a positive move that we can help succeed?
None of us is Mahatma Gandhi, but I guess we can all try to
draw a line between business opportunity and an opportunity
to contribute towards a nation on the move!
Amiti Sen & Mitul Thakkar
TEAM ET
INPUT COSTS OF THE RS 70,000-CRORE
GEMS & jewellery industry will dip marginally.
The finance minister has reduced customs
duty on polished cubic zirconia (artificial diamond)
and rough coral from 10% to 5%.
Rough cubic zirconia, which attracted customs
duty of 5%, is now duty-exempt. Industry
players, however, want more. They
claim the move will have a marginal impact
on jewellery prices, as the cuts are not steep
enough and crucial inputs like coloured gems
have been ignored.
Last May, the FM had exempted cut and polished
diamonds from customs duties. Speaking
to ET, Gitanjali Group chairman Mehul Choksi
said, �Unfortunately, there has been no major announcement
regarding gold in this Budget, so
prices aren�t expected to change either way.�
Gems & Jewellery Export Promotion Council
chairman Sanjay Kothari said the industry was
expecting much more from the government.
�The customs duty cuts will have very little impact
on our prices. We were expecting steeper
cuts. We also wanted reduction on more items,�
Mr Kothari said.
Orra CEO Vijay Jain said a lot more could
have been done for the exports market, since the
benefits of customs duty reduction in cubic zirconia
would largely go to the low-end segment.
He added �appropriate� initiatives would have
ensured the entry of Indian diamond jewellery
brands in the US and European markets, instead
of India being just a leading jobwork destination.
Market experts have a different take. �Indian
consumers are receiving new varieties of jewellery
very well. Along with typical diamond
jewellery, the market for artificial diamonds and
coloured stones, too, is booming. The reduction
will give a push to fashion jewellery in the
Indian market,� said AT Kearney principal
Neelesh Hundekari.
Joji Thomas Philip & Kalyan Parbat
TEAM ET
CELLPHONES ARE SET TO BECOME A
bit more pricey, thanks to the finance minister
proposing 1% national calamity contingent
duty on all handset sales. But other related
telecom segments
have attracted
Mr Chidambaram�s
benevolence. Wireless
internet connectivity,
for example,
will be more affordable,
with data cards
now exempt
from 16% excise
duty. Prices are likely
to fall by Rs 500
and more.
Modems and
set-top boxes will
also be cheaper as
excise and customs
duties have been
halved to 8% and 5% respectively, for
specified convergence products. Also, the
7.5% customs duty on STB components
has been axed. But mobile operators are
miffed that the FM has ignored their twin
demands � reduction in multiple levies
and lowering of revenue share licence fee
to a uniform 6% from the present 6%10%
of adjusted gross revenue � for the
third time in a row. The Indian Cellular Association
(ICA), the apex body representing
all handset companies, said the 1% levy
would not impact handset sales. �Symbolically,
it is not a progressive move as it impacts
the end-user, the common man. The
impact, however, is marginal,� said Spice
Mobile's CEO Kunal
Ahooja.
Data cards, whose
prices vary between
Rs 3,000 and
Rs 8,000, enable internet
access without
landline connections.
�The waiver
of excise duty
on wireless data cards
will shore up broadband
usage and
penetration levels
nationally,� said
ICA national secretary
Adarsh Shastri,
who is also the distribution
head at Samsung.
Explains Dixon Technologies� chief Sunil
Vachani, �The Budget has corrected the inverted
duty structure for STBs. Earlier, the
final product could be imported with zero
duty, while components attracted 10% import
duty. Now they are on par. This will
help local manufacturers like us who have
been looking to produce STBs.�
Out of range:
Talk ain�t so
cheap anymore
But Surfing On Your Laptop Will Hurt Less
Nanometer�s
in full throttle
SMALL CARS WILL COST UP TO RS 16K LESS; TWO-WHEELERS CHEAPER TOO
Loan waivers, hike in exemption limit will
pump up the consumption growth story
If you�ve got it, flash it
3UNION BUDGET 2007 - 2008UNION BUDGET 2008 - 2009 THE ECONOMIC TIMES SATURDAY 1
MARCH 2008 *WWW.ECONOMICTIMES.COM
LIGHT MY FIRE
BS NAGESH
CUTOMER CARE ASSOCIATE & MD,
SHOPPERS� STOP
With the changes in the income-tax
slabs and loan waiver for farmers,
do you see the consumption story
getting a boost?
They will positively impact consumption,
particularly among the lower
strata. Middle-class consumers have
got a boost of Rs 45,000-Rs 50,000
due to the increase in the exemption
limit. The Budget has very little
discretionary impact on the highest
strata of consumers.
Any specific Budget proposals
that will trigger retail growth?
Retail is at a nascent stage of
MAJORS
Gitanjali, Tanishq, TBZ, DTC, De
Beers, Rio Tinto, Rajesh Exports
STORY SO FAR
Gem and jewellery
exports for 10 months
to January 2008 rose
to $16.87 billion
Exports expected to
reach target of $18.5
billion by March-end.
Target for 2008-09 is
$20 b. Exports have risen
more than 20% YoY
Appreciation of rupee
and availability of rough
diamonds from African
countries led to job losses
Gitanjali acquired
American retailer
Rogers. Tara Jewels
Export acquired 75%
stake in US-based
distributor Fabrikant
Leer International
GEMS & JEWELLERY
read full text on www.economictimes.com
EVERYONE�S
INVITED
Farmers� loan
waiver will help
people participate in
a growing economy
THOSE TAKING THE PRICE-CUT LANE
FOUR-WHEELERS
Maruti: Rs 6,500-Rs 18,000
Tata Motors: Rs 13,000 on Indica
and Indigo base version
Hyundai: Rs 8,000-Rs 13,000
(Santro); Rs 13,000-Rs 19,000 (Getz
Prime); Rs 11,000-Rs 16,000 (i10)
GM: Rs 7,500-Rs 14,000
TWO-WHEELERS
Kinetic: Rs 600-Rs 2,000
TVS: Rs 1,500-Rs 3,000 (2-wheelers)
and Rs 3,000 (3-wheelers)
Bajaj: Rs 1,000-Rs 1,500
HMSI: Rs 1,300-Rs 2,000
Hero Honda: Rs 1,000-Rs 2,400
THAT THE NANO IS A REFLECTION
of the common man�s aspiration is visible
in the fact that even the finance
minister has chosen to recognise it in
the Budget by way of duty cuts on small cars.
But small cars apart, automotive has been one
of the few sectors that have found this Budget
extremely favourable.
The finance minister has cut duty on two-
and three-wheelers, besides announcing steep
mark-downs for green and hybrid vehicles.
Commercial vehicles, too, stand to benefit, thanks
to the excise reduction on buses to 12%
and trucks to 14%. This will bring down prices
by Rs 20,000-Rs 40,000. �The excise benefits
signal the government�s intention to encourage
the growth of public transport,� said Ashok Ley-
land managing director R Seshasayee.
Thanks to a 4% cut in excise duty (from 16%
to 12%), small cars will cost Rs 7,000-16,000
less. As for two-wheelers, the price cuts are likely
to be modest � around Rs 1,000-Rs 1,300 for
executive-class motorcycles like Splendor Plus
or Platina, and Rs 1,500-Rs 1,800 for top-end
performance products like the Pulsar.
Already, the top players in the small car market
� Maruti, Hyundai, GM, Tata Motors � have
announced mark-downs. Tata Motors is reducing
Indica and Indigo base prices by Rs 13,000, and
Maruti by Rs 6,500-Rs 18,000. However, if you
are waiting for the Nano to cost less than Rs 1 lakh,
keep dreaming. According to sources, the Rs 1lakh
tag wasn�t excise-centric to begin with (it was
firmed up when excise on all cars was 24%). The
excise lolly will only, as one analyst puts it, �shore
up the project�s profitability�.
In two-wheelers, market leader Hero Honda
will lower prices by Rs 1,000-Rs 2,400. Others
have indicated price cuts ranging from Rs
600 to Rs 3,000. Says Kinetic group chairman
AN Firodia: �We will reduce prices effective
Friday, but there will be an adjustment period
since our dealers hold stock on which excise is
paid at the old rate. Mopeds, which have an
end-customer price of Rs 15,000, will get
cheaper by Rs 600. Scooters and motorcycles
in the Rs 30,000 price bracket will see a Rs
1,200 reduction, while premium products in
the Rs 40,000-Rs 60,000 range should see a
price reduction of Rs 1,600-Rs 2,000.�
However, two-wheeler company chiefs believe
the 4% cut is too little. Says Hero Honda
MD Pawan Munjal: �We will look at a price
change, but the duty reduction is not enough.�
Analysts say a Rs 1,500 reduction on a top-end
bike like the Pulsar works out to a Rs 40 reduction
in a monthly EMI of around Rs 500. Even
for an entry-level bike, the monthly ownership
cost is around Rs 3,000, and a 4% excise cut
means a Rs 1,000 mark-down or Rs 30 off the
EMI. Most analysts see this as an insignificant
reduction. There�s good news on the green vehicles
front too. Hybrid duties are down from
24% to 14%, but for the soon-to-debut Honda
Civic hybrid, the relief is negligible as it is fully
imported, says a company official.
However, it is a matter of time before a flurry of
global green wheels hit the road. �India is no
longer a follower of GM products, but a place to
lead with in terms of future technologies like hybrids,�
says GM India president & CEO Karl Slym.
As for the homegrown e-vehicle Reva, the
reduction in excise duty on the vehicle to zero
won�t help. For this will mean the company
will not be able to take modvat credit. Net net,
the impact is negative, say company officials.
Nandini Sen Gupta & Lijee Philip
(With inputs from Chanchal Pal Chauhan
& Gouri Agtey Athale)
IT�S A
ROUGH
CUT
CARAT CHASE
Bullock carts
to bikes, we�ve
gone the mile
PIYUSH PANDEY
EXECUTIVE CHAIRMAN, O&M INDIA
Excise duties on small cars and two-wheelers have been
cut from 16% to 12%. Do you think this will have an immediate
impact?
It�s a nice, tight slap on the faces of those who were cynical
about Tata Nano�s implication on traffic management. They
were those who believed that the roads were only built for their
big cars. It is also a kick in the butt for those who had a view that
villagers shouldn�t wear dark glasses as it spoils the cultural
look of a village. Now, the same villager will take his child to
school on a motorcycle instead of the
�oh-so-cute� bullock cart. I am also
very happy for Maneka Gandhi, since
it is most likely that fewer people will
ride donkeys, camels and elephants.
If you read the loan waiver to marginal
and small farmers and I-T exemption
limit hikes for women
and senior citizens together, do
you see a rise in consumer confidence
� home loans, durables, healthcare and education
in particular?
I don�t see the farmers� loan waiver and tax benefits to the
elderly and women from a shopkeeper�s or a banker�s eyes. I
see it as an extremely positive move in enabling people who
have been having a tough time. This move will help the people
participate in a growing economy in a more significant
fashion. Yes, in the process they will upgrade their farms and
homes, and be able to educate their children better. And in
the process, those providing home loans and education will
be able to do more business. But the key question we have to
ask ourselves is: should we see it as a business opportunity or
as a positive move that we can help succeed?
None of us is Mahatma Gandhi, but I guess we can all try to
draw a line between business opportunity and an opportunity
to contribute towards a nation on the move!
Amiti Sen & Mitul Thakkar
TEAM ET
INPUT COSTS OF THE RS 70,000-CRORE
GEMS & jewellery industry will dip marginally.
The finance minister has reduced customs
duty on polished cubic zirconia (artificial diamond)
and rough coral from 10% to 5%.
Rough cubic zirconia, which attracted customs
duty of 5%, is now duty-exempt. Industry
players, however, want more. They
claim the move will have a marginal impact
on jewellery prices, as the cuts are not steep
enough and crucial inputs like coloured gems
have been ignored.
Last May, the FM had exempted cut and polished
diamonds from customs duties. Speaking
to ET, Gitanjali Group chairman Mehul Choksi
said, �Unfortunately, there has been no major announcement
regarding gold in this Budget, so
prices aren�t expected to change either way.�
Gems & Jewellery Export Promotion Council
chairman Sanjay Kothari said the industry was
expecting much more from the government.
�The customs duty cuts will have very little impact
on our prices. We were expecting steeper
cuts. We also wanted reduction on more items,�
Mr Kothari said.
Orra CEO Vijay Jain said a lot more could
have been done for the exports market, since the
benefits of customs duty reduction in cubic zirconia
would largely go to the low-end segment.
He added �appropriate� initiatives would have
ensured the entry of Indian diamond jewellery
brands in the US and European markets, instead
of India being just a leading jobwork destination.
Market experts have a different take. �Indian
consumers are receiving new varieties of jewellery
very well. Along with typical diamond
jewellery, the market for artificial diamonds and
coloured stones, too, is booming. The reduction
will give a push to fashion jewellery in the
Indian market,� said AT Kearney principal
Neelesh Hundekari.
Joji Thomas Philip & Kalyan Parbat
TEAM ET
CELLPHONES ARE SET TO BECOME A
bit more pricey, thanks to the finance minister
proposing 1% national calamity contingent
duty on all handset sales. But other related
telecom segments
have attracted
Mr Chidambaram�s
benevolence. Wireless
internet connectivity,
for example,
will be more affordable,
with data cards
now exempt
from 16% excise
duty. Prices are likely
to fall by Rs 500
and more.
Modems and
set-top boxes will
also be cheaper as
excise and customs
duties have been
halved to 8% and 5% respectively, for
specified convergence products. Also, the
7.5% customs duty on STB components
has been axed. But mobile operators are
miffed that the FM has ignored their twin
demands � reduction in multiple levies
and lowering of revenue share licence fee
to a uniform 6% from the present 6%10%
of adjusted gross revenue � for the
third time in a row. The Indian Cellular Association
(ICA), the apex body representing
all handset companies, said the 1% levy
would not impact handset sales. �Symbolically,
it is not a progressive move as it impacts
the end-user, the common man. The
impact, however, is marginal,� said Spice
Mobile's CEO Kunal
Ahooja.
Data cards, whose
prices vary between
Rs 3,000 and
Rs 8,000, enable internet
access without
landline connections.
�The waiver
of excise duty
on wireless data cards
will shore up broadband
usage and
penetration levels
nationally,� said
ICA national secretary
Adarsh Shastri,
who is also the distribution
head at Samsung.
Explains Dixon Technologies� chief Sunil
Vachani, �The Budget has corrected the inverted
duty structure for STBs. Earlier, the
final product could be imported with zero
duty, while components attracted 10% import
duty. Now they are on par. This will
help local manufacturers like us who have
been looking to produce STBs.�
Out of range:
Talk ain�t so
cheap anymore
But Surfing On Your Laptop Will Hurt Less
Nanometer�s
in full throttle
SMALL CARS WILL COST UP TO RS 16K LESS; TWO-WHEELERS CHEAPER TOO
Loan waivers, hike in exemption limit will
pump up the consumption growth story
If you�ve got it, flash it
3UNION BUDGET 2007 - 2008UNION BUDGET 2008 - 2009 THE ECONOMIC TIMES SATURDAY 1
MARCH 2008 *WWW.ECONOMICTIMES.COM
LIGHT MY FIRE
BS NAGESH
CUTOMER CARE ASSOCIATE & MD,
SHOPPERS� STOP
With the changes in the income-tax
slabs and loan waiver for farmers,
do you see the consumption story
getting a boost?
They will positively impact consumption,
particularly among the lower
strata. Middle-class consumers have
got a boost of Rs 45,000-Rs 50,000
due to the increase in the exemption
limit. The Budget has very little
discretionary impact on the highest
strata of consumers.
Any specific Budget proposals
that will trigger retail growth?
Retail is at a nascent stage of
MAJORS
Gitanjali, Tanishq, TBZ, DTC, De
Beers, Rio Tinto, Rajesh Exports
STORY SO FAR
Gem and jewellery
exports for 10 months
to January 2008 rose
to $16.87 billion
Exports expected to
reach target of $18.5
billion by March-end.
Target for 2008-09 is
$20 b. Exports have risen
more than 20% YoY
Appreciation of rupee
and availability of rough
diamonds from African
countries led to job losses
Gitanjali acquired
American retailer
Rogers. Tara Jewels
Export acquired 75%
stake in US-based
distributor Fabrikant
Leer International
GEMS & JEWELLERY
read full text on www.economictimes.com
EVERYONE�S
INVITED
Farmers� loan
waiver will help
people participate in
a growing economy
THOSE TAKING THE PRICE-CUT LANE
FOUR-WHEELERS
Maruti: Rs 6,500-Rs 18,000
Tata Motors: Rs 13,000 on Indica
and Indigo base version
Hyundai: Rs 8,000-Rs 13,000
(Santro); Rs 13,000-Rs 19,000 (Getz
Prime); Rs 11,000-Rs 16,000 (i10)
GM: Rs 7,500-Rs 14,000
TWO-WHEELERS
Kinetic: Rs 600-Rs 2,000
TVS: Rs 1,500-Rs 3,000 (2-wheelers)
and Rs 3,000 (3-wheelers)
Bajaj: Rs 1,000-Rs 1,500
HMSI: Rs 1,300-Rs 2,000
Hero Honda: Rs 1,000-Rs 2,400
modernisation, therefore, most investments
are for the long term. I am
confident that by 2010, a GST regime
will be implemented, and the adjustment
of service tax against GST will
sort out the problems of retailers.
Further reduction in CST as per plan, is
a positive step.

Are there any concerns that the

Budget has not addressed?
In the presentation, we did not see the
issue of service tax on rentals being addressed.
Retailers have to see the fine
print to know whether any rebates
have been allowed.
ALL IN A DAY�S WORK
TOP LOSERS
DAY�S PREVIOUS CHANGE
ET INDICES CLOSE CLOSE (%)
ET FERTILISER 7348.32 7910.70 -7.11
ET CAPITAL GOODS 19106.04 19690.95 -2.97
ET CD* 9010.43 9282.14 -2.93
ET REALTY 15010.02 15413.28 -2.62
ET CONSTRUCTION 22978.27 23584.78 -2.57
* CONSUMER DURABLES
TOP GAINERS
DAY�S PREVIOUS CHANGE
ET INDICES CLOSE CLOSE (%)
ET RETAIL 1790.94 1759.76 1.77
ET AUTOMOBILES 4666.36 4589.97 1.66
ET FMCG 3678.25 3645.34 0.90
ET CHEMICALS 7097.53 7041.71 0.79
ET LOGISTICS 16832.41 16706.65 0.75
SHORT-TERM CAPITAL GAINS
TAX HIKED TO 15% FROM 10%
Hurts profit margins of day traders, IPO
punters and short-term players. Will
encourage retail investors to stay invested
longer. May bring greater stability
STT IS NOW LIKE ANY OTHER
DEDUCTIBLE EXPENDITURE
Affects day traders and leading market
operators as their tax liability will rise
marginally. Will end the misuse of
income-tax rebate on STT
STT WILL BE CHARGED ON
OPTIONS PRICE PREMIUM
Reduces cost of transaction in options
trading. This is in line with the move by
stock exchanges to link broking fees
to premium rather than strike price
SES & COMMODITY BOURSES
UNDER SERVICE TAX NET
Brokers already collect service tax from
clients. They will find ways of passing on
additional charge. The cost of transaction
is likely to increase marginally
SECURITIES TRANSACTION
TAX ON COMMODITY FUTURES
Affects liquidity in the short term as
margins of day traders and speculators get
squeezed. But investors looking to hedge
positions may not mind the extra cost
NILESH SHAH
CIO, PRUDENTIAL ICICI
BUDGET FY09 IS PRO-CONSUMPTION AND
pro-inclusive growth. Waiver of farm loans of
Rs 60,000 crore will spur rural consumption.
Along with enhanced allocation to social
schemes, this will bring in inclusive growth. Rise
in tax exemption limit and taxation slabs will
leave about Rs 44,000 annually with a tax payer
at the higher end. Development of fixed income
market will move to the next orbit with the launch
of exchange-traded currency and interest rate
futures market, rationalisation of stamp duty and
exemption from TDS for corporate bonds. Slash
in Cenvat from 16% to 14%, along with cut in CST
from 3% to 2%, will keep inflation under check.
Declaration of intention to work with RBI will also
help the monetary policy mechanism. The
capital market will benefit from the rationalisation
of DDT on holding companies. Rise in
short-term capital gains tax from 10% to 15% will
help bring in long-term money in equity markets.
Conversion of STT from taxes paid to expenditure
is going to disappoint the market, but is a step in
the right direction. Market sentiment will be
positive for pharma, auto, education, paper and
consumer staples. Banking and financial
services, cement, oil & gas and technology may
see negative sentiment. The most important part
is the off-budget accounting of food, oil, fertiliser
and banking subsidy, which means the FRBM Act
is followed in letter, and not in spirit.
Aggregate FII portfolio
investment limit in
Indian cos was raised to
30% from 24%
Buyback of shares by
companies was allowed
VC funds allowed to
invest up to 20% of their
corpus in a single co
Brokers allowed
one-time permission to
corporatise with capital
gains tax waiver
UNION BUDGET 2007 - 2008UNION BUDGET 2008 - 2009 THE ECONOMIC TIMES SATURDAY 1
MARCH 2008 WWW.ECONOMICTIMES.COM 4
GAGAN BANGA
DIRECTOR, INDIABULLS
FINANCIAL SERVICES
SBI will be a major gainer from dividend
distribution tax (DDT) provisions. Also,
government borrowings are much lower
than expected. My sense is that the bond
market will react positively to these two
factors. Being one of the largest players,
SBI is definitely going to be a beneficiary.
State Bank of India
ICICI Bank
HDFC
Tata Steel
ITC
5 STOCKS
TO BUY
MOTILAL OSWAL
CHAIRMAN, MOTILAL
OSWAL SECURITIES
The proposed move to cut excise duty on
2- & 3-wheelers from 16% to 12% is
expected to revive Bajaj Auto�s overall
sales growth. Duty cuts will help the
company lower product prices, which will
boost consumer demand. Rise in personal
tax exemption limit is also a big positive.
Bajaj Auto
Maruti Udyog
Glaxo SmithKline
ITC
Bharti Airtel
5 STOCKS
TO BUY
PARAG PARIKH
CHAIRMAN, PPFAS
Most Budgets have made negative
announcements for ITC as the govt has
hiked excise duty on cigarettes over the
years. Now, with rise in excise on non-filter
cigarettes, one can hope for some shift to
ITC brands. ITC�s products in FMCG space
are gaining good market share.
Glaxo SmithKline
ITC
Monsanto
Aventis Pharma
Bharat Electronics
5 STOCKS
TO BUY
NIRMAL JAIN
CMD, INDIA INFOLINE
The auto space stood out in the Budget,
receiving a huge boost with reduction in
excise duty. This is expected to stimulate
demand in the coming quarters. We
recommend a buy on Maruti Udyog, which
has recorded relatively good performance
among automobiles in the past year.
Maruti Udyog
Hindustan Unilever
Sesa Goa
Ranbaxy
Educomp
5 STOCKS
TO BUY
KR CHOKSEY
CHAIRMAN,
KR CHOKSEY SEC
The proposed step to cut excise duty for
small cars is a big positive for Maruti, which
has the largest market share in the small car
segment. It will pass on the tax benefits to
buyers, resulting in lower prices. The tax cut
is significant as there have been some signs
of a slowdown in sales in the industry.
Maruti Udyog
Cipla
Ranbaxy
Bajaj Auto
TNPL
5 STOCKS
TO BUY
TOP LOSERS
DAY�S PREVIOUS CHANGE
ET INDICES CLOSE CLOSE (%)
ET FERTILISER 7348.32 7910.70 -7.11
ET CAPITAL GOODS 19106.04 19690.95 -2.97
ET CD* 9010.43 9282.14 -2.93
ET REALTY 15010.02 15413.28 -2.62
ET CONSTRUCTION 22978.27 23584.78 -2.57
* CONSUMER DURABLES
TOP GAINERS
DAY�S PREVIOUS CHANGE
ET INDICES CLOSE CLOSE (%)
ET RETAIL 1790.94 1759.76 1.77
ET AUTOMOBILES 4666.36 4589.97 1.66
ET FMCG 3678.25 3645.34 0.90
ET CHEMICALS 7097.53 7041.71 0.79
ET LOGISTICS 16832.41 16706.65 0.75
SHORT-TERM CAPITAL GAINS
TAX HIKED TO 15% FROM 10%
Hurts profit margins of day traders, IPO
punters and short-term players. Will
encourage retail investors to stay invested
longer. May bring greater stability
STT IS NOW LIKE ANY OTHER
DEDUCTIBLE EXPENDITURE
Affects day traders and leading market
operators as their tax liability will rise
marginally. Will end the misuse of
income-tax rebate on STT
STT WILL BE CHARGED ON
OPTIONS PRICE PREMIUM
Reduces cost of transaction in options
trading. This is in line with the move by
stock exchanges to link broking fees
to premium rather than strike price
SES & COMMODITY BOURSES
UNDER SERVICE TAX NET
Brokers already collect service tax from
clients. They will find ways of passing on
additional charge. The cost of transaction
is likely to increase marginally
SECURITIES TRANSACTION
TAX ON COMMODITY FUTURES
Affects liquidity in the short term as
margins of day traders and speculators get
squeezed. But investors looking to hedge
positions may not mind the extra cost
NILESH SHAH
CIO, PRUDENTIAL ICICI
BUDGET FY09 IS PRO-CONSUMPTION AND
pro-inclusive growth. Waiver of farm loans of
Rs 60,000 crore will spur rural consumption.
Along with enhanced allocation to social
schemes, this will bring in inclusive growth. Rise
in tax exemption limit and taxation slabs will
leave about Rs 44,000 annually with a tax payer
at the higher end. Development of fixed income
market will move to the next orbit with the launch
of exchange-traded currency and interest rate
futures market, rationalisation of stamp duty and
exemption from TDS for corporate bonds. Slash
in Cenvat from 16% to 14%, along with cut in CST
from 3% to 2%, will keep inflation under check.
Declaration of intention to work with RBI will also
help the monetary policy mechanism. The
capital market will benefit from the rationalisation
of DDT on holding companies. Rise in
short-term capital gains tax from 10% to 15% will
help bring in long-term money in equity markets.
Conversion of STT from taxes paid to expenditure
is going to disappoint the market, but is a step in
the right direction. Market sentiment will be
positive for pharma, auto, education, paper and
consumer staples. Banking and financial
services, cement, oil & gas and technology may
see negative sentiment. The most important part
is the off-budget accounting of food, oil, fertiliser
and banking subsidy, which means the FRBM Act
is followed in letter, and not in spirit.
Aggregate FII portfolio
investment limit in
Indian cos was raised to
30% from 24%
Buyback of shares by
companies was allowed
VC funds allowed to
invest up to 20% of their
corpus in a single co
Brokers allowed
one-time permission to
corporatise with capital
gains tax waiver
UNION BUDGET 2007 - 2008UNION BUDGET 2008 - 2009 THE ECONOMIC TIMES SATURDAY 1
MARCH 2008 WWW.ECONOMICTIMES.COM 4
GAGAN BANGA
DIRECTOR, INDIABULLS
FINANCIAL SERVICES
SBI will be a major gainer from dividend
distribution tax (DDT) provisions. Also,
government borrowings are much lower
than expected. My sense is that the bond
market will react positively to these two
factors. Being one of the largest players,
SBI is definitely going to be a beneficiary.
State Bank of India
ICICI Bank
HDFC
Tata Steel
ITC
5 STOCKS
TO BUY
MOTILAL OSWAL
CHAIRMAN, MOTILAL
OSWAL SECURITIES
The proposed move to cut excise duty on
2- & 3-wheelers from 16% to 12% is
expected to revive Bajaj Auto�s overall
sales growth. Duty cuts will help the
company lower product prices, which will
boost consumer demand. Rise in personal
tax exemption limit is also a big positive.
Bajaj Auto
Maruti Udyog
Glaxo SmithKline
ITC
Bharti Airtel
5 STOCKS
TO BUY
PARAG PARIKH
CHAIRMAN, PPFAS
Most Budgets have made negative
announcements for ITC as the govt has
hiked excise duty on cigarettes over the
years. Now, with rise in excise on non-filter
cigarettes, one can hope for some shift to
ITC brands. ITC�s products in FMCG space
are gaining good market share.
Glaxo SmithKline
ITC
Monsanto
Aventis Pharma
Bharat Electronics
5 STOCKS
TO BUY
NIRMAL JAIN
CMD, INDIA INFOLINE
The auto space stood out in the Budget,
receiving a huge boost with reduction in
excise duty. This is expected to stimulate
demand in the coming quarters. We
recommend a buy on Maruti Udyog, which
has recorded relatively good performance
among automobiles in the past year.
Maruti Udyog
Hindustan Unilever
Sesa Goa
Ranbaxy
Educomp
5 STOCKS
TO BUY
KR CHOKSEY
CHAIRMAN,
KR CHOKSEY SEC
The proposed step to cut excise duty for
small cars is a big positive for Maruti, which
has the largest market share in the small car
segment. It will pass on the tax benefits to
buyers, resulting in lower prices. The tax cut
is significant as there have been some signs
of a slowdown in sales in the industry.
Maruti Udyog
Cipla
Ranbaxy
Bajaj Auto
TNPL
5 STOCKS
TO BUY
Let�s go
farming,
say brokers

Dealers switch channels, say

Radio Mirchi�s the best FM

Shailesh Menon

TEAM ET

THE �LOVE-HATE� RELATIONSHIP BETWEEN THE

Indian equity market and the Budget started soon after TT Krishnamachari
(TTK) presented an interim Budget in 1957-58.
The then BSE chairman, KRP Shroff, called it a �carrot-andstick
Budget�. TTK shot back, �Let them go to hell. I don�t care
for stock exchanges.� Finance ministers may or may not care
about Dalal Street�s reactions to the Budget, but that the
denizens of D-Street care about the Budget is evident when
one sits inside a dealing room. For instance, when the FM
quoted Indira Gandhi, the dealing room chorused: �Now, we
know where this Budget is coming from. Ab toh election jeet
jayenge.� This was followed by a loud �Viva Congress�.

Similarly, when the FM announced that the government

would be creating a pan-India market for securities, the men
on the street were pleased. Kumar
Bhaneja � a derivatives specialist �
immediately saw it as a business opportunity,
saying: �That is indeed a
good idea; it gives us another reason
to open branches.� The �Save the
Tiger Fund� was received by traders
with sarcasm and cat calls.

SOME CLUES

But while there was the occasion

for mirth, there was also gloom when PLEASE?
the FM decided to give a pre-election

Mood remained

gift to farmers by announcing a blanket

loan waiver. Even as trading

downbeat till FM
screens dripped red and bank stocks announced
started to move south, one could hear
investor-friendly

groans like, �Oye maa....bankex

steps. Decision to

neeche...SBI, BoI, IDBI, Dena, Vijaya

� sab level toda.� In a flash, the Sen-raise minimum

sex was now deep in the red, down taxable income &
350 points, and one could almost feel
extend tax limits was

the pain best summed up by Dheeraj

met with uproar

Patel, an institutional dealer, who

said: �Boss, the market is going to
fall... saara sops toh farmers koh diya naa...bazaar mein kya hai.
Chalo, let�s go farming... aur kitna bhi loan lelo...waive ho jayega.�

The mood was downbeat and picked up a tad only after the FM
made a slew of announcements in education, textiles, tea, pharmaceuticals
and road infrastructure. Dealers who had all but given
up, suddenly swung back into action, furiously punching orders
for relevant counters. The decision to raise minimum taxable
income and extend tax limits was met with a tumultuous uproar.
Unchanged corporate surcharge received �boos� from traders in
the form of �Pehle khush kiya.... phir marketko tod diya.� And fall, it
did. The benchmark Sensex ended 245 points lower to close the
day at 17,578 while Nifty closed 61 points down to end at 5,223.

It was clear that if the Budget did not have too many
sticks, then neither were there many carrots. It was disappointing
enough for a broker. When asked who was India�s
best FM, he quipped: �No doubt... India�s best FM is Radio
Mirchi...it�s hot.�

TRADERS GET
SHORT-CIRCUITED

MERA NAAM
BROKER:
The equity
circus of the
past six months
had everyone
on the edge �
from FM to CM
(common
man). Sensex
gained 10,000
points in just
869 sessions
against 7,297
sessions taken
to reach the
10k mark from
1,000 levels.
And ringmaster
Sebi is more
determined
than ever.
SHORT ON PATH-BREAKING REFORMS, LONG ON STABILITY

T
T
HE MARKET BEHAVES
like a voting machine in
the short run and a
weighing machine in
the long run, said legendary
investor Warren
Buffett once. The saying
always appears relevant

in the context of Dalal

Street�s reaction to the Union Budget. If one

were to judge solely on the basis of the clos

ing levels of benchmark indices, it may ap

pear as though the finance minister be

trayed the expectations of capital market

players. The Budget may have been short

on any path-breaking reforms. But this

comes as no surprise in an election year

where political compulsions matter more

than economic ones.

Should stock market investors be wor

ried? Yes and no. Barring a few sectors, the

government is optimistic of the economy�s

engines humming along fine. This should

translate into healthy corporate earnings

though the pace may not be as frenetic as it

was in the past. That�s good news. But the

bad news is that foreign institutional in

vestors, who have been deserting Indian

bourses over the past few months, may con

tinue to be indifferent.

The FM seems to delight in tossing a goo

gly or two at capital market players. This time

it has been in the form of hiking short-term

capital gains (STCG), and the scrapping of I-T

rebate on the securities transaction tax

(STT). The first move, most market watchers

agree, will impart stability to the market in

the long run by encouraging investors to stay

invested for the long term. But both moves

are expected to tighten liquidity in the short

run. The second move, in particular, is expected
to hit day traders, a key source of liquidity
in the market, hard. Earlier, these

traders could adjust STT against their income-

tax obligations. But with this facility
gone, it will squeeze their profit margins by
increasing their tax liability. Already, trading

volumes have dropped sharply, following

the dramatic collapse in share prices in January.
But that should not be much of a concern
to long-term investors.

�The rate of tax on short-term capital

gains being increased to 15% is a short-term
negative. However, this is unlikely to
change the long-term fundamentals of the
market,� said UBS MD & head (equities and
research) Sandeep Bhatia.

Interestingly, in what could have an impact

on the dollar-rupee exchange rate, bond
yields and liquidity in the banking system,
Mr Chidambaram intends to look at temporary
steps to moderate capital inflows to keep
inflation under check. Will he succeed? According
to Goldman Sachs, the Budget is expected
to stoke inflationary pressures. �The
government estimates that the fiscal deficit
will decline from 3.1% of the GDP to 2.5%,
but this doesn�t include off-Budget liabilities.
While we need to see the fine print on the
budgetary numbers, we think the deficit
may actually increase due to spending increases
in the Budget, wage pressures from
the Sixth Pay Commission, uncertainty on
who will be funding the debt waiver to farmers,
fuel and fertiliser subsidies and a moderation
in revenue growth,� said Tushar Poddar,
vice-president, Asia Economic Research
of Goldman Sachs.

A decrease in corporate tax and some

favourable tweaking of the fringe benefit tax
would, no doubt, have boosted sentiments.
But it is too much to expect the finance minister
to deliver a cure-all for the current
lethargy in the stock market, which is largely
the result of global factors and local excesses.

Santosh Nair

Top picks: What�s hot on a D-Street roof

Home is
where the
farm is
MUKESH AMBANI
CHAIRMAN, RELIANCE INDUSTRIES
FM�s speech has focussed heavily on agriculture and removing
the indebtedness of farmers. What role do you
think these measures will play in spurring agricultural
growth and removing rural poverty?
I would like to compliment the finance minister for putting the
spotlight on agriculture and the rural economy. Our ability to
sustain and accelerate the current high rate of economic growth
is contingent on increasing the growth rate of agriculture. I do
believe that measures indicated in the Budget will give a huge
fillip to the sector and help India realise its potential as the agribowl
of the world. FM has taken a bold initiative to unshackle
the Indian farmer. Corporate India, I am sure, will reinforce
and/or find new engagements with the agri and rural economy.
What do you think is the overall direction of the Budget?
This Budget seeks to build on the theme of an expansive, high-
growth framework that will benefit large sections of our society,
including small and marginal farmers, middle classes, and the
corporate sector. The focus on higher investments in social sectors
such as education, healthcare and rural economy is commendable.
At the same time, the duty cut on project imports
and reduction in Cenvat rate signal an effort to stimulate growth
and manufacturing competitiveness.
Budget promises little for the oil & gas and energy industries.
In power, FM stressed the need to cut transmission
and distribution losses. What will the impact be?
There is a stress on the continuation of reforms agenda in the oil
& gas sector. FM has highlighted the interest generated for 57
blocks in the seventh round of the bidding under the New Exploration
Licensing Policy. He also announced the creation of a
national fund for transmission and distribution reforms. This
should encourage greater investments.
Your views on the impact of excise cuts and changes in
I-T slabs on sentiment and overall consumption.
In cutting personal tax rates and excise duty, Mr Chidambaram
was putting more purchasing power in the hands of ordinary
Indians and stimulating consumption. This is imperative in the
current context of a slowing global economy and rising commodity
prices. The focus on flagging sectors that are growth and
employment drivers, such as pharmaceuticals and automobiles,
is a step to increase India�s global competitiveness.
What new idea do you think FM could have brought to
the table?
I look forward to FM taking steps to enable Indian companies to
become global players. The Indian corporate sector is poised for
investments overseas and increasing India�s share in world
trade. Year 2008-09, I believe, is the right time to encourage and
support this process.
FINANCE MINISTER P CHIDAMBARAM
may not have changed rates for securities
transaction tax (STT), but his proposal
to treat STT as deductible expenditure
has not gone down well with the trading
community. Day traders fear that it will put further
pressure on their already wafer-thin margins.
However, some feel that the new tax treatment
may reduce short-term trading and encourage
people to take long calls.
According to tax professionals, the current
practice adopted by big operators and day
traders is to add the STT amount to the total income,
including income from trading activity
and other income, and subsequently, work out
the payable tax. Under Section 88E, they are
entitled to get tax rebate and can pay only the
surplus of total tax over STT at the end of the
year. However, this benefit of setting off income
tax against STT would not be available
once the new proposal comes into effect.
What will be the STT impact? Say, if a day
trader earns a profit of Rs 300 on a total income
of Rs 1,000 (expenses of Rs 700), he pays 33%
tax of around Rs 100. Assuming a Rs 20 STT,
the total tax liability will be Rs 80 based on the
current calculation. According to the new proposal,
on the same income, expenses will now
be considered as Rs 720, instead of Rs 700, as
STT will be considered as an expense. So, the
profit will be Rs 280, on which the trader has to
pay a tax of Rs 92, Rs 12 higher than what he
would have paid had the STT deduction not
treated as expenses.
Currently, STT is charged at the rate of
0.125% on delivery-based buy-and-sell transactions
and 0.025% only on non-deliverybased
sale transactions. The rate is 0.017% on
F&O sale transactions. The FM has decided to
keep these rates unchanged. He, however, has
given a boost to traders in F&O segment by
changing the methodology of STT calculation
on option contracts. At present, option contracts
attract an STT on the entire notional value
of the contract. This is going to
change after the Budget proposals
come into effect, as STT will be
charged only on the premium of an
option contract.
According to BR Bagri of BLB, a
Delhi-based leading arbitrageur
and jobber, the FM�s proposal to
withdraw the rebate, allowed under
Section 88E, means profit
earned by day traders and jobbers
would attract income tax at normal rates, in
addition to STT. �This has been a big blow to
these players whose income is chargeable under
the head �profits and gains from business
and profession�,� he said.
Another proposal which may worry the
trading, broking and investing community is
the FM�s decision to bring services provided by
stock exchanges and clearing houses under the
service tax net. However, some brokers do not
think that it will have a major impact on cost.
�Brokers who are already paying service tax
will not be affected as they can claim
rebate. But services like listing and
data dissemination may become a
little costlier for companies availing
of them,� said Churiwala Securities
director Alok Churiwala.
However, some market savvy investors
have been taking advantage
of loopholes in the STT law to avoid
paying legitimate tax on business income
from speculative stock trades.
These investors �purchase� STT for a �fee� from
other brokers/ traders who will not be able to
claim income-tax rebate on STT beyond a point.
Tax authorities are aware of this practice, but
find it difficult to nail down offenders as all the
transactions are legal and STT has actually been
paid to the government.
Vijay Gurav & Shakti Shankar Patra
OPTIONS
GALORE
FM�s helped F&O
traders by changing
the method of STT
calculation on
option contracts
Nidhi Nath Srinivas
TEAM ET
FOR INDIA�S COMMODITY
traders, the test of courage is not to
die, but to endure. The new commodity
transaction tax (CTT) and
service tax on commodity exchanges
will increase the cost of
futures trading by at least four
times. While big hedgers and arbitrageurs
may be able to offset CTT
against their net business profits,
small investors and punters will
see their gains dwindling.
Even for companies able to offset
CTT, there would be an overall
increase in the tax paid because CTT would be deducted
from net profit, and not the net tax payable. Suppose, a
company has to pay a CTT of Rs 100. It makes a net profit of
Rs 500 on which the tax liability (at 33%) would be Rs 165.
deducted from the net profit of
Rs 500, and the company would
pay tax on Rs 400, which comes to
Rs 132. So, the net outgo is higher.
Not surprisingly, India�s commodity
exchanges are peeved at
this indirect onslaught on their
business at a time when average
daily turnover barely crosses Rs
15,000 crore. �CTT needs to be
brought down. Otherwise, it will
drive away participants from this
market and distort the price discovery
mechanism,� said NCDEX
MD PH Ravikumar.
Said MCX chairman Jignesh
Shah: �The Budget has added an
incidence of 12% service charge and Rs 17 per lakh for
commodities trading, which will increase the cost by more
than 800%. This taxation was introduced in the stock market
with the benefit of capital gains and allowing futures in-
Futures squeeze: Comm
traders forced to pay more
From here on, the script takes a twist
Just got harder
for Day Tripper
SECURITIES TRANSACTION TAX
OVERVIEW
FM introduces STT in �04-05
Budget at uniform rate of 0.15%
Rates revised in October �04 after
sharp reaction from trading
community. STT is reduced to
0.075% on delivery-based
transactions and to 0.015% on
non-delivery transactions
FM announces a 25% rise in STT in
�06-07 Budget. After the hike,
volumes plunge by 50-60%
25% hike across the board in STT
rates announced in �07-08 Budget
STT now charged at 0.125% on
delivery-based buy and sell
transactions and 0.025% only on
delivery-based sale transactions
NEW STT TREATMENT LIKELY TO AFFECT SHORT-TERM TRADING
BAD NEWS IF YOU ARE AN
HNI. They are known to churn
their portfolio often. On an
average, their holding period
is less than six months. Also,
HNIs invest in IPOs using
borrowed money, only to sell
on the listing day. The cost of
leveraging is 18-20%. With rise
in short-term capital gains tax,
HNIs will get more selective
while investing in public offers.
HNIs
INVESTORS NORMALLY
invest in IPOs to cash in on
listing gains. Such gains will
now attract a tax rate of 15%,
up from 10%. Market players
say this might impact the
quantum of subscription,
especially in a bear phase.
Stocks typically see huge
amount of trading on the day
of debut as investors rush
to make a quick buck.
IPO PUNTERS
ABOLITION OF I-T REBATE
on STT is expected to affect
brokers who do only
proprietary trading. With STT
now being treated like any
other deductible expenditure,
their tax liability may rise
marginally. Brokers will have
to pay service tax to SEs. As
clients are already charged
service tax, brokers will have
to find ways to recover cost.
BROKERS
LIFE FOR FIIs DOES NOT
change, post-Budget. There
was talk of some tax on
foreign portfolio investments,
but those fears proved to be
unfounded. However, liquidity
has dried up after the sell-off
in Jan and looks to stay that
way in the short term. This
could push up the impact cost
for FIIs. Most FIIs feel that the
Budget was a non-event.
FIIs
INCREASE IN SHORT-TERM
capital gains tax could prompt
retail investors to hold on to
their investments for long. Till
a few months ago, retail
investors could make 40-50%
returns in mid- and small-cap
stocks in 2-3 months. But with
changing market conditions,
decent returns are tough to
come by. Rise in short-term
tax will crimp returns further.
RETAIL INVESTORS
Budget proposals will change the fortunes of market players. While some may cheer,

others may sulk. ET checks out how the drama unfolds for each of the investor
class.
BETWEEN
THE CUP
AND ULIP
IS A DIP
BOX OFFICE RETURN
Gaurav Pai & Muthukumar K
TEAM ET
RETURNS ON UNIT-LINKED INSURANCE
plans (Ulips) will dip. Investors in Ulip, which
is a blend of insurance and securities like stocks
and bonds, could see returns coming down by
around 60 basis points.
The drop could be more in the first year of
premium payment, but less in subsequent
years. The FM�s intention is to create a more level-
playing field between MF products and Ulips.
In achieving this, he proposed a service tax on
charges that insurance companies recover from
Ulipholders. From now on, every life insurance
company will have to pay 12.2% service tax
even on all fees charged to Ulipholders.
As per the illustration in the Finance Bill, if a
policyholder pays Rs 100 as Ulip premium, of
which Rs 10 goes towards insurance and Rs 85
towards investment, the balance Rs 5 would be
considered as service charge and would be
taxed accordingly. The extra service tax burden
could be Rs 40-50 crore. Today, Ulip accounts
for close to 75% of the new premium income
of insurance companies.
Bharti AXA Life CEO Nitin Chopra said: �This
proposal results in different tax structures for
customers of Ulip and non-Ulip investment
plans. While the traditional insurance plans allow
for investment, they do not provide a transparent
structure to the overall building of the
corpus over the term of the policy.�
Ulips offer a transparent option for customers.
The Budget proposal on service tax for
management of investment under Ulips has
taxed the transparency of the Ulip product
structure. Life insurance companies typically
deduct asset management fee from the net asset
values of Ulips, bringing down returns in
the process. It is computed as a percentage of
daily valuations of fund assets.
Say, a scheme�s fund management charge is
1%. Then, 1% of the fund assets valued on any
particular day divided by 365 days will be deducted
on a daily basis. This charge changes on
a daily basis and becomes an income for the insurer.
Service tax will now be levied exactly on
this income.
�When fund houses were paying service tax
on the fund management fees collected by
them, there was no reason why insurance companies
shouldn�t,� said UTI Mutual Fund�s head
of equities Anoop Bhaskar.
WILL IT RISE OR FALL?
5UNION BUDGET 2007 - 2008UNION BUDGET 2008 - 2009 THE ECONOMIC TIMES SATURDAY 1
MARCH 2008 WWW.ECONOMICTIMES.COM
read full text on www.economictimes.com
Home is
where the
farm is
MUKESH AMBANI
CHAIRMAN, RELIANCE INDUSTRIES
FM�s speech has focussed heavily on agriculture and removing
the indebtedness of farmers. What role do you
think these measures will play in spurring agricultural
growth and removing rural poverty?
I would like to compliment the finance minister for putting the
spotlight on agriculture and the rural economy. Our ability to
sustain and accelerate the current high rate of economic growth
is contingent on increasing the growth rate of agriculture. I do
believe that measures indicated in the Budget will give a huge
fillip to the sector and help India realise its potential as the agribowl
of the world. FM has taken a bold initiative to unshackle
the Indian farmer. Corporate India, I am sure, will reinforce
and/or find new engagements with the agri and rural economy.
What do you think is the overall direction of the Budget?
This Budget seeks to build on the theme of an expansive, high-
growth framework that will benefit large sections of our society,
including small and marginal farmers, middle classes, and the
corporate sector. The focus on higher investments in social sectors
such as education, healthcare and rural economy is commendable.
At the same time, the duty cut on project imports
and reduction in Cenvat rate signal an effort to stimulate growth
and manufacturing competitiveness.
Budget promises little for the oil & gas and energy industries.
In power, FM stressed the need to cut transmission
and distribution losses. What will the impact be?
There is a stress on the continuation of reforms agenda in the oil
& gas sector. FM has highlighted the interest generated for 57
blocks in the seventh round of the bidding under the New Exploration
Licensing Policy. He also announced the creation of a
national fund for transmission and distribution reforms. This
should encourage greater investments.
Your views on the impact of excise cuts and changes in
I-T slabs on sentiment and overall consumption.
In cutting personal tax rates and excise duty, Mr Chidambaram
was putting more purchasing power in the hands of ordinary
Indians and stimulating consumption. This is imperative in the
current context of a slowing global economy and rising commodity
prices. The focus on flagging sectors that are growth and
employment drivers, such as pharmaceuticals and automobiles,
is a step to increase India�s global competitiveness.
What new idea do you think FM could have brought to
the table?
I look forward to FM taking steps to enable Indian companies to
become global players. The Indian corporate sector is poised for
investments overseas and increasing India�s share in world
trade. Year 2008-09, I believe, is the right time to encourage and
support this process.
FINANCE MINISTER P CHIDAMBARAM
may not have changed rates for securities
transaction tax (STT), but his proposal
to treat STT as deductible expenditure
has not gone down well with the trading
community. Day traders fear that it will put further
pressure on their already wafer-thin margins.
However, some feel that the new tax treatment
may reduce short-term trading and encourage
people to take long calls.
According to tax professionals, the current
practice adopted by big operators and day
traders is to add the STT amount to the total income,
including income from trading activity
and other income, and subsequently, work out
the payable tax. Under Section 88E, they are
entitled to get tax rebate and can pay only the
surplus of total tax over STT at the end of the
year. However, this benefit of setting off income
tax against STT would not be available
once the new proposal comes into effect.
What will be the STT impact? Say, if a day
trader earns a profit of Rs 300 on a total income
of Rs 1,000 (expenses of Rs 700), he pays 33%
tax of around Rs 100. Assuming a Rs 20 STT,
the total tax liability will be Rs 80 based on the
current calculation. According to the new proposal,
on the same income, expenses will now
be considered as Rs 720, instead of Rs 700, as
STT will be considered as an expense. So, the
profit will be Rs 280, on which the trader has to
pay a tax of Rs 92, Rs 12 higher than what he
would have paid had the STT deduction not
treated as expenses.
Currently, STT is charged at the rate of
0.125% on delivery-based buy-and-sell transactions
and 0.025% only on non-deliverybased
sale transactions. The rate is 0.017% on
F&O sale transactions. The FM has decided to
keep these rates unchanged. He, however, has
given a boost to traders in F&O segment by
changing the methodology of STT calculation
on option contracts. At present, option contracts
attract an STT on the entire notional value
of the contract. This is going to
change after the Budget proposals
come into effect, as STT will be
charged only on the premium of an
option contract.
According to BR Bagri of BLB, a
Delhi-based leading arbitrageur
and jobber, the FM�s proposal to
withdraw the rebate, allowed under
Section 88E, means profit
earned by day traders and jobbers
would attract income tax at normal rates, in
addition to STT. �This has been a big blow to
these players whose income is chargeable under
the head �profits and gains from business
and profession�,� he said.
Another proposal which may worry the
trading, broking and investing community is
the FM�s decision to bring services provided by
stock exchanges and clearing houses under the
service tax net. However, some brokers do not
think that it will have a major impact on cost.
�Brokers who are already paying service tax
will not be affected as they can claim
rebate. But services like listing and
data dissemination may become a
little costlier for companies availing
of them,� said Churiwala Securities
director Alok Churiwala.
However, some market savvy investors
have been taking advantage
of loopholes in the STT law to avoid
paying legitimate tax on business income
from speculative stock trades.
These investors �purchase� STT for a �fee� from
other brokers/ traders who will not be able to
claim income-tax rebate on STT beyond a point.
Tax authorities are aware of this practice, but
find it difficult to nail down offenders as all the
transactions are legal and STT has actually been
paid to the government.
Vijay Gurav & Shakti Shankar Patra
OPTIONS
GALORE
FM�s helped F&O
traders by changing
the method of STT
calculation on
option contracts
Nidhi Nath Srinivas
TEAM ET
FOR INDIA�S COMMODITY
traders, the test of courage is not to
die, but to endure. The new commodity
transaction tax (CTT) and
service tax on commodity exchanges
will increase the cost of
futures trading by at least four
times. While big hedgers and arbitrageurs
may be able to offset CTT
against their net business profits,
small investors and punters will
see their gains dwindling.
Even for companies able to offset
CTT, there would be an overall
increase in the tax paid because CTT would be deducted
from net profit, and not the net tax payable. Suppose, a
company has to pay a CTT of Rs 100. It makes a net profit of
Rs 500 on which the tax liability (at 33%) would be Rs 165.
deducted from the net profit of
Rs 500, and the company would
pay tax on Rs 400, which comes to
Rs 132. So, the net outgo is higher.
Not surprisingly, India�s commodity
exchanges are peeved at
this indirect onslaught on their
business at a time when average
daily turnover barely crosses Rs
15,000 crore. �CTT needs to be
brought down. Otherwise, it will
drive away participants from this
market and distort the price discovery
mechanism,� said NCDEX
MD PH Ravikumar.
Said MCX chairman Jignesh
Shah: �The Budget has added an
incidence of 12% service charge and Rs 17 per lakh for
commodities trading, which will increase the cost by more
than 800%. This taxation was introduced in the stock market
with the benefit of capital gains and allowing futures in-
Futures squeeze: Comm
traders forced to pay more
From here on, the script takes a twist
Just got harder
for Day Tripper
SECURITIES TRANSACTION TAX
OVERVIEW
FM introduces STT in �04-05
Budget at uniform rate of 0.15%
Rates revised in October �04 after
sharp reaction from trading
community. STT is reduced to
0.075% on delivery-based
transactions and to 0.015% on
non-delivery transactions
FM announces a 25% rise in STT in
�06-07 Budget. After the hike,
volumes plunge by 50-60%
25% hike across the board in STT
rates announced in �07-08 Budget
STT now charged at 0.125% on
delivery-based buy and sell
transactions and 0.025% only on
delivery-based sale transactions
NEW STT TREATMENT LIKELY TO AFFECT SHORT-TERM TRADING
BAD NEWS IF YOU ARE AN
HNI. They are known to churn
their portfolio often. On an
average, their holding period
is less than six months. Also,
HNIs invest in IPOs using
borrowed money, only to sell
on the listing day. The cost of
leveraging is 18-20%. With rise
in short-term capital gains tax,
HNIs will get more selective
while investing in public offers.
HNIs
INVESTORS NORMALLY
invest in IPOs to cash in on
listing gains. Such gains will
now attract a tax rate of 15%,
up from 10%. Market players
say this might impact the
quantum of subscription,
especially in a bear phase.
Stocks typically see huge
amount of trading on the day
of debut as investors rush
to make a quick buck.
IPO PUNTERS
ABOLITION OF I-T REBATE
on STT is expected to affect
brokers who do only
proprietary trading. With STT
now being treated like any
other deductible expenditure,
their tax liability may rise
marginally. Brokers will have
to pay service tax to SEs. As
clients are already charged
service tax, brokers will have
to find ways to recover cost.
BROKERS
LIFE FOR FIIs DOES NOT
change, post-Budget. There
was talk of some tax on
foreign portfolio investments,
but those fears proved to be
unfounded. However, liquidity
has dried up after the sell-off
in Jan and looks to stay that
way in the short term. This
could push up the impact cost
for FIIs. Most FIIs feel that the
Budget was a non-event.
FIIs
INCREASE IN SHORT-TERM
capital gains tax could prompt
retail investors to hold on to
their investments for long. Till
a few months ago, retail
investors could make 40-50%
returns in mid- and small-cap
stocks in 2-3 months. But with
changing market conditions,
decent returns are tough to
come by. Rise in short-term
tax will crimp returns further.
RETAIL INVESTORS
Budget proposals will change the fortunes of market players. While some may cheer,

others may sulk. ET checks out how the drama unfolds for each of the investor
class.
BETWEEN
THE CUP
AND ULIP
IS A DIP
BOX OFFICE RETURN
Gaurav Pai & Muthukumar K
TEAM ET
RETURNS ON UNIT-LINKED INSURANCE
plans (Ulips) will dip. Investors in Ulip, which
is a blend of insurance and securities like stocks
and bonds, could see returns coming down by
around 60 basis points.
The drop could be more in the first year of
premium payment, but less in subsequent
years. The FM�s intention is to create a more level-
playing field between MF products and Ulips.
In achieving this, he proposed a service tax on
charges that insurance companies recover from
Ulipholders. From now on, every life insurance
company will have to pay 12.2% service tax
even on all fees charged to Ulipholders.
As per the illustration in the Finance Bill, if a
policyholder pays Rs 100 as Ulip premium, of
which Rs 10 goes towards insurance and Rs 85
towards investment, the balance Rs 5 would be
considered as service charge and would be
taxed accordingly. The extra service tax burden
could be Rs 40-50 crore. Today, Ulip accounts
for close to 75% of the new premium income
of insurance companies.
Bharti AXA Life CEO Nitin Chopra said: �This
proposal results in different tax structures for
customers of Ulip and non-Ulip investment
plans. While the traditional insurance plans allow
for investment, they do not provide a transparent
structure to the overall building of the
corpus over the term of the policy.�
Ulips offer a transparent option for customers.
The Budget proposal on service tax for
management of investment under Ulips has
taxed the transparency of the Ulip product
structure. Life insurance companies typically
deduct asset management fee from the net asset
values of Ulips, bringing down returns in
the process. It is computed as a percentage of
daily valuations of fund assets.
Say, a scheme�s fund management charge is
1%. Then, 1% of the fund assets valued on any
particular day divided by 365 days will be deducted
on a daily basis. This charge changes on
a daily basis and becomes an income for the insurer.
Service tax will now be levied exactly on
this income.
�When fund houses were paying service tax
on the fund management fees collected by
them, there was no reason why insurance companies
shouldn�t,� said UTI Mutual Fund�s head
of equities Anoop Bhaskar.
WILL IT RISE OR FALL?
5UNION BUDGET 2007 - 2008UNION BUDGET 2008 - 2009 THE ECONOMIC TIMES SATURDAY 1
MARCH 2008 WWW.ECONOMICTIMES.COM
read full text on www.economictimes.com
Earlier, tax laws allowed Rs 100 to be deducted from Rs 165, come loss to be
treated as business income loss. The comleaving
the company to pay only Rs 65. Now, CTT would be modities market has not received
these two incentives.�
GROSS GOVT BORROWING FOR
�08-09 SET AT RS 1.45L CR
Interest rates may soften as bond yields
fall. Borrowing figures lesser than
market estimates
BANKING CASH TRANSACTION
TAX WITHDRAWN
Major administrative relief for banks.
Transaction costs for customers will
come down
PAN MANDATORY FOR ALL
FINANCIAL TRANSACTIONS
PAN required for insurance, personal
loans and deposits. May cause hiccups in
small towns, but will curb black money
NO TDS ON CORP DEBT ISSUED
IN DEMAT, LISTED ON SES
The move is likely to help companies
raise money at finer rates. Corporate
debt market will get a boost
MONEY CHANGERS INCLUDED
IN SERVICE TAX NET
This will increase costs for travellers.
It will also squeeze margins of
money changers
AGRI CREDIT TARGET SET AT
RS 2.80L CR FOR 2008-09
It will lead to more inclusive growth. More
pressure on public sector banks
R RAVIMOHAN
MD & REGIONAL HEAD, SOUTH ASIA,
STANDARD & POOR�S
OVERALL, THIS BUDGET HAS BEEN A VERY
good balancing act between fiscal discipline,
growth stimulus, welfare and popular support.
High growth rates and strong revenue buoyancy
have clearly provided room to satisfy the entire
range of constituencies.The fiscal deficit,
brought down to 2.5% from 3.1%, keeps the
Budget on target to meet key FRBM objectives.
While it provides some cushion for the
implementation of the Sixth Pay Commission
recommendations, recent fiscal gains could
come under threat. Recognising the growing
significance of off-Budget borrowings by
estimating and reporting them in the Budget
document is a welcome first step.The Budget
provides a strong growth stimulus with the
expansion of NREG with a provision of Rs 16,000
crore, thus providing a consumption stimulus at
the lower end. Besides, the proposed excise
reductions will also help offset slowdown.
In an election year, the FM, as expected, has
announced several welfare and populist
measures. Small initiatives in health and
education, and increase in allocations provide a
good balance between long-term and short-term
objectives. While the farm loan-waiver scheme
is expected to benefit four crore farmers, it is a
bad idea because of the moral hazard for
future borrowers.
Expert group to lay down
roadmap for capital
account convertibility
New modern legislation
replaced Foreign
Exchange Regulation Act
Ad hoc Treasury Bills
were discontinued
Capital indexed
bonds were proposed
Health insurance sector
was opened up
UNION BUDGET 2007 - 2008UNION BUDGET 2008 - 2009 THE ECONOMIC TIMES SATURDAY 1
MARCH 2008 *WWW.ECONOMICTIMES.COM 6
GLOBAL MARKETS
& FINANCE
UNION BUDGET 2007 - 2008UNION BUDGET 2008 - 2009 THE ECONOMIC TIMES SATURDAY 1
MARCH 2008 *WWW.ECONOMICTIMES.COM 6
GLOBAL MARKETS
& FINANCE
HOW GREEN IS
THE LOAN VALLEY

NEON SERENADE: The economy has more than doubled in real terms
since 1991. And the hero looking down the moonlit balcony today has a
different concern: how to manage the mounting forex reserves. Is this the
same India that had to pledge the family silver to raise a few extra dollars?

FARM LOAN WAIVER IS A GOOD WAY TO CLEAN UP BANK BOOKS

T
T
HE STOCK MARKET
overreacted to the story.
It�s less dramatic
than it appears. In fact,
a few bankers are quite
happy about the FM�s
populist move to waive
farm loans. It would

50,000-crore basket will overnight turn into

�standard assets� in the books of banks. This

have been an uphill

will marginally raise banks� profits. This is

task for them to otherwise recover these

because provisions made on bad loans (on

loans, a bulk of which would have turned

which the FM has announced a complete

bad. Now, they can simply write off the

waiver) would be reversed. The reimburse-

loans and get the money from the govern

ment by the government will be treated as

ment, albeit over three years.

recovery and booked as income.

The move to provide a complete loan

�We are expecting a 100% subvention re-

waiver to small farmers will give banks an

lated to the loan-waiver scheme,� Allahabad

opportunity to clean up their books. But the

Bank chairman and managing director AC

downside is that it will send out wrong sig-

Mahajan says. �The step would lead to a

nals to borrowers. Many of the borrowers

higher flow of credit to agriculture,� he adds.

will now be under the impression that they

can afford to default even on fresh loans. At
least that�s what bankers fear.

The finance minister has announced a

complete loan waiver for marginal farmers
with land holdings of up to two hectares. For
other farmers, he has proposed a one-time
settlement (OTS), with the government giving
a rebate of 25% if a farmer pays 75% of
the loan overdue. The burden on the exchequer
will be Rs 60,000 crore � loan
waiver of Rs 50,000 crore and OTS relief of
Rs 10,000 crore. Of this, the exposure of
commercial banks is around Rs 12,000 crore
while the balance is in the books of co-operative
and regional rural banks. �It will enable
banks to clean up their books. Besides,
there will be an additional funding which
will boost farmers� income,� says Punjab
National Bank CMD KC Chakrabarty. The
move will have a marginal impact on private
sector banks, according to ICICI Bank
joint MD Chanda Kochhar.

Holding cos will bloom, minus DDT spray

Mayur Shetty

TEAM ET

O
O
NE OF THE BIGGEST HURDLES FOR
the creation of holding companies in
India has been the presence of dividend
distribution tax (DDT). A 12.5% DDT was
introduced in 2003, which, in many cases, led to
double taxation. Currently, if a subsidiary
company pays dividend to the parent company,
the former has to pay a DDT; and when the
parent company, in turn, pays dividend to its
shareholders, DDT again comes into play.

This is set to change. ICICI group chief strategy

& communications officer Kalpana Morparia
says, �DDT was a significant impediment to creating
a financial holding company structure. This
has been addressed in the Budget.� Industry bod-

Private banks have very little direct loan Only those farm loan accounts that are
eiexposure
to farmers. But it�s difficult to ignore ther overdue or restructured will
benefit.
the overall impact of the move on the econo-The irony is that a good borrower who
has
my. �While it�s an opportunity for banks to regularly met the interest payments
will not
clean up their books, it may increase the gov-benefit from the move. The loan
waiver

would mean that bad loans in the Rs

ernment�s borrowing programme and could

be inflationary. This, in turn, may result in a
higher interest rate regime which is not good
for banks,� says Karvy Stock Broking equity
research head Hemindra Hazari.

�The move would generate cash surplus for

farmers, which will result in higher consumption
demand from them,� says United
Bank of India executive director TM Bhasin.

IDBI Capital banking analyst Ravikant

Bhat says, �On a net basis, the impact would
be less than Rs 50,000 crore since these are
overdue loans, and in many cases, classified as
non-performing loans. Banks would have already
created some provisioning for these
loans.� Bank stocks fell sharply soon after the
announcement, but recovered later after the
FM clarified that banks would be reimbursed.
The farm loan waiver-cum-OTS scheme
could also fuel consumption demand in the
rural belt since the scheme is expected to
generate cash surplus in the hands of the
vast farming community. Nearly four crore
small and marginal farmers are eligible for
complete waiver of all loans. Other farmers
would get a 25% rebate against repayment
of 75% loan through the OTS scheme.

Sangita Mehta

ies have for long been lobbying that multiple DDT

should either be excluded from the levy of
additional income tax on dividends distributed by
another entity or at least a tax credit should be
issued for the additional income tax.

ICICI Bank had earlier proposed an intermediate

holding company � a subsidiary of the bank,
which would, in turn, hold shares of the
insurance and asset management companies.
However, this proposal did not receive clearance
from the Reserve Bank of India. It is not clear
whether such an intermediate company will be
eligible for dividend tax waiver.

�The proposed amendments to DDT will

enable companies to structure and allocate capital
to their businesses more efficiently. This measure
has helped mitigate the cascading effect of
taxation on dividend. The anomaly of double tax

ation has been rectified,� says HDFC chairman

Deepak Parekh.

In the past, HDFC had been a votary of the holding

company structure for financial conglomorates
in line with the structure adopted by financial
groups worldwide. Besides DDT, HDFC did not go
ahead with the holding company structure
because of other issues including different limits on
foreign holding and regulatory overlap.

Last year, RBI had come out with a discussion

paper on holding companies in the financial sector.
�The measure also supplements RBI�s draft paper
on holding companies. Holding company
structures are beneficial as they segregate banking
risks from the asset management and insurance
businesses,� says Mr Parekh.

Even in the case of Bajaj Auto, the demerger

process envisages an intermediate financial servic-

Get set to
drive the
convertible

Stay on track,FM takes the

rupee a step closer to free float

Mayur Shetty

TEAM ET

HE NEVER SPELT IT OUT, BUT UNION FINANCE MINISTER

P Chidambaram has taken another step towards capital account
convertibility. The proposed measures to deepen markets
like bonds, currency and derivatives will help Corporate
India raise money at a finer rate and cover risks from currency
and interest rate fluctuations.

With the country getting increasingly integrated with global

markets, barriers on capital controls are coming under pressure.
Before allowing capital to move in and out of the country
freely, a panel headed by former Reserve Bank of India
(RBI) deputy governor SS Tarapore had said that banks needed
risk mitigants like interest rate futures and options, credit
derivatives, commodity derivatives and equity derivatives to
hedge or manage risks. These risk mitigants are necessary
since free capital flows increase volatility in prices of securities.

The development of a deep and vibrant corporate bond

market will ensure that Indian companies raise money locally
and do not have to look overseas for raising funds. The removal
of tax deducted at source (TDS) on demat bonds listed on stock
markets will enable companies to raise cheaper funds here. A
corollary benefit is that institutions like insurance companies
and mutual funds, which mobilise domestic savings, will now
have more options to invest their money. �Banks have been
concerned over the possibility of the Centre and RBI stepping
back on credit derivatives. However, the finance minister�s comments
allayed these fears,� says Bank
of America MD & country manager
Vishwavir Ahuja.

Even as the Tarapore Committee�s

recommendations on measures towards
full capital account convertibility
were accepted, the government
decided to go ahead and appoint
another panel to look at
Mumbai as a regional financial centre,
which would enjoy capital ac-

SPOILT FOR

count convertibility. This panel too

had recommended the development CHOICE
of the financial market as a prerequi-

Corporate India can

site. According to Ajay Shah, mem

now raise funds at

ber of the panel on Mumbai as an International

Financial Centre, the big finer rates and also
weak link in Indian finance today is cover risks from
the lack of a properly functioning

currency and interest

bond-currency-derivatives nexus �

rate fluctuations

the integrated system of spot and derivatives

market (both exchange-
traded and OTC) on currencies, bonds and credit risk. �All
these building blocks need to have liquidity based on speculative
price discovery, and all of them need to be tightly integrated
by arbitrage.�

The Budget has paved the way for exchange-traded currency,

interest rate futures and a transparent credit derivatives
market with appropriate safeguards. The minister said that
there would be measures to enhance the tradability of domestic
convertible bonds by putting in place a mechanism
that would enable investors to separate the embedded equity
option from the convertible bond and trade it separately. Currently,
hedge funds do such trades on Indian convertibles
floated abroad. But a local market for the same doesn�t exist.

Says Enam chairman Vallabh Bhansali: �The government

and RBI have been working together to reduce the volatility
caused by unnatural inflows and outflows. For this, robust
currency, corporate bond and derivatives markets need to be
developed, and this is the step that the FM has taken.�

es holding company, which will hold shares of the

insurance business. Last week, Bajaj Auto
announced the demerger of its finance operations
into a new company � Bajaj Finserve � which it
plans to list in a couple of months. As part of the
new structure, Bajaj Holdings and Investment, a
new holding company, which holds 30% of both
Bajaj Auto and the spun-off Bajaj Finserve, will
also be listed at the same time. Bajaj Auto�s
insurance joint ventures will be made
subsidiaries of Bajaj Finserve.

The finance minister in his Budget speech says,

�I propose to allow a parent company to set off the
dividend received from its subsidiary company
against dividend distributed by the parent company,
provided the dividend received has suffered
DDT and the parent company is not a subsidiary of
another company.�
UNION BUDGET 2007 - 2008UNION BUDGET 2008 - 2009 THE ECONOMIC TIMES SATURDAY 1
MARCH 2008 *WWW.ECONOMICTIMES.COM 7 UNION BUDGET 2007 - 2008UNION BUDGET 2008 -
2009 THE ECONOMIC TIMES SATURDAY 1 MARCH 2008 *WWW.ECONOMICTIMES.COM 7
PAY LESS, PLAY MORE

BASIC EXEMPTION LIMITS

REVISED; TAX SLABS RECAST
Substantial tax savings across income
categories, which will help boost savings
and consumption. Move will remove
lakhs of assesses from the tax net
TAX RELIEF ON PREMIUM PAID
FOR PARENTS� HEALTH COVER
Besides additional tax gains, the move
will encourage more people to provide
health cover for parents
COMPULSORY DEMAT OF TDS
CERTIFICATES POSTPONED
Individual taxpayers will need to
collect their TDS certificates in paper
form from their employers and other
deductors till April 2010
TDS ON CORPORATE
BONDS REMOVED
Procedural ease for investors. Interest
earned on corporate bonds will come
without any tax deduction now
TAX FILING DATE ADVANCED
TO SEPTEMBER 30
Those who need to have their accounts
audited, including partners in firms, will
now have to file returns a month earlier
than the normal deadline. Move will
boost government�s cash flow
CLARIFICATION ON REVERSE
MORTGAGE TRANSACTION
Payments to senior citizens by financial
institutions not to attract capital gains
tax since it�s not a transfer anymore.
Clarification will boost volumes
FULL TAX EXEMPTION FOR
INDIVIDUALS IN SIKKIM
Income arising from the state as well as
dividend and interest becomes tax-free
for individuals. In effect, there will be no
tax burden on a Sikkimese individual
regardless of his salary, dividend or
interest income
T N PANDEY
FORMER CBDT CHAIRMAN
CONTRARY TO EXPECTATIONS, IT�S BEEN
a bounty for personal taxpayers. The FM has
given more than what they had anticipated, and
the relief provided is substantial. But I have a few
issues. I cannot comprehend why there should be
a disparity in the relief given to women and
senior citizens compared to other individuals.
Last year, all the three categories got a uniform
relief. Yet, this year, the benefit arising from a
higher exemption limit is Rs 40,000 for
individuals while for women it is Rs 35,000 and
for senior citizens it is Rs 30,000. Why should it
be lower for these two categories, when in fact
they deserve more? To me, it is a case of inequity
when individuals who earn more than Rs 10 lakh
annually pay a surcharge while only those firms
with a turnover of more than Rs 1 crore pay a
similar charge. Why this discrimination between
an individual and a firm? I don�t see any justification
for this and consider it is grossly unfair to
the salaried class. It is an ad hoc decision.
I would have also liked to see the return of
standard deduction. After all, the salaried class
does incur expenses during the course of their
work. That ought to have been taken into
consideration. As for the hike in short-term capital
gains which he imposed on investors, I have no
quibbles. Overall, while there are positives for
taxpayers, I wish the FM had been more realistic.
I-T rates were reduced to
10%, 20% & 30% from
15%, 30% & 40%
Tax on dividends removed
Standard deduction was
raised to Rs 20,000
New scheme to widen tax
net introduced
Senior citizens with an
income of up to Rs 1 lakh
were exempted from tax
TDS on gilts abolished
F
F
OR THE PAST YEAR OR
two, the finance minister had
provided enough hints that he
would prune tax rates if compliance
by taxpayers improved.
Undoubtedly, personal
tax collections have
grown at close to 40% over
the last fiscal � possibly the
highest ever � reflecting greater compliance, especially
among the self-employed. The finance
minister kept his word. But it was the extent of the
cuts that took most people by surprise.

The FM doled out several lollies: from increasing

exemption limits to a higher deduction for
medical insurance premium, and a tax exemption
for those senior citizens availing of loans under
the reverse mortgage scheme. All these will ensure
that people will have more money to save
and of course spend over the next one year. This
clearly augurs well for the economy, which is
showing signs of slowing down a bit this fiscal.

dambaram has always maintained that it pays to sponsive and friendly tax
administration. An imkeep
tax rates moderate. Dinesh Kanabar, head of proved tax regime may be a while in
the making.
PricewaterhouseCoopers�s tax practice, says reason-But there�s more to reflect on.
In 2006-07, the
able tax rates will help boost consumer spending. number of taxpayers with an
income of over Rs 10

The clarity offered by the minister on reverse lakh in the salaried category was
estimated at just
mortgage will help popularise a 1.35 lakh. The widening of the
product that was launched last

tax slab makes one wonder

year but failed to take off owing

whether the government wants

to uncertainty on the tax front.

to address this issue.

Over the past few years, the

Such a huge largesse to tax-

government has increased its re-

payers will surely result in the

liance on digital tracking meas

government foregoing substanures,

including the annual in

tial revenues. Yet the FM insists

come returns (AIR). The applica

that the exercise would be revbility

of permanent account

enue-neutral. Much of it will de-

number (PAN) will be now be

pend on whether the tax breaks

extended to several additional result in higher spending and in-
areas in the financial segment. While the FM did vestments, resulting in higher
revenues for the
not spell out the new additions, experts say that he government through indirect
taxes.
may bring the purchase of insurance products un-Shaji Vikraman
der the purview of PAN. (With inputs from Arnav Pandya &
For long, Indian taxpayers have long sought a re-M Padmakshan)

There�s a
lot more to
life at 60
Reverse mortgage gets
a fresh lease of life
Bakul Chugan
TEAM ET
SENIOR CITIZENS WHO HAVE A
home of their own or a property in their
name may not need to lean on their kids
for financial support in their old age.
With the clarification on the taxation
issues relating to the reverse
mortgage scheme, senior citizens can
expect to receive steady monthly
earnings without the amount being
taxed. Here�s how it works: If you are a
senior citizen (60 years and above)
and in need of a steady source of income,
banks and some institutions offer
you regular monthly earnings
based on the market value of your
home or property. For this, you need
to pledge your house to the lender.
A few banks had launched the
scheme this financial year, but it didn�t
take off owing to knotty tax issues. The
government has now made it clear that
the loan taken by a senior citizen under
this scheme, whether received as a
lump sum or in installments, will be exempt
from income-tax. Nor will it attract
capital gains tax since it�s not treated
as a transaction anymore.
Now, the capital gains tax will apply
only when the borrower dies, or is unable
to repay the loan forcing the lender
to sell off the property. Said LIC Housing
chief executive SK Mitter: �The
announcement that reverse mortgage
transactions and subsequent cash
flows may not be taxed will be a trigger
for the product to take off.� But he
said more clarity is needed on certain
issue like the treatment of interest
earnings accrued.
(With inputs from Mayur Shetty)
YOU�VE JUST GOT AN INCREMENT!
INDIVIDUAL
FIND OUT YOUR NEW TAX SLAB Call it PC magic. Even without touching
tax rates, the FM has ensured you take
home up to Rs 4,000 more every month
IF YOUR ANNUAL INCOME IS 4,00,000
TAX LIABILITY NOW POST EFFECTIVE
BUDGET SAVING
Max investment u/s 80C 1,00,000 1,00,000
Income chargeable to tax 3,00,000 3,00,000
TAX PAYABLE
Individuals 40,170 15,450 24,720
Women (below 65 years) 36,565 12,360 24,205
Senior Citizen 26,780 7,725 19,055
TAX SLAB NOW POST BUDGET
Income exempt from tax 1,10,000 1,50,000
10% 1,10,001 - 1,50,000 1,50,001 - 3,00,000
20% 1,50,001 - 2,50,000 3,00,001 - 5,00,000
30% 2,50,001 - 10,00,000 5,00,001 - 10,00,000
30% + surcharge 10% 10,00,000+ 10,00,000+
Income exempt from tax 1,45,000 1,80,000
10% 1,45,001 - 1,50,000 1,80,001 - 3,00,000
20% 1,50,001 - 2,50,000 3,00,001 - 5,00,000
30% 2,50,001 - 10,00,000 5,00,001 - 10,00,000
30% + surcharge 10% 10,00,000+ 10,00,000+
Income exempt from tax 1,95,000 2,25,000
10% -2,25,001 - 3,00,000
20% 1,95,001 - 2,50,000 3,00,001 - 5,00,000
30% 2,50,001 - 10,00,000 5,00,001 - 10,00,000
30% + surcharge 10% 10,00,000+ 10,00,000+
NOTE: EDUCATION CESS @ 3% CHARGEABLE TO ALL SLABS
WOMEN
SR.CITIZEN
YOUR AVENUES TO SAVE ON TAX
IF IT IS... 8,00,000
TAX LIABILITY NOW POST EFFECTIVE
BUDGET SAVING
Max investment u/s 80C 1,00,000 1,00,000
Income chargeable to tax 7,00,000 7,00,000
TAX PAYABLE
Individuals 1,63,770 1,18,450 45,320
Women (below 65 years) 1,60,165 1,15,360 44,805
Senior Citizen 1,50,380 1,10,725 39,665
IF IT IS... 12,00,000
TAX LIABILITY NOW POST EFFECTIVE
BUDGET SAVING
Max.Investment u/s 80C 1,00,000 1,00,000
Income chargeable to tax 11,00,000 11,00,000
TAX PAYABLE
Individuals 3,16,107 2,66,255 49,852
Women (below 65 years) 3,12,142 2,62,856 49,286
Senior Citizen 3,01,378 2,57,758 43,620
INSTRUMENT INVESTMENT LIMIT MATURITY PERIOD
PUBLIC PROVIDENT FUND 70,000 15 YEARS
PROS: Assured, tax-free returns @ 8% a year, compounded annually
CONS: Very long lock-in period, though partial withdrawal permitted after sixth
year
EQUITY-LINKED SAVINGS SCHEMES 1,00,000 3 years
PROS: Very high returns, especially in bullish market. Returns are tax-free
CONS: Returns not assured
TAX SAVING BANK FIXED DEPOSITS 1,00,000 5 years
PROS: Assured returns
CONS: Relatively low returns and the same are taxable
TAX SAVING POST OFFICE TERM DEPOSITS 1,00,000 5 years
PROS: Assured returns
CONS: Relatively low returns. Interest income is taxable
SENIOR CITIZEN SAVINGS SCHEME 1,00,000 5 years
PROS: Assured returns @ 9%
CONS: Applicable only for senior citizens. Interest income is taxable
NOTE: TUITION FEES, LIC PREMIA, REPAYMENT OF HOUSING LOAN, CONTRIBUTIONS TO
PENSION,
EPF, AND NSC ARE ALSO ELIGIBLE FOR DEDUCTION UNDER SECTION 80C CHECK OUT OUR
COMPLETE TAX RECKONER FOR VARIOUS INCOME GROUPS AT
WWW.ECONOMICTIMES.COM
5 MORE WAYS
TO SAVE TAX

(Beyond 80C�s Rs 1-lakh limit)

While the FM�s been generous,you can rely

on these provisions to stretch your buck

PAYMENT OF RENT SEC 10(13A)

An employee availing of HRA can claim

exemption which is the least of 50% of basic
pay (40% in non-metros) or the actual HRA,
or rent paid in excess of 10% of basic pay

INTEREST ON HOUSING LOAN SEC 24(b)

The interest paid (up to Rs 1.5 lakh) on a

home loan can be deducted from taxable

income. In joint ownerships, both can

claim deduction up to Rs 1.5 lakh each

MEDICAL TREATMENT SEC 80DDB

Expenditure incurred on treatment of the

individual or his dependents for diseases
such as cancer, AIDS or renal failure
qualifies for deduction up to Rs 40,000

INTEREST ON EDUCATION LOAN SEC 80E

Interest paid on a loan taken for higher

studies is exempt from tax for a maximum
of eight successive years. There is no limit
on the amount eligible for exemption

CAPITAL GAIN BONDS SEC 54EC

For capital gains from a long-term asset,

one can save up to Rs 50 lakh by parking
the profits in bonds of NHAI or REC if the
investment is made within 6 months of sale
Also, the FM has pushed perhaps the biggest restructuring
of tax slabs, benefiting all three categories
of taxpayers � individuals, women and senior citizens.
For male taxpayers, the tax threshold begins
only after Rs 1.5 lakh, while for women it is Rs 1.80
lakh and for senior citizens, it is Rs 2.25 lakh. The lowest
rate of 10% will now stretch all the way up to Rs 3
lakh, after which 20% tax will apply. Earlier, the 20%
tax rate was levied on those in the income bracket of
Rs 1.5 lakh to Rs 2.5 lakh. That rate will now apply to
those in the Rs 3 lakh to Rs 5 lakh bracket.

Tax at the highest bracket (30%) will kick in

only for incomes above Rs 5 lakh � twice the earlier
limit of Rs 2.5 lakh. What remains unchanged,
however, is the surcharge of 10% levied on those
with incomes in excess of Rs 10 lakh. The widening
of the slab means that while earlier having an
income of say Rs 2.9 lakh put an individual in the
30% tax bracket, that level of income will now attract
a rate of just 10% this year.

The tax slab restructuring may have been done

with an eye on the upcoming polls. But Chi-

FM prescribes

health cover

for parents

Debjoy Sengupta

TEAM ET

IT PAYS TO GET A HEALTH COVER

for not just your spouse and kids, but
also for your parents. The government
will now allow you an additional deduction
of Rs 15,000 if you pay the
premium for health cover for your
parents. The limit increases to Rs
20,000 if they are senior citizens.

This is how it works: Assume you

have paid a mediclaim premium of Rs
15,000 and another premium of Rs
15,000 for your parents. The total tax
deduction will now be Rs 30,000. This
means that the additional limit will
come as an extra benefit. Till now, the
tax deduction could be availed of only
for payments on medical insurance for
spouse and dependents. Now, even if
your parents are not dependents, the
benefit of additional tax deduction will
be available. IRDA Chairman CS Rao
said this could enhance penetration of
health covers among senior citizens and
is also an incentive to the industry for introducing
more insurance products.

General Insurance Council secretary

general KN Bhandari said: �The
additional exemption under Section
80D will help expand the health sector
where seniors contribute about 40%
of total premium income.�

(With inputs from Bakul Chugan)

YOU NEED TO FLASH PAN MORE OFTEN NOW

WHERE YOU ARE NEEDED
TO QUOTE YOUR PAN
Opening a bank or demat account
Sale & purchase of property worth
over Rs 5 lakh
Cash deposits of over Rs 50,000
Investments in MFs and shares
Post office savings
Buying high-end consumer goods
Sale or purchase of motor vehicles
Hotel or restaurant bills of
Rs 25,000 and above at a time
Cash payments of over Rs 25,000
for foreign travel
BUDGET ADDITIONS
Payment of insurance premiums
Investments in debt market
instruments
IMPACT: Positive
Customs duty cut on phosphoric acid and
sulphur to lower raw material cost
Subsidy provision for FY09, at Rs 30,986 cr, is
half of the industry�s estimated requirement
Loan waiver for farmers may boost demand
for agri inputs, including fertilisers
EXPECTATIONS
Substantially increase the budgetary
allocation for fertilisers
Slash customs duty and state-level VAT on
key inputs to the fertiliser industry
Withdraw service tax on services related
to the fertiliser industry
FERTILISERS
Rashtriya Chem & Fert
National Fertilisers
Zuari Industries
Nagarjuna Fert & Chem
TOP 4 NON SENSEX FIRMS
Net Sales Rs 37,464 cr
PAT Rs 1,682 cr
Market Cap Rs 32,346 cr
Sample Size 21 companies
Budget-Budget Share Price Trend
CORPORATE EARNINGS
8
Cold Touch
Warms Retail
Has the FM done enough to generate growth & demand?
The Budget looks balanced and aims to spur growth. Cut in excise
duty in key categories is expected to reduce prices and increase demand
at the same time. An increase in the income tax exemption
slab will expand disposable incomes of consumers. Both these
moves are likely to maintain growth momentum.
But the Budget didn�t do anything for the telecom sector...
Rationalisation of tax structure to create a single-levy regime in
telecom is a long-standing demand of operators. It�s a key requirement
for securing faster penetration of telecom. I would
urge the telecom minister to take up this issue with the FM.
Though small, the 1% excise duty on mobile handsets was unnecessary,
that too on a sector that is serving the nation well.
Except for concession on the cold chain front, not much has
been done for the retail sector.
Though organised retail hasn�t received much attention, it may
get a boost as disposable incomes rise. Sops for cold chains will
rope in investment in fresh-produce supply infrastructure, and
will benefit organised retailers in the food and grocery sector.
What do you think of the debt-waiver package for farmers?
It was anticipated, given the general mood of the nation. This will
help poor farmers. I am happy for them, but this shouldn�t become
a practice as discipline in repayment of loans is important.
Do you think the increase in short-term capital gains tax
will dampen capital market sentiment?
This is one area where the FM has decided to pick up extra revenue.
It will hurt speculators and short-term market players, and to that
extent, some dampening will take place. However, this will encourage
long-term holding of stocks, resulting in stability.
Are there any areas where the FM could have done more?
No reduction in corporate taxes is a disappointment.
Industry P/Es are those of ET Indices. Growth has been calculated based on
trailing 12 months ended December �07 over December �06
THE BIG B OF THE ECONOMY
is here. Everyone � from the
punters on Dalal Street to fund
managers and foreign institutional
investors � is scrambling to
make sense of the Budget: which
sectors are hot, which are not,
what to hold and what gets sold.
Get it right and your net worth
can skyrocket. Get it wrong and
burn a hole in your pocket.
The difference between winning
and losing is simply to quote ET�s
tagline, �The Power of Knowledge�.
The crack team of analysts at
ET Intelligence Group has put the
Big B under a microscope to give
you a head�s up on the winners
and losers across major sectors
and Sensex companies...
UNION BUDGET 2007 - 2008UNION BUDGET 2008 - 2009 THE ECONOMIC TIMES SATURDAY 1
MARCH 2008 WWW.ECONOMICTIMES.COM
IMPACT: Positive
Prices of 2 & 3-wheelers, small cars and
buses may fall marginally. This can result in
greater offtake and increased profitability
The price gap between small cars and
large cars will widen further, boosting
sales of the former
This can help India emerge as the global
hub for small car manufacturing
EXPECTATIONS
Uniform excise duty of 16% across all
utility vehicles and passenger cars
Reduce excise duty from current 16%
to 8% for two-wheelers to compete
with low-cost cars
AUTOMOBILES
Hero Honda
TVS Motors
Ashok Leyland
Bosch
HINDALCO THE decrease in customs duty on aluminium
scrap is unlikely to benefit Hindalco significantly,
as it does not use aluminium scrap to produce
aluminium. In fact, the revenues from primary
aluminium, which account for around 10% of its
net sales, may fall marginally.
FEB 29
HINDUSTAN UNILEVER AN 8% cut in excise duty on specific packaging
material may lead to a 2%-3% reduction in cost of
soaps, detergents & toothpastes. HUL�s Rs 1,500-cr
tea & coffee business will gain due to the 8% excise
cut on tea & coffee mixes. The 2% excise cut on all
manufactured goods will also have a positive impact.
BSE Price Return %
1 Month 6.22
3 Month 4.73
1 Year 24.98
FEB 29
Prev Close
Open
High
Low
Close
220.15
227.35
220.00
229.00
219.55
Share Performance
Presenting: The Good,
ICICI BANK WAIVER of loans to small & marginal farmers will
have a slight impact on ICICI Bank since its exposure
to farm credit is lower than PSU banks. Its project
financing business can gain due to the thrust on
power & urban infrastructure. It may benefit due to
changes in DDT structure for subsidiaries.
FEB 29
ITC ITC will benefit from higher allocation for the agriculture
sector. The 2% excise cut on all manufactured
goods will help the company rein in manufacturing
costs. With excise duty rates for non-filter cigarettes
being brought at par with filter cigarettes, ITC�s
excise tax outgo may go up by Rs 450-Rs 550 crore.
BSE Price Return %
1 Month 0.45
3 Month 8.95
1 Year 17.54
FEB 29
Prev Close
Open
High
Low
Close
202.00
200.95
207.00
199.00
202.15
Share Performance
INFOSYS TECHNOLOGIES INFY may take a hit in net margin post FY09, as STPI
tax benefit has not been extended beyond March
�09. Service tax levy on customised software services
has limited impact since Infy has little exposure to
domestic IT services. But it may not be able to take
advantage of growing govt expenditure on IT infra.
BSE Price Return %
1 Month 7.14
3 Month 1.90
1 Year - 23.04
FEB 29
Prev Close
Open
High
Low
Close
1599.40
1595.40
1604.70
1525.00
1546.85
Share Performance
ACC PARITY in the excise duty rates for bulk cement
and packaged cement will have a marginal impact
on ACC, as packaged cement accounts for the
majority of its sales. Higher allocation for rural
and infrastructure sectors should have an indirect
positive impact on the company.
FEB 29
AMBUJA CEMENTS THE company primarily sells packaged cement,
and as such, parity in the excise duty on bulk
cement and packaged cement is unlikely to have a
major impact on it. Cement sales in rural areas
may get a boost due to higher budgetary allocation,
and this will indirectly favour the company.
BSE Price Return %
1 Month 3.15
3 Month - 19.96
1 Year 4.44
FEB 29
Prev Close
Open
High
Low
Close
121.10
120.00
122.50
115.50
120.95
Share Performance
BAJAJ AUTO EXCISE duty cut on 2 & 3-wheelers from 16% to 12%
will help the company to improve its profitability at a
time when the industry is facing a slowdown. This
will also give it headroom to lure customers by offering
discounts & freebies. Its small car project will get
a boost from reduction in excise duty on small cars.
-
FEB 29
BHARAT HEAVY ELECTRICALS ACROSS-the-board reduction in excise duty will
improve Bhel�s competitiveness vis-�-vis global players.
Emphasis on power generation, especially
UMPP, will boost its order book. Countervailing
duties on power project imports will shield it from
reduction in customs duty on project imports.
BSE Price Return %
1 Month 13.24
3 Month - 13.52
1 Year 113.49
FEB 29
Prev Close
Open
High
Low
Close
2323.60
2315.05
2366.00
2209.00
2282.00
Share Performance
BHARTI AIRTEL THERE are no major proposals that can impact the
company significantly. But exempting wireless data
modem cards from excise duty & countervailing
duty should have a marginally positive impact.
Removal of customs duty on specific components of
set-top-boxes will help the company�s DTH business.
BSE Price Return %
1 Month - 0.70
3 Month - 7.78
1 Year 17.49
FEB 29
Prev Close
Open
High
Low
Close
844.45
840.00
840.00
801.80
825.60
Share Performance
-CIPLA
EXCISE duty cut on all pharma drugs will reduce
Cipla�s manufacturing costs. The govt�s increased
focus on healthcare and higher allocation for AIDS
control programmes will also benefit Cipla. Besides,
weighted deduction for expenditure on outsourced
R&D will help the company beef up its R&D.
FEB 29
HDFC DESPITE the clarification regarding the tax
implications of reverse mortgages, India�s
largest home loan company, Housing Development
Finance Corporation (HDFC), is unlikely to
be impacted hugely. This is because the company
is yet to introduce a product in this space.
BSE Price Return %
1 Month - 2.64
3 Month 3.25
1 Year 84.79
FEB 29
Prev Close
Open
High
Low
Close
2775.35
2705.00
2815.00
2702.00
2802.70
Share Performance
HDFC BANK
BSE Price Return %
1 Month - 3.96
3 Month -12.29
1 Year 57.74
FEB 29
Prev Close
Open
High
Low
Close
1471.05
1453.45
1460.00
1470.00
1425.00
GRASIM TAX deduction on dividend distribution tax paid by
subsidiaries will improve Grasim�s profitability as it
will be able to offset its DDT against tax paid by its
subsidiaries. Its textile business may gain from the
abolition of cess on polyester yarn & higher allocation
for technology upgradation in the textile sector.
BSE Price Return %
1 Month - 2.93
3 Month - 21.16
1 Year 31.74
FEB 29
Prev Close
Open
High
Low
Close
2914.80
2929.00
2930.00
2833.00
2888.45
Share Performance
TOP 4 NON SENSEX FIRMS
Net Sales Rs 1,00,721 cr
PAT Rs 7,860 cr
Market Cap Rs 1,23,603 cr
Sample Size 21 companies
IMPACT: Negative
Waiver of farm loans will affect PSU banks
in the short run as reimbursement by govt
will be over a period of three years
Pvt banks are less affected by loan waiver,
as they have lower exposure to farm loans
Banks may have to raise capital or curtail
advances to accommodate debt relief
EXPECTATIONS
Waive taxes on the provisioning of
NPAs, especially those incurred on
farm sector loans
Relax the lock-in period for bank deposits
qualifying for tax deduction under Section
80C from existing five years to three years
BANKING
Punjab National Bank
Bank of India
Union Bank of India
Canara Bank
TOP 4 NON SENSEX FIRMS
Net Sales Rs 2,82,388 cr
PAT Rs 33,633 cr
Market Cap Rs 5,59,722 cr
Sample Size 39 companies
IMPACT: Positive
All cos to gain from lower excise duty
Cos in T&D sector to gain from new power
fund and higher allocation to power sector
Irrigation and agricultural equipment
manufacturers to gain from higher outlay
Customs duty cut on equipment may hit
local cos as imports may get cheaper
EXPECTATIONS
Reduce excise duty on certain classes of
goods from 16% to 8%
Reduce import duty on intermediate goods
Classify power sector as a full-fledged
infrastructure sector
CAPITAL GOODS
Siemens
Kirloskar Brothers
ABB
Areva T&D
TOP 4 NON SENSEX FIRMS
Net Sales Rs 1,23,054 cr
PAT Rs 12,046 cr
Market Cap Rs 4,88,222 cr
Sample Size 150 companies
SUNIL MITTAL
GROUP CHAIRMAN & CEO, BHARTI ENTERPRISES
Budget-Budget Share Price Trend
Budget-Budget Share Price Trend Budget-Budget Share Price Trend
Company P/E 10.30
Industry P/E 10.16
Trailing 12M Net Sales Growth (%) 20.63
Trailing 12M Operating Profit Growth (%) 13.24
Trailing 12M Net Profit Growth (%) 16.78
YTD Share Price Movement
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Company P/E 10.40
Industry P/E 10.16
Trailing 12M Net Sales Growth (%) 26.25
Trailing 12M Operating Profit Growth (%) -30.56
Trailing 12M Net Profit Growth (%) 47.18
Company P/E 18.90
Industry P/E 15.33
Trailing 12M Net Sales Growth (%) 1.89
Trailing 12M Operating Profit Growth (%) -1.71
Trailing 12M Net Profit Growth (%) -0.77
Company P/E 38.50
Industry P/E 39.84
Trailing 12M Net Sales Growth (%) 20.35
Trailing 12M Operating Profit Growth (%) 29.52
Trailing 12M Net Profit Growth (%) 35.95
Company P/E 26.90
Industry P/E 27.21
Trailing 12M Net Sales Growth (%) 48.96
Trailing 12M Operating Profit Growth (%) 70.61
Trailing 12M Net Profit Growth (%) 78.91
Company P/E 35.80
Industry P/E 27.08
Trailing 12M Net Sales Growth (%) 45.33
Trailing 12M Operating Profit Growth (%) 42.17
Trailing 12M Net Profit Growth (%) 53.31
Company P/E 35.20
Industry P/E 17.29
Trailing 12M Net Sales Growth (%) 49.44
Trailing 12M Operating Profit Growth (%) 45.23
Trailing 12M Net Profit Growth (%) 37.84
Company P/E 10.30
Industry P/E 10.16
Trailing 12M Net Sales Growth (%) 27.00
Trailing 12M Operating Profit Growth (%) 33.10
Trailing 12M Net Profit Growth (%) 46.21
Company P/E 17.60
Industry P/E 122.86
Trailing 12M Net Sales Growth (%) 2117.87
Trailing 12M Operating Profit Growth (%) 10893.15
Trailing 12M Net Profit Growth (%) 15101.20
Company P/E 24.60
Industry P/E 17.32
Trailing 12M Net Sales Growth (%) 14.99
Trailing 12M Operating Profit Growth (%) -11.65
Trailing 12M Net Profit Growth (%) -10.90
Company P/E 9.90
Industry P/E 14.38
Trailing 12M Net Sales Growth (%) 9.85
Trailing 12M Operating Profit Growth (%) 154.05
Trailing 12M Net Profit Growth (%) 1.64
Company P/E 25.70
Industry P/E 22.40
Trailing 12M Net Sales Growth (%) 13.34
Trailing 12M Operating Profit Growth (%) 9.02
Trailing 12M Net Profit Growth (%) 3.78
Company P/E 31.70
Industry P/E 17.29
Trailing 12M Net Sales Growth (%) 48.17
Trailing 12M Operating Profit Growth (%) 57.45
Trailing 12M Net Profit Growth (%) 24.65
Company P/E 25.10
Industry P/E 22.40
Trailing 12M Net Sales Growth (%) 16.43
Trailing 12M Operating Profit Growth (%) 21.90
Trailing 12M Net Profit Growth (%) 15.97
Company P/E 19.40
Industry P/E 18.18
Trailing 12M Net Sales Growth (%) 24.93
Trailing 12M Operating Profit Growth (%) 20.96
Trailing 12M Net Profit Growth (%) 34.53
Compiled by ET Intelligence Group
read full text on www.economictimes.com
IMPACT: Positive
Customs duty cut on phosphoric acid and
sulphur to lower raw material cost
Subsidy provision for FY09, at Rs 30,986 cr, is
half of the industry�s estimated requirement
Loan waiver for farmers may boost demand
for agri inputs, including fertilisers
EXPECTATIONS
Substantially increase the budgetary
allocation for fertilisers
Slash customs duty and state-level VAT on
key inputs to the fertiliser industry
Withdraw service tax on services related
to the fertiliser industry
FERTILISERS
Rashtriya Chem & Fert
National Fertilisers
Zuari Industries
Nagarjuna Fert & Chem
TOP 4 NON SENSEX FIRMS
Net Sales Rs 37,464 cr
PAT Rs 1,682 cr
Market Cap Rs 32,346 cr
Sample Size 21 companies
Budget-Budget Share Price Trend
CORPORATE EARNINGS
8
Cold Touch
Warms Retail
Has the FM done enough to generate growth & demand?
The Budget looks balanced and aims to spur growth. Cut in excise
duty in key categories is expected to reduce prices and increase demand
at the same time. An increase in the income tax exemption
slab will expand disposable incomes of consumers. Both these
moves are likely to maintain growth momentum.
But the Budget didn�t do anything for the telecom sector...
Rationalisation of tax structure to create a single-levy regime in
telecom is a long-standing demand of operators. It�s a key requirement
for securing faster penetration of telecom. I would
urge the telecom minister to take up this issue with the FM.
Though small, the 1% excise duty on mobile handsets was unnecessary,
that too on a sector that is serving the nation well.
Except for concession on the cold chain front, not much has
been done for the retail sector.
Though organised retail hasn�t received much attention, it may
get a boost as disposable incomes rise. Sops for cold chains will
rope in investment in fresh-produce supply infrastructure, and
will benefit organised retailers in the food and grocery sector.
What do you think of the debt-waiver package for farmers?
It was anticipated, given the general mood of the nation. This will
help poor farmers. I am happy for them, but this shouldn�t become
a practice as discipline in repayment of loans is important.
Do you think the increase in short-term capital gains tax
will dampen capital market sentiment?
This is one area where the FM has decided to pick up extra revenue.
It will hurt speculators and short-term market players, and to that
extent, some dampening will take place. However, this will encourage
long-term holding of stocks, resulting in stability.
Are there any areas where the FM could have done more?
No reduction in corporate taxes is a disappointment.
Industry P/Es are those of ET Indices. Growth has been calculated based on
trailing 12 months ended December �07 over December �06
THE BIG B OF THE ECONOMY
is here. Everyone � from the
punters on Dalal Street to fund
managers and foreign institutional
investors � is scrambling to
make sense of the Budget: which
sectors are hot, which are not,
what to hold and what gets sold.
Get it right and your net worth
can skyrocket. Get it wrong and
burn a hole in your pocket.
The difference between winning
and losing is simply to quote ET�s
tagline, �The Power of Knowledge�.
The crack team of analysts at
ET Intelligence Group has put the
Big B under a microscope to give
you a head�s up on the winners
and losers across major sectors
and Sensex companies...
UNION BUDGET 2007 - 2008UNION BUDGET 2008 - 2009 THE ECONOMIC TIMES SATURDAY 1
MARCH 2008 WWW.ECONOMICTIMES.COM
IMPACT: Positive
Prices of 2 & 3-wheelers, small cars and
buses may fall marginally. This can result in
greater offtake and increased profitability
The price gap between small cars and
large cars will widen further, boosting
sales of the former
This can help India emerge as the global
hub for small car manufacturing
EXPECTATIONS
Uniform excise duty of 16% across all
utility vehicles and passenger cars
Reduce excise duty from current 16%
to 8% for two-wheelers to compete
with low-cost cars
AUTOMOBILES
Hero Honda
TVS Motors
Ashok Leyland
Bosch
HINDALCO THE decrease in customs duty on aluminium
scrap is unlikely to benefit Hindalco significantly,
as it does not use aluminium scrap to produce
aluminium. In fact, the revenues from primary
aluminium, which account for around 10% of its
net sales, may fall marginally.
FEB 29
HINDUSTAN UNILEVER AN 8% cut in excise duty on specific packaging
material may lead to a 2%-3% reduction in cost of
soaps, detergents & toothpastes. HUL�s Rs 1,500-cr
tea & coffee business will gain due to the 8% excise
cut on tea & coffee mixes. The 2% excise cut on all
manufactured goods will also have a positive impact.
BSE Price Return %
1 Month 6.22
3 Month 4.73
1 Year 24.98
FEB 29
Prev Close
Open
High
Low
Close
220.15
227.35
220.00
229.00
219.55
Share Performance
Presenting: The Good,
ICICI BANK WAIVER of loans to small & marginal farmers will
have a slight impact on ICICI Bank since its exposure
to farm credit is lower than PSU banks. Its project
financing business can gain due to the thrust on
power & urban infrastructure. It may benefit due to
changes in DDT structure for subsidiaries.
FEB 29
ITC ITC will benefit from higher allocation for the agriculture
sector. The 2% excise cut on all manufactured
goods will help the company rein in manufacturing
costs. With excise duty rates for non-filter cigarettes
being brought at par with filter cigarettes, ITC�s
excise tax outgo may go up by Rs 450-Rs 550 crore.
BSE Price Return %
1 Month 0.45
3 Month 8.95
1 Year 17.54
FEB 29
Prev Close
Open
High
Low
Close
202.00
200.95
207.00
199.00
202.15
Share Performance
INFOSYS TECHNOLOGIES INFY may take a hit in net margin post FY09, as STPI
tax benefit has not been extended beyond March
�09. Service tax levy on customised software services
has limited impact since Infy has little exposure to
domestic IT services. But it may not be able to take
advantage of growing govt expenditure on IT infra.
BSE Price Return %
1 Month 7.14
3 Month 1.90
1 Year - 23.04
FEB 29
Prev Close
Open
High
Low
Close
1599.40
1595.40
1604.70
1525.00
1546.85
Share Performance
ACC PARITY in the excise duty rates for bulk cement
and packaged cement will have a marginal impact
on ACC, as packaged cement accounts for the
majority of its sales. Higher allocation for rural
and infrastructure sectors should have an indirect
positive impact on the company.
FEB 29
AMBUJA CEMENTS THE company primarily sells packaged cement,
and as such, parity in the excise duty on bulk
cement and packaged cement is unlikely to have a
major impact on it. Cement sales in rural areas
may get a boost due to higher budgetary allocation,
and this will indirectly favour the company.
BSE Price Return %
1 Month 3.15
3 Month - 19.96
1 Year 4.44
FEB 29
Prev Close
Open
High
Low
Close
121.10
120.00
122.50
115.50
120.95
Share Performance
BAJAJ AUTO EXCISE duty cut on 2 & 3-wheelers from 16% to 12%
will help the company to improve its profitability at a
time when the industry is facing a slowdown. This
will also give it headroom to lure customers by offering
discounts & freebies. Its small car project will get
a boost from reduction in excise duty on small cars.
-
FEB 29
BHARAT HEAVY ELECTRICALS ACROSS-the-board reduction in excise duty will
improve Bhel�s competitiveness vis-�-vis global players.
Emphasis on power generation, especially
UMPP, will boost its order book. Countervailing
duties on power project imports will shield it from
reduction in customs duty on project imports.
BSE Price Return %
1 Month 13.24
3 Month - 13.52
1 Year 113.49
FEB 29
Prev Close
Open
High
Low
Close
2323.60
2315.05
2366.00
2209.00
2282.00
Share Performance
BHARTI AIRTEL THERE are no major proposals that can impact the
company significantly. But exempting wireless data
modem cards from excise duty & countervailing
duty should have a marginally positive impact.
Removal of customs duty on specific components of
set-top-boxes will help the company�s DTH business.
BSE Price Return %
1 Month - 0.70
3 Month - 7.78
1 Year 17.49
FEB 29
Prev Close
Open
High
Low
Close
844.45
840.00
840.00
801.80
825.60
Share Performance
-CIPLA
EXCISE duty cut on all pharma drugs will reduce
Cipla�s manufacturing costs. The govt�s increased
focus on healthcare and higher allocation for AIDS
control programmes will also benefit Cipla. Besides,
weighted deduction for expenditure on outsourced
R&D will help the company beef up its R&D.
FEB 29
HDFC DESPITE the clarification regarding the tax
implications of reverse mortgages, India�s
largest home loan company, Housing Development
Finance Corporation (HDFC), is unlikely to
be impacted hugely. This is because the company
is yet to introduce a product in this space.
BSE Price Return %
1 Month - 2.64
3 Month 3.25
1 Year 84.79
FEB 29
Prev Close
Open
High
Low
Close
2775.35
2705.00
2815.00
2702.00
2802.70
Share Performance
HDFC BANK
BSE Price Return %
1 Month - 3.96
3 Month -12.29
1 Year 57.74
FEB 29
Prev Close
Open
High
Low
Close
1471.05
1453.45
1460.00
1470.00
1425.00
GRASIM TAX deduction on dividend distribution tax paid by
subsidiaries will improve Grasim�s profitability as it
will be able to offset its DDT against tax paid by its
subsidiaries. Its textile business may gain from the
abolition of cess on polyester yarn & higher allocation
for technology upgradation in the textile sector.
BSE Price Return %
1 Month - 2.93
3 Month - 21.16
1 Year 31.74
FEB 29
Prev Close
Open
High
Low
Close
2914.80
2929.00
2930.00
2833.00
2888.45
Share Performance
TOP 4 NON SENSEX FIRMS
Net Sales Rs 1,00,721 cr
PAT Rs 7,860 cr
Market Cap Rs 1,23,603 cr
Sample Size 21 companies
IMPACT: Negative
Waiver of farm loans will affect PSU banks
in the short run as reimbursement by govt
will be over a period of three years
Pvt banks are less affected by loan waiver,
as they have lower exposure to farm loans
Banks may have to raise capital or curtail
advances to accommodate debt relief
EXPECTATIONS
Waive taxes on the provisioning of
NPAs, especially those incurred on
farm sector loans
Relax the lock-in period for bank deposits
qualifying for tax deduction under Section
80C from existing five years to three years
BANKING
Punjab National Bank
Bank of India
Union Bank of India
Canara Bank
TOP 4 NON SENSEX FIRMS
Net Sales Rs 2,82,388 cr
PAT Rs 33,633 cr
Market Cap Rs 5,59,722 cr
Sample Size 39 companies
IMPACT: Positive
All cos to gain from lower excise duty
Cos in T&D sector to gain from new power
fund and higher allocation to power sector
Irrigation and agricultural equipment
manufacturers to gain from higher outlay
Customs duty cut on equipment may hit
local cos as imports may get cheaper
EXPECTATIONS
Reduce excise duty on certain classes of
goods from 16% to 8%
Reduce import duty on intermediate goods
Classify power sector as a full-fledged
infrastructure sector
CAPITAL GOODS
Siemens
Kirloskar Brothers
ABB
Areva T&D
TOP 4 NON SENSEX FIRMS
Net Sales Rs 1,23,054 cr
PAT Rs 12,046 cr
Market Cap Rs 4,88,222 cr
Sample Size 150 companies
SUNIL MITTAL
GROUP CHAIRMAN & CEO, BHARTI ENTERPRISES
Budget-Budget Share Price Trend
Budget-Budget Share Price Trend Budget-Budget Share Price Trend
Company P/E 10.30
Industry P/E 10.16
Trailing 12M Net Sales Growth (%) 20.63
Trailing 12M Operating Profit Growth (%) 13.24
Trailing 12M Net Profit Growth (%) 16.78
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Company P/E 10.40
Industry P/E 10.16
Trailing 12M Net Sales Growth (%) 26.25
Trailing 12M Operating Profit Growth (%) -30.56
Trailing 12M Net Profit Growth (%) 47.18
Company P/E 18.90
Industry P/E 15.33
Trailing 12M Net Sales Growth (%) 1.89
Trailing 12M Operating Profit Growth (%) -1.71
Trailing 12M Net Profit Growth (%) -0.77
Company P/E 38.50
Industry P/E 39.84
Trailing 12M Net Sales Growth (%) 20.35
Trailing 12M Operating Profit Growth (%) 29.52
Trailing 12M Net Profit Growth (%) 35.95
Company P/E 26.90
Industry P/E 27.21
Trailing 12M Net Sales Growth (%) 48.96
Trailing 12M Operating Profit Growth (%) 70.61
Trailing 12M Net Profit Growth (%) 78.91
Company P/E 35.80
Industry P/E 27.08
Trailing 12M Net Sales Growth (%) 45.33
Trailing 12M Operating Profit Growth (%) 42.17
Trailing 12M Net Profit Growth (%) 53.31
Company P/E 35.20
Industry P/E 17.29
Trailing 12M Net Sales Growth (%) 49.44
Trailing 12M Operating Profit Growth (%) 45.23
Trailing 12M Net Profit Growth (%) 37.84
Company P/E 10.30
Industry P/E 10.16
Trailing 12M Net Sales Growth (%) 27.00
Trailing 12M Operating Profit Growth (%) 33.10
Trailing 12M Net Profit Growth (%) 46.21
Company P/E 17.60
Industry P/E 122.86
Trailing 12M Net Sales Growth (%) 2117.87
Trailing 12M Operating Profit Growth (%) 10893.15
Trailing 12M Net Profit Growth (%) 15101.20
Company P/E 24.60
Industry P/E 17.32
Trailing 12M Net Sales Growth (%) 14.99
Trailing 12M Operating Profit Growth (%) -11.65
Trailing 12M Net Profit Growth (%) -10.90
Company P/E 9.90
Industry P/E 14.38
Trailing 12M Net Sales Growth (%) 9.85
Trailing 12M Operating Profit Growth (%) 154.05
Trailing 12M Net Profit Growth (%) 1.64
Company P/E 25.70
Industry P/E 22.40
Trailing 12M Net Sales Growth (%) 13.34
Trailing 12M Operating Profit Growth (%) 9.02
Trailing 12M Net Profit Growth (%) 3.78
Company P/E 31.70
Industry P/E 17.29
Trailing 12M Net Sales Growth (%) 48.17
Trailing 12M Operating Profit Growth (%) 57.45
Trailing 12M Net Profit Growth (%) 24.65
Company P/E 25.10
Industry P/E 22.40
Trailing 12M Net Sales Growth (%) 16.43
Trailing 12M Operating Profit Growth (%) 21.90
Trailing 12M Net Profit Growth (%) 15.97
Company P/E 19.40
Industry P/E 18.18
Trailing 12M Net Sales Growth (%) 24.93
Trailing 12M Operating Profit Growth (%) 20.96
Trailing 12M Net Profit Growth (%) 34.53
Compiled by ET Intelligence Group
read full text on www.economictimes.com
CORPORATE EARNINGS
9
IMPACT: Neutral
Higher allocation for basic & educational
infra is positive for cos with India focus
Impetus on education to help cos providing
education-related software & solutions
Allocation for National Knowledge Network
and state-wide connectivity to help data
and networking cos
No relief for IT exporters is negative for
software & services exporters
EXPECTATIONS
Extend STPI policy beyond 2009
Exempt STPI units from service tax
Simplify transfer pricing regulations
IT & EDUCATION
Tulip IT Services
Patni Computers
Educomp Solutions
NIIT
TOP 4 NON SENSEX FIRMS
Net Sales Rs 1,34,379 cr
PAT Rs 21,668 cr
Market Cap Rs 4,05,784 cr
Sample Size 204 companies
Budget-Budget Share Price Trend
IMPACT: Positive
Cut in excise duty on all pharma products to
benefit the industry
Tax deduction for R&D expenditure is positive
for CROs & gives fillip to R&D outsourcing
Excise duty exemption & customs duty cut on
life-saving & bulk drugs to benefit manufacturers
5-yr tax holiday for new hospitals may have a
positive impact on corporate hospital chains
EXPECTATIONS
Extend export-related tax benefits for 5 yrs
Extend benefit of 150% weighted deduction
under Section 35(2AB) to outsourced R&D cost
Extend tax incentives under Section 80IB to
hived-off R&D units
HEALTHCARE
Dr Reddy�s Laboratories
Sun Pharmaceuticals
Apollo Hospitals
Fortis Healthcare
TOP 4 NON SENSEX FIRMS
Net Sales Rs 58,294 cr
PAT Rs 8,940 cr
Market Cap Rs 1,58,827 cr
Sample Size 119 companies
Budget-Budget Share Price Trend
IMPACT: Positive
Reduction in Cenvat to 14% positive for all
FMCG cos
Excise cut on tea & coffee mixes will lower
cost and boost profitability
Excise duty cut on specific packaging
material will cut production cost of soaps,
detergents & toothpastes by 2%-3%
Excise duty reduction in breakfast cereals
is likely to boost the category
EXPECTATIONS
Biscuit industry seeks excise duty exemption
Reduce VAT and 16% excise duty on
processed foods and soaps & detergents
Abolish CST
FMCG
Dabur India
Colgate-Palmolive
Godrej Consumer Prods
Tata Tea
TOP 4 NON SENSEX FIRMS
Net Sales Rs 62,927 cr
PAT Rs 9,001 cr
Market Cap Rs 2,02,344 cr
Sample Size 99 companies
Budget-Budget Share Price Trend
Are You Really
Being Served?
Has the Budget done enough to generate growth at a time
when manufacturing is showing signs of a slowdown?
I believe the best way to provide a buffer to companies from the
global infection is to stimulate domestic consumption. That was
what led to high GDP growth in the first place, and although the
growth is now investment-led, there�s no reason we can�t aspire
for turbo-charged growth with both in tandem. This is where the
Budget has disappointed, since the 2% cut may not be sufficient
to induce a revival of demand and manufacturing output.
The auto industry appears to have gained. Will you cut
prices in your product categories?
Wherever excise cuts impact our products, we will pass on the benefits
to consumers. We are disappointed that the ministry did not
recognise the enormous multiplier effect of automobiles and allow
some reduction in excise on larger vehicles and utility vehicles.
What are your views on the debt-waiver package
for farmers?
I should be pleased by the loan waiver for farmers, since that
will remove indebtedness and create a new wave of loans for
farm equipment. However, I have mixed feelings regarding
this. On the other hand, my heart tells me that something had
to be done to create a �new deal� for subsistence farmers. You
would now expect me to say that my head tells me something
else, but in fact, it is once again my heart that is truly distressed
by the signal being sent out to the rural community � that it is
not rewarding to repay your loans on time.
Do you think the increase in short-term capital gains tax
will dampen capital market sentiment?
It will dampen sentiment in the short-term, but the India story
has begun attracting the long-term capital that it deserves. Most
investors will stay invested over a longer horizon.
IT�S A BUDGET THAT HAS BEEN
crafted with an eye on the
upcoming general elections,
rather than giving impetus to the
growth story. Given that it did not
have much for India Inc on the
whole, it was but natural to find
that the Street responded rather
tepidly to the finance minister�s
latest offering.
While there were some positives
for certain sectors such as auto,
FMCG, paper products and education,
it was a rather disappointing
day for information technology
and banking. The government
did cut India Inc some slack by
reducing excise duties across the
board and lowering central sales
tax from 3% to 2%.
STATE BANK OF INDIA AGRICULTURE loans account for 15% of SBI�s
total loan portfolio. While the FM has clarified
that banks will be reimbursed fully, this will be
done over a period of three years. Hence, in the
near term, the bank�s financials may come
under pressure.
FEB 29
TATA CONSULTANCY SERVICES LACK of extension of tax exemption under STPI scheme
is a letdown. TCS will have to strive hard to
maintain its OPM against a rising rupee. Inclusion of
customised software sold in the domestic market into
the service tax net will hit TCS, since it earns over 10%
of its revenue from the domestic market.
BSE Price Return %
1 Month 1.91
3 Month - 9.93
1 Year - 25.98
FEB 29
Prev Close
Open
High
Low
Close
879.75
895.00
899.00
865.15
874.30
Share Performance
TATA MOTORS REDUCTION in excise duty on the chassis of buses
from 16% to 12% will aid growth of the company�s
bus division, besides improving profitability. Excise
duty cut on small cars from 16% to 12% is a
positive, both for its existing Indica brand and the
soon-to-be-launched Nano.
FEB 29
TATA STEEL REDUCTION in customs duty on steel scrap from 5%
to zero may marginally reduce the sales realisation
on semi-finished steel, which constitutes around 2%
of the company�s turnover. At the same time, reduction
in customs duty on crude sulphur from 5% to
2% will indirectly reduce its raw material cost.
BSE Price Return %
1 Month 15.01
3 Month 2.69
1 Year 110.62
FEB 29
Prev Close
Open
High
Low
Close
823.70
819.00
820.90
778.25
801.55
Share Performance
WIPRO THERE�S no reprieve for an industry reeling under an
appreciating rupee and global slowdown. Wipro will
take a beating in profit as the govt has not extended
the March �09 deadline for export income benefits
under STPI scheme. Thrust on rural & state-level IT
infra is marginally positive for Wipro�s local ops.
BSE Price Return %
1 Month 8.18
3 Month - 0.90
1 Year - 20.40
FEB 29
Prev Close
Open
High
Low
Close
446.45
430.00
448.00
421.00
434.65
Share Performance
LARSEN & TOUBRO CUT in excise duty will lower L&T�s costs and
improve its cost competitiveness vis-a-vis imported
equipment. Higher allocation for road development
should generate new construction projects, while
L&T�s nascent power equipment business is likely to
gain from the govt�s thrust on power generation.
FEB 29
MAHINDRA & MAHINDRA M&M�s profit will get a boost from the provision of
deduction for dividend tax paid by its subsidiaries.
Demand for tractors & utility vehicles is likely to rise
due to debt waiver for farmers. Excise cut on three-
wheelers will have a marginal impact as the segment
accounts for less than 4% of M&M�s total net sales.
BSE Price Return %
1 Month - 3.06
3 Month - 5.57
1 Year - 15.62
FEB 29
Prev Close
Open
High
Low
Close
680.15
685.00
703.10
670.00
692.80
Share Performance
MARUTI SUZUKI REDUCTION in excise duty on small cars from 16% to
12% will improve the profitability of its A & B segment
models like Maruti 800, Alto, Zen and WagonR. These
account for over three-fourths of its sales. The tax cut
may also give Maruti the flexibility to fight a slowdown
in demand by cutting prices.
FEB 29
NTPC THE cut in customs duty on project imports will
bring down the company�s project cost. The
government�s focus on ultra mega power projects
(UMPP) and higher allocation to the power
sector will also provide growth opportunity for
the company.
BSE Price Return %
1 Month - 3.64
3 Month -11.98
1 Year 45.74
FEB 29
Prev Close
Open
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Close
203.95
203.00
207.30
197.00
201.75
Share Performance
ONGC REDUCTION in customs duty on project imports
from 7.5% to 5% will have a positive impact. This will
lower the cost of equipment that the company uses
for exploration and production. ONGC will also benefit
to a certain extent from the change in dividend
taxation policy for subsidiary companies.
BSE Price Return %
1 Month 2.00
3 Month - 8.94
1 Year 31.44
FEB 29
Prev Close
Open
High
Low
Close
1039.20
1045.00
1045.00
985.10
1012.35
Share Performance
RANBAXY LABORATORIES
SATYAM COMPUTER SERVICES THE company has to find ways to combat the
adverse impact of a rising rupee, since the
government has not extended the STPI scheme for
tax exemption on export income. Further, no extra
sops have been provided for export-oriented sectors
to combat the stronger domestic currency.
BSE Price Return %
1 Month 12.59
3 Month 4.98
1 Year 8.32
FEB 29
Prev Close
Open
High
Low
Close
446.80
455.00
470.00
430.00
434.15
Share Performance
RELIANCE INDUSTRIES
BSE Price Return %
1 Month - 1.51
3 Month - 10.00
1 Year 87.27
FEB 29
Prev Close
Open
High
Low
Close
2536.70
2525.10
2542.00
2410.00
2458.25
RELIANCE ENERGY
BSE Price Return %
1 Month - 24.03
3 Month - 3.79
1 Year 233.93
FEB 29
Prev Close
Open
High
Low
Close
1600.70
1595.00
1619.00
1541.10
1567.75
IMPACT: Positive
Pig-iron producers may lose pricing power
Secondary steel producers may save up to
Rs 1,000 per tonne of steel scrap used
Decrease in customs duty on aluminium
scrap can impact pricing power of primary
aluminium producers
Secondary aluminium rollers will benefit
from low aluminium scrap prices
EXPECTATIONS
Increase export duty on iron-ore to
discourage exports
Reduce excise duty on long steel products
from 16% to 8%
METALS
SAIL
Jindal Stainless
JSW Steel
Nalco
TOP 4 NON SENSEX FIRMS
Net Sales Rs 59,596 cr
PAT Rs 12,057 cr
Market Cap Rs 1,70,114 cr
Sample Size 35 companies
Industry P/Es are those of ET Indices. Growth has been calculated based on
trailing 12 months ended December �07 over December �06
The Bad And The Ugly
ANAND MAHINDRA
VICE-CHAIRMAN & MD, MAHINDRA GROUP
YTD Share Price Movement
YTD Share Price Movement
YTD Share Price Movement
YTD Share Price Movement
YTD Share Price Movement
YTD Share Price Movement
YTD Share Price Movement
YTD Share Price Movement
YTD Share Price Movement
YTD Share Price Movement YTD Share Price Movement
YTD Share Price Movement
YTD Share Price Movement
YTD Share Price Movement
YTD Share Price Movement
Company P/E 53.90
Industry P/E 39.84
Trailing 12M Net Sales Growth (%) 42.01
Trailing 12M Operating Profit Growth (%) 86.73
Trailing 12M Net Profit Growth (%) 63.15
Company P/E 15.20
Industry P/E 15.33
Trailing 12M Net Sales Growth (%) 14.79
Trailing 12M Operating Profit Growth (%) -17.00
Trailing 12M Net Profit Growth (%) -3.05
Company P/E 13.30
Industry P/E 15.33
Trailing 12M Net Sales Growth (%) 30.27
Trailing 12M Operating Profit Growth (%) 26.95
Trailing 12M Net Profit Growth (%) 27.63
Company P/E 12.90
Industry P/E 16.01
Trailing 12M Net Sales Growth (%) -1.55
Trailing 12M Operating Profit Growth (%) -14.53
Trailing 12M Net Profit Growth (%) 4.42
Company P/E 21.30
Industry P/E 27.17
Trailing 12M Net Sales Growth (%) 11.73
Trailing 12M Operating Profit Growth (%) 13.77
Trailing 12M Net Profit Growth (%) 16.63
Company P/E 18.00
Industry P/E 18.18
Trailing 12M Net Sales Growth (%) 30.19
Trailing 12M Operating Profit Growth (%) 13.66
Trailing 12M Net Profit Growth (%) 24.60
Company P/E 19.10
Industry P/E 16.01
Trailing 12M Net Sales Growth (%) 12.36
Trailing 12M Operating Profit Growth (%) 13.26
Trailing 12M Net Profit Growth (%) 62.02
Company P/E 36.70
Industry P/E 27.17
Trailing 12M Net Sales Growth (%) 23.23
Trailing 12M Operating Profit Growth (%) -148.88
Trailing 12M Net Profit Growth (%) 37.79
Company P/E 24.10
Industry P/E 27.21
Trailing 12M Net Sales Growth (%) 120.98
Trailing 12M Operating Profit Growth (%) 101.10
Trailing 12M Net Profit Growth (%) 113.90
Company P/E 21.20
Industry P/E 17.32
Trailing 12M Net Sales Growth (%) 2.77
Trailing 12M Operating Profit Growth (%) -134.60
Trailing 12M Net Profit Growth (%) 61.21
Company P/E 15.60
Industry P/E 17.29
Trailing 12M Net Sales Growth (%) 34.59
Trailing 12M Operating Profit Growth (%) 58.60
Trailing 12M Net Profit Growth (%) 58.93
Company P/E 17.20
Industry P/E 18.18
Trailing 12M Net Sales Growth (%) 27.11
Trailing 12M Operating Profit Growth (%) 21.26
Trailing 12M Net Profit Growth (%) 29.27
Company P/E 11.40
Industry P/E 15.33
Trailing 12M Net Sales Growth (%) 14.20
Trailing 12M Operating Profit Growth (%) 38.89
Trailing 12M Net Profit Growth (%) 16.14
Company P/E 12.80
Industry P/E 14.38
Trailing 12M Net Sales Growth (%) 13.59
Trailing 12M Operating Profit Growth (%) 10.06
Trailing 12M Net Profit Growth (%) 17.51
Company P/E 19.50
Industry P/E 18.18
Trailing 12M Net Sales Growth (%) 18.91
Trailing 12M Operating Profit Growth (%) 13.22
Trailing 12M Net Profit Growth (%) 13.95
Budget-Budget Share Price Trend
UNION BUDGET 2007 - 2008UNION BUDGET 2008 - 2009 THE ECONOMIC TIMES SATURDAY 1
MARCH 2008 WWW.ECONOMICTIMES.COM
read full text on www.economictimes.com
Compiled by ET Intelligence Group
CORPORATE EARNINGS
9
IMPACT: Neutral
Higher allocation for basic & educational
infra is positive for cos with India focus
Impetus on education to help cos providing
education-related software & solutions
Allocation for National Knowledge Network
and state-wide connectivity to help data
and networking cos
No relief for IT exporters is negative for
software & services exporters
EXPECTATIONS
Extend STPI policy beyond 2009
Exempt STPI units from service tax
Simplify transfer pricing regulations
IT & EDUCATION
Tulip IT Services
Patni Computers
Educomp Solutions
NIIT
TOP 4 NON SENSEX FIRMS
Net Sales Rs 1,34,379 cr
PAT Rs 21,668 cr
Market Cap Rs 4,05,784 cr
Sample Size 204 companies
Budget-Budget Share Price Trend
IMPACT: Positive
Cut in excise duty on all pharma products to
benefit the industry
Tax deduction for R&D expenditure is positive
for CROs & gives fillip to R&D outsourcing
Excise duty exemption & customs duty cut on
life-saving & bulk drugs to benefit manufacturers
5-yr tax holiday for new hospitals may have a
positive impact on corporate hospital chains
EXPECTATIONS
Extend export-related tax benefits for 5 yrs
Extend benefit of 150% weighted deduction
under Section 35(2AB) to outsourced R&D cost
Extend tax incentives under Section 80IB to
hived-off R&D units
HEALTHCARE
Dr Reddy�s Laboratories
Sun Pharmaceuticals
Apollo Hospitals
Fortis Healthcare
TOP 4 NON SENSEX FIRMS
Net Sales Rs 58,294 cr
PAT Rs 8,940 cr
Market Cap Rs 1,58,827 cr
Sample Size 119 companies
Budget-Budget Share Price Trend
IMPACT: Positive
Reduction in Cenvat to 14% positive for all
FMCG cos
Excise cut on tea & coffee mixes will lower
cost and boost profitability
Excise duty cut on specific packaging
material will cut production cost of soaps,
detergents & toothpastes by 2%-3%
Excise duty reduction in breakfast cereals
is likely to boost the category
EXPECTATIONS
Biscuit industry seeks excise duty exemption
Reduce VAT and 16% excise duty on
processed foods and soaps & detergents
Abolish CST
FMCG
Dabur India
Colgate-Palmolive
Godrej Consumer Prods
Tata Tea
TOP 4 NON SENSEX FIRMS
Net Sales Rs 62,927 cr
PAT Rs 9,001 cr
Market Cap Rs 2,02,344 cr
Sample Size 99 companies
Budget-Budget Share Price Trend
Are You Really
Being Served?
Has the Budget done enough to generate growth at a time
when manufacturing is showing signs of a slowdown?
I believe the best way to provide a buffer to companies from the
global infection is to stimulate domestic consumption. That was
what led to high GDP growth in the first place, and although the
growth is now investment-led, there�s no reason we can�t aspire
for turbo-charged growth with both in tandem. This is where the
Budget has disappointed, since the 2% cut may not be sufficient
to induce a revival of demand and manufacturing output.
The auto industry appears to have gained. Will you cut
prices in your product categories?
Wherever excise cuts impact our products, we will pass on the benefits
to consumers. We are disappointed that the ministry did not
recognise the enormous multiplier effect of automobiles and allow
some reduction in excise on larger vehicles and utility vehicles.
What are your views on the debt-waiver package
for farmers?
I should be pleased by the loan waiver for farmers, since that
will remove indebtedness and create a new wave of loans for
farm equipment. However, I have mixed feelings regarding
this. On the other hand, my heart tells me that something had
to be done to create a �new deal� for subsistence farmers. You
would now expect me to say that my head tells me something
else, but in fact, it is once again my heart that is truly distressed
by the signal being sent out to the rural community � that it is
not rewarding to repay your loans on time.
Do you think the increase in short-term capital gains tax
will dampen capital market sentiment?
It will dampen sentiment in the short-term, but the India story
has begun attracting the long-term capital that it deserves. Most
investors will stay invested over a longer horizon.
IT�S A BUDGET THAT HAS BEEN
crafted with an eye on the
upcoming general elections,
rather than giving impetus to the
growth story. Given that it did not
have much for India Inc on the
whole, it was but natural to find
that the Street responded rather
tepidly to the finance minister�s
latest offering.
While there were some positives
for certain sectors such as auto,
FMCG, paper products and education,
it was a rather disappointing
day for information technology
and banking. The government
did cut India Inc some slack by
reducing excise duties across the
board and lowering central sales
tax from 3% to 2%.
STATE BANK OF INDIA AGRICULTURE loans account for 15% of SBI�s
total loan portfolio. While the FM has clarified
that banks will be reimbursed fully, this will be
done over a period of three years. Hence, in the
near term, the bank�s financials may come
under pressure.
FEB 29
TATA CONSULTANCY SERVICES LACK of extension of tax exemption under STPI scheme
is a letdown. TCS will have to strive hard to
maintain its OPM against a rising rupee. Inclusion of
customised software sold in the domestic market into
the service tax net will hit TCS, since it earns over 10%
of its revenue from the domestic market.
BSE Price Return %
1 Month 1.91
3 Month - 9.93
1 Year - 25.98
FEB 29
Prev Close
Open
High
Low
Close
879.75
895.00
899.00
865.15
874.30
Share Performance
TATA MOTORS REDUCTION in excise duty on the chassis of buses
from 16% to 12% will aid growth of the company�s
bus division, besides improving profitability. Excise
duty cut on small cars from 16% to 12% is a
positive, both for its existing Indica brand and the
soon-to-be-launched Nano.
FEB 29
TATA STEEL REDUCTION in customs duty on steel scrap from 5%
to zero may marginally reduce the sales realisation
on semi-finished steel, which constitutes around 2%
of the company�s turnover. At the same time, reduction
in customs duty on crude sulphur from 5% to
2% will indirectly reduce its raw material cost.
BSE Price Return %
1 Month 15.01
3 Month 2.69
1 Year 110.62
FEB 29
Prev Close
Open
High
Low
Close
823.70
819.00
820.90
778.25
801.55
Share Performance
WIPRO THERE�S no reprieve for an industry reeling under an
appreciating rupee and global slowdown. Wipro will
take a beating in profit as the govt has not extended
the March �09 deadline for export income benefits
under STPI scheme. Thrust on rural & state-level IT
infra is marginally positive for Wipro�s local ops.
BSE Price Return %
1 Month 8.18
3 Month - 0.90
1 Year - 20.40
FEB 29
Prev Close
Open
High
Low
Close
446.45
430.00
448.00
421.00
434.65
Share Performance
LARSEN & TOUBRO CUT in excise duty will lower L&T�s costs and
improve its cost competitiveness vis-a-vis imported
equipment. Higher allocation for road development
should generate new construction projects, while
L&T�s nascent power equipment business is likely to
gain from the govt�s thrust on power generation.
FEB 29
MAHINDRA & MAHINDRA M&M�s profit will get a boost from the provision of
deduction for dividend tax paid by its subsidiaries.
Demand for tractors & utility vehicles is likely to rise
due to debt waiver for farmers. Excise cut on three-
wheelers will have a marginal impact as the segment
accounts for less than 4% of M&M�s total net sales.
BSE Price Return %
1 Month - 3.06
3 Month - 5.57
1 Year - 15.62
FEB 29
Prev Close
Open
High
Low
Close
680.15
685.00
703.10
670.00
692.80
Share Performance
MARUTI SUZUKI REDUCTION in excise duty on small cars from 16% to
12% will improve the profitability of its A & B segment
models like Maruti 800, Alto, Zen and WagonR. These
account for over three-fourths of its sales. The tax cut
may also give Maruti the flexibility to fight a slowdown
in demand by cutting prices.
FEB 29
NTPC THE cut in customs duty on project imports will
bring down the company�s project cost. The
government�s focus on ultra mega power projects
(UMPP) and higher allocation to the power
sector will also provide growth opportunity for
the company.
BSE Price Return %
1 Month - 3.64
3 Month -11.98
1 Year 45.74
FEB 29
Prev Close
Open
High
Low
Close
203.95
203.00
207.30
197.00
201.75
Share Performance
ONGC REDUCTION in customs duty on project imports
from 7.5% to 5% will have a positive impact. This will
lower the cost of equipment that the company uses
for exploration and production. ONGC will also benefit
to a certain extent from the change in dividend
taxation policy for subsidiary companies.
BSE Price Return %
1 Month 2.00
3 Month - 8.94
1 Year 31.44
FEB 29
Prev Close
Open
High
Low
Close
1039.20
1045.00
1045.00
985.10
1012.35
Share Performance
RANBAXY LABORATORIES
SATYAM COMPUTER SERVICES THE company has to find ways to combat the
adverse impact of a rising rupee, since the
government has not extended the STPI scheme for
tax exemption on export income. Further, no extra
sops have been provided for export-oriented sectors
to combat the stronger domestic currency.
BSE Price Return %
1 Month 12.59
3 Month 4.98
1 Year 8.32
FEB 29
Prev Close
Open
High
Low
Close
446.80
455.00
470.00
430.00
434.15
Share Performance
RELIANCE INDUSTRIES
BSE Price Return %
1 Month - 1.51
3 Month - 10.00
1 Year 87.27
FEB 29
Prev Close
Open
High
Low
Close
2536.70
2525.10
2542.00
2410.00
2458.25
RELIANCE ENERGY
BSE Price Return %
1 Month - 24.03
3 Month - 3.79
1 Year 233.93
FEB 29
Prev Close
Open
High
Low
Close
1600.70
1595.00
1619.00
1541.10
1567.75
IMPACT: Positive
Pig-iron producers may lose pricing power
Secondary steel producers may save up to
Rs 1,000 per tonne of steel scrap used
Decrease in customs duty on aluminium
scrap can impact pricing power of primary
aluminium producers
Secondary aluminium rollers will benefit
from low aluminium scrap prices
EXPECTATIONS
Increase export duty on iron-ore to
discourage exports
Reduce excise duty on long steel products
from 16% to 8%
METALS
SAIL
Jindal Stainless
JSW Steel
Nalco
TOP 4 NON SENSEX FIRMS
Net Sales Rs 59,596 cr
PAT Rs 12,057 cr
Market Cap Rs 1,70,114 cr
Sample Size 35 companies
Industry P/Es are those of ET Indices. Growth has been calculated based on
trailing 12 months ended December �07 over December �06
The Bad And The Ugly
ANAND MAHINDRA
VICE-CHAIRMAN & MD, MAHINDRA GROUP
YTD Share Price Movement
YTD Share Price Movement
YTD Share Price Movement
YTD Share Price Movement
YTD Share Price Movement
YTD Share Price Movement
YTD Share Price Movement
YTD Share Price Movement
YTD Share Price Movement
YTD Share Price Movement YTD Share Price Movement
YTD Share Price Movement
YTD Share Price Movement
YTD Share Price Movement
YTD Share Price Movement
Company P/E 53.90
Industry P/E 39.84
Trailing 12M Net Sales Growth (%) 42.01
Trailing 12M Operating Profit Growth (%) 86.73
Trailing 12M Net Profit Growth (%) 63.15
Company P/E 15.20
Industry P/E 15.33
Trailing 12M Net Sales Growth (%) 14.79
Trailing 12M Operating Profit Growth (%) -17.00
Trailing 12M Net Profit Growth (%) -3.05
Company P/E 13.30
Industry P/E 15.33
Trailing 12M Net Sales Growth (%) 30.27
Trailing 12M Operating Profit Growth (%) 26.95
Trailing 12M Net Profit Growth (%) 27.63
Company P/E 12.90
Industry P/E 16.01
Trailing 12M Net Sales Growth (%) -1.55
Trailing 12M Operating Profit Growth (%) -14.53
Trailing 12M Net Profit Growth (%) 4.42
Company P/E 21.30
Industry P/E 27.17
Trailing 12M Net Sales Growth (%) 11.73
Trailing 12M Operating Profit Growth (%) 13.77
Trailing 12M Net Profit Growth (%) 16.63
Company P/E 18.00
Industry P/E 18.18
Trailing 12M Net Sales Growth (%) 30.19
Trailing 12M Operating Profit Growth (%) 13.66
Trailing 12M Net Profit Growth (%) 24.60
Company P/E 19.10
Industry P/E 16.01
Trailing 12M Net Sales Growth (%) 12.36
Trailing 12M Operating Profit Growth (%) 13.26
Trailing 12M Net Profit Growth (%) 62.02
Company P/E 36.70
Industry P/E 27.17
Trailing 12M Net Sales Growth (%) 23.23
Trailing 12M Operating Profit Growth (%) -148.88
Trailing 12M Net Profit Growth (%) 37.79
Company P/E 24.10
Industry P/E 27.21
Trailing 12M Net Sales Growth (%) 120.98
Trailing 12M Operating Profit Growth (%) 101.10
Trailing 12M Net Profit Growth (%) 113.90
Company P/E 21.20
Industry P/E 17.32
Trailing 12M Net Sales Growth (%) 2.77
Trailing 12M Operating Profit Growth (%) -134.60
Trailing 12M Net Profit Growth (%) 61.21
Company P/E 15.60
Industry P/E 17.29
Trailing 12M Net Sales Growth (%) 34.59
Trailing 12M Operating Profit Growth (%) 58.60
Trailing 12M Net Profit Growth (%) 58.93
Company P/E 17.20
Industry P/E 18.18
Trailing 12M Net Sales Growth (%) 27.11
Trailing 12M Operating Profit Growth (%) 21.26
Trailing 12M Net Profit Growth (%) 29.27
Company P/E 11.40
Industry P/E 15.33
Trailing 12M Net Sales Growth (%) 14.20
Trailing 12M Operating Profit Growth (%) 38.89
Trailing 12M Net Profit Growth (%) 16.14
Company P/E 12.80
Industry P/E 14.38
Trailing 12M Net Sales Growth (%) 13.59
Trailing 12M Operating Profit Growth (%) 10.06
Trailing 12M Net Profit Growth (%) 17.51
Company P/E 19.50
Industry P/E 18.18
Trailing 12M Net Sales Growth (%) 18.91
Trailing 12M Operating Profit Growth (%) 13.22
Trailing 12M Net Profit Growth (%) 13.95
Budget-Budget Share Price Trend
UNION BUDGET 2007 - 2008UNION BUDGET 2008 - 2009 THE ECONOMIC TIMES SATURDAY 1
MARCH 2008 WWW.ECONOMICTIMES.COM
read full text on www.economictimes.com
Compiled by ET Intelligence Group
POLL DANCE ON THE FARM: The UPA�s last full budget
waives farm debt of Rs 60,000 crore while trying to keep
the growth engine humming. A brilliant young industrialist
and titans from the Left and the Right weigh in.
THE SHADES OF
GREY AND NAY
UNION BUDGET 2007 - 2008UNION BUDGET 2008 - 2009 THE ECONOMIC TIMES SATURDAY 1
MARCH 2008 WWW.ECONOMICTIMES.COM 10
MUCH LIKE ROBERT CLIVE, WHO WHEN
brought before the Royal Commission to answer
charges of corruption, answered, �Gentlemen,
given my opportunities I stand amazed at my
own moderation,� the finance minister might well exclaim,
�Bharatvasiyon, I stand amazed at my own moderation!�
Faced with burgeoning tax revenues and a
politician�s understandable desire to play the populist
card in what is undoubtedly the UPA�s last full budget
before the next general election, he has been surprisingly
circumspect.
Barring the farm waiver, which is estimated to cost a
whopping Rs 60,000 crore, more than the entire revenue
deficit, he has presented a workman-like, sensible
budget. One could argue, of course, that the farm loan
waiver is bad enough. And certainly there is no case
whatsoever for giving a 25% rebate for all farm loans regardless
of farm size or loan distress.
But in the case of the small and marginal farmers, the
loan waiver has two redeeming features. One, there is
little possibility of leakage in that the waiver will benefit
only those who are being targeted, i.e., the genuinely
distressed. Two, unlike in the past when banks were
used as instruments to achieve socio-political goals, this
time round they are likely to be reimbursed by the exchequer
(though the budget speech is silent on this).
The bigger damage that the waiver does is in terms of
vitiating the lending climate and window-dressing the
fiscal deficit since this expenditure has not been provided
for in the budget. It has taken Indian banks years
to recover from the damage done by loan melas and
waivers of the pre-reform days. And now, just when
they need to be more competitive to face the challenges
of the post 2009 scenario (when it is
hoped the RBI will ease its stranglehold
on entry of new/foreign banks)
they have been served a googly.
Why would any farmer want to repay
his loan when he knows it is only
a matter of time before the government
tells banks to forgive and forget?
More important, why would any bank want to extend
loans to farmers when there is the possibility that one
bright day the government will write them off? If the
government is serious about increasing farmers� access
to bank credit, this is the wrong way of going about it.
Equally, if it is serious about improving the lot of
farmers it needs to go in for meaningful agriculture reform
of the kind undertaken in industry.
Instead of denying farmers higher
prices for their products by banning
export whenever the international
price rises and then trying to compensate
by giving sops, it must allow free
play of market forces. Both inputs
(read power, water, fertiliser, seeds) as
well as output must be priced at market-related rates
and farmers allowed to hedge their risks through institutional
mechanisms such as commodity exchanges.
True, this may seem many light years removed
from the subsistence farming that is the norm in India
today. But remember, much the same argument was
made against de-reservation of small-scale industries
and see how they are thriving now.
This is not to deny the importance of public investment
in agriculture. Rather, it is to point to the heavy
price we pay when we try to correct one distortion with
another. Unfortunately, while successive governments
have found the will to push through economic reform
in industry, few have shown the stomach for similar reforms
in agriculture. The result is that Indian agriculture
reform is now a Pandora�s box that few political parties
would like to open, at least not until the numbers dependent
on agriculture come down significantly.
Mythili Bhusnurmath
Chidambaram the politician holds on to his FM cap
ECONOMICSPOLITICS VS
ADITYA MITTAL
CFO, ARCELORMITTAL
Election
triumphs
over reform
EVERY UNION FINANCE MINISTER FACES THREE KINDS OF
challenges while preparing the Budget. First, he has to take steps
to improve the quality of life of the people; second, he has to take
care of the economy so that it continues to grow, and third, he has
to balance the Budget and reduce the deficits to the minimum.
This year�s challenges were no different. Let us see, how the finance
minister has tackled them.
As far as the first is concerned, on the face of it he appears to be
very liberal. While the usual sentiments have been mouthed about
health, education, women and child development, science and
technology, and so on, his thunder is contained in the scheme of
loan waiver for farmers. The manner in which the Congress and its
president had started raising the farmers� issue towards the fag end
of February, when the Budget is all sewn up, made it amply clear
that the Budget proposal had been selectively leaked by the FM to
his party. This led to competitive populism and the stalemate in Parliament.
The FM expects the loan remission work to be completed
by June 30. Considering the administrative implications, this appears
unlikely if not impossible. He has not provided any relief to
such farmers who have borrowed from private moneylenders. This
is a big omission because they are also a sizeable chunk.
But the most important question is where will this money come
from? The FM has maintained a deafening silence on this issue. He
has not provided for it in the Budget. It will be extremely unfair if he
issues bonds for this purpose and passes on the burden to future
governments as he has done in the case of food, fertiliser and petroleum
subsidies. The government had earlier announced a package
of Rs 17,000 crore for the distressed farmers of the four states of
Andhra Pradesh, Maharashtra, Karnataka and Kerala. It did not
stop the farmers in these states from committing suicide. Indian
agriculture needs much more than merely such palliatives.
In every Budget Mr Chidambaram has set up a new organisation.
In this Budget, too, he has promised
to set up the Irrigation and Water Resources
Finance Corporation. It has taken
four years for a proposal to be received
from the government of Tamil Nadu for
the Chennai desalination plant. The FM
has generously provided for Rs 300 crore
in the Budget for this purpose. He has not
been equally generous to other states.
On the tax side, in view of the unprecedented
growth in personal income-tax, I
would have expected the FM to have
been more liberal with regard to the tax
slabs. He should have also removed the
surcharges on income-tax. He should
have abolished the Fringe Benefit Tax and
not postponed the abolition of the Banking
Cash Transaction tax to April 1, 2009.
I am also disappointed that he has introduced new rates of Cenvat
and once again indulged in discretionary tax concessions. The Herculean
effort I had made to simplify the Cenvat structure has once
again been made complicated by the present FM in his five Budgets.
He has not laid out a road map for GST in this Budget as was expected.
If GST is to come into force from April 1, 2010, the road map
should have been laid out in this Budget itself.
My greatest disappointment with this Budget, however, is from
the point of view of the economy, which has already entered the
slowdown phase. One would have expected the FM to announce
steps to shore up the economy. He has completely failed to do so.
This is one Budget in a long time, which is completely silent on economic
reforms. The Economic Survey has clearly brought out the
challenges before the economy and a whole chapter has been devoted
to policy responses. Juxtaposing it against the FM�s budget
speech, it appears as if he has not read the Economic Survey. High
inflation, which has been the hallmark of this government will accentuate
in the coming months. This, combined with high interest
rates, will have an adverse impact on the economy. The finance
minister has not dealt with this issue. His complete neglect of the infrastructure

sector in this Budget is also highly disappointing.

As far as balancing the Budget is concerned, the finance minister
has taken the convenient way out. He had taken credit for notifying
the FRBM Act passed by the NDA government. In his very first
Budget, he postponed its implementation by one year. Even with
this postponement, he was supposed to completely eliminate the
revenue deficit by 2008-09. He has taken the easy way out by deferring
this too. The FRBM Act has been reduced to a nullity.
Clearly, out of the three challenges that a finance minister faces in
preparing a Budget, this finance minister has failed to score any
marks on the second and third. As far as the first is concerned, looking
at what he has done, can elections be far away?
Ambitious,
achievable,
inclusive
WHEN I WAS AT THE WORLD ECONOMIC FORUM,
Davos recently, I could sense an undercurrent of concern
about which way the global economy is headed with the traditional
engine of demand, the United States, showing some
signs of strain. I have always believed that developing
economies have plenty more to offer than just being stereotyped
as sources of cheap labour and a low-cost production
base. It is especially at times like these that they are in the enviable
position of drawing upon enormous latent reserves of
captive growth. They can leverage the size of their markets,
not only to act as stabilisers when the rest of the world is in disarray
but also to underscore their long-term importance.
It has been a delight to watch, over the past few years, strong
growth being clocked by India and the attention it has been enjoying
in the world media as it leaps confidently forward on the
path of progress � average GDP growth of 8.8% per annum
over three years is no mean achievement for so complex an
economy. With the present global context in mind, I asked myself
whether Budget 2008-09 will enable the country to sustain
its growth and withstand some of the turbulence along the
way. The answer is a big yes. This Union Budget does work to
address the main issues of education, infrastructure, and social
disparity while maintaining a high growth rate.
A typical challenge for any government is to balance the
needs of its growth plans without jeopardising the fiscal health
of the economy. It is indeed commendable that this Budget
aims to rein in fiscal deficit to 2.5% of the GDP and the revenue
deficit to 1.4%, in keeping with the government�s fiscal commitments,
without compromising on schemes vital for
strengthening the foundations of future growth. At the same
time, measures such as easing personal taxation should provide
a fillip to domestic consumption in the short term. Although
we could debate the nitty-gritty on
specific aspects of the various announcements
made in the Budget, I
think there is no ambiguity in the general
direction of economic policies
enunciated. In my opinion, this Budget
has taken the challenge head-on to
help the government fulfil its key role
as a facilitator and a provider of the
right building blocks.
I am particularly heartened by increase
in allocations for education,
which I believe is fundamental in
shaping development and efficient
utilisation of human resources of the
country. While the immediate benefits
of such measures are seldom
recognisable, their value in cementing
and enhancing the future competitiveness of the economy
cannot be overstated.
For an economy aiming to maintain its rate of growth, one
of the first stumbling blocks is usually a paucity of skills and talent.
The announcements made in the Budget are balanced between
enhancing technical and managerial talent pools as
well as providing basic education to those in social strata,
which are yet to reap the benefits of India�s growth. While
some of the measures announced run the risk of being labelled
populist, once again I would prefer to place these in a longer
term perspective.
�Leave no one behind� is a common ethic of military operations
but with equal applicability in the social context. Access
to healthcare and insurance for the underprivileged, care for
the elderly, rural employment guarantee and debt relief for
the agriculture sector should all go towards ensuring equitable
growth of the nation as a whole. On a broader note, I believe
that the Budget has the potential to help the nation take some
firm steps towards reducing a variety of social and structural
imbalances in the Indian economy and society.
Finally, I think there should be a unanimous agreement
that allocations and plans outlined for infrastructure development
are in the right direction. Investments in power generation,
roads, railways, IT, the SME sector, rural development
and agriculture infrastructure are much needed to improve
competitiveness and productivity of the three major components
of the Indian economy.
Further, these will have the positive knock-on effect of
making India more attractive for foreign direct investment. In
summary, the Budget sets out an ambitious but achievable
plan for the next year, fruition of which would be underpinned
by equally �bold� plans for timely implementation.
YASHWANT SINHA
FORMER FINANCE MINISTER
DUMP FISCAL CONSERVATISM
Fiscal fundamentalism and a
neo-liberal outlook have
tainted an otherwise realistic
Budget, and ensured that key
commitments of the
government�s NCMP continue
to remain unfulfilled
PRAKASH KARAT
GENERAL SECRETARY, CPI(M)
The herculean
effort I had made
to simplify the
Cenvat structure
has once again
been made
complicated by
the present FM
While some of
the measures
run the risk of
being labelled
populist, I would
prefer to place
these in a longer
term perspective
ESPITETHE GDP GROWTH RATE
being over 8% in the past four
years, the country is still experiencing
an agrarian crisis and the
people face the problem of price
rise and unemployment. The
Union Budget of 2008-09 was
expected to deal with these
problems that affect all sections of the people. This being
the final Budget of the UPA government, it was
also the last opportunity to fulfil some of the major
commitments made in the National Common Minimum
Programme.
The Union Budget has made some attempts with
regard to both these aspects but the record is a mixed
one. The Budget should be welcomed for its major
step of debt relief for farmers. The Rs 60,000-crore
debt relief directed mainly at small and marginal
farmers stems from a belated realisation on the part of
the UPA government that the agrarian crisis and the
distress of farmers cannot be tackled by token measures.
The write-off of farm loans has been possible because
of the wide-ranging support for this demand
across the political spectrum.
The Budget disappoints when it comes to measures
to tackle inflation and price rise. The food subsidy
has been increased by only 3. 5% over the previous
year and since the Budget assumes an inflation
rate of over 6%, this entails a reduction in real food
subsidy. In the face of the steep rise in prices of food
items and the fact that the Economic Survey itself
admits that 55% of the monthly per capita expenditure
by the rural poor is spent on food, it is essential
to take substantial steps to strengthen and expand
the public distribution system. As it stands, the food
subsidy cannot provide protection for the people
against the increase in prices of foodgrains and the
price of imported food. The raising of the income-tax
slabs will provide some relief to the middle classes
who are also suffering due to the price rise of essential
commodities.
Overall, the Budget is a victim of fiscal conservatism.
This is evident in the manner in which the
FRBM Act provisions have been adhered to. Due to
this, development expenditures in crucial areas like
health and education are seriously affected. The left
parties had asked the government to increase the
gross budgetary support for the central plan by at least
Rs 60,000 crore over the last year. This was necessary
to fulfil the commitments made in the Common Minimum
Programme. By providing for Rs 38,286 crore,
the Budget has really fallen behind in its allocations
for the social sector, and education in particular. Last
year, education expenditure was only 2.84% of GDP.
Given the Right to Education Act still hangs fire, there
is no financial commitment to universalising school
education. Total expenditure on elementary education
shows only a marginal increase. Universalisation
of the ICDS, increased allocation for the National Rural
Health Mission, increased allocation for health and
social security provision for workers of the unorganised
sector, who number 35 crore, have all fallen short
or are totally inadequate.
The left parties had urged the government to reintroduce
the long-term capital gains tax and increase
the rate of short-term capital gains tax. This was necessary
to curb speculative capital inflows. The government
has not found the courage to plug the loopholes
in the Mauritius route so that long-term capital gains
tax can be imposed. However, the 5% increase in the
short-term capital gains tax and the introduction of a
commodity transaction tax are in the correct direction.
The increase in the oil prices and the successive
hikes in petrol and diesel prices have contributed to
the inflationary trends, a fact acknowledged by the
Economic Survey. The left parties have been arguing
consistently for a revision of the indirect tax structure
on petroleum. Reduction of customs and excise duties,
doing away with the ad valorem duty structure
and replacing it with specific duties and a price stabilisation
fund for petro products with the resources
generated through the oil cess were some of the
measures advocated. The finance minister has desisted
from restructuring the tax structure and confined
it to just doing away with the ad valorem duty on the
excise part. This means that the rising oil prices will
continue to impact on inflation and the burden is to
be borne by the consumers.
The UPA government has shown a greater sense of
realism as this Budget is a run-up towards the next general
election. The write-off of farmers� loans and some
of the social sector measures are welcome features.
However, fiscal fundamentalism and a neo-liberal outlook
have prevented the government from taking the
substantial steps required to fulfil the remaining commitments
in the Common Minimum Programme.
D
POLL DANCE ON THE FARM: The UPA�s last full budget
waives farm debt of Rs 60,000 crore while trying to keep
the growth engine humming. A brilliant young industrialist
and titans from the Left and the Right weigh in.
THE SHADES OF
GREY AND NAY
UNION BUDGET 2007 - 2008UNION BUDGET 2008 - 2009 THE ECONOMIC TIMES SATURDAY 1
MARCH 2008 WWW.ECONOMICTIMES.COM 10
MUCH LIKE ROBERT CLIVE, WHO WHEN
brought before the Royal Commission to answer
charges of corruption, answered, �Gentlemen,
given my opportunities I stand amazed at my
own moderation,� the finance minister might well exclaim,
�Bharatvasiyon, I stand amazed at my own moderation!�
Faced with burgeoning tax revenues and a
politician�s understandable desire to play the populist
card in what is undoubtedly the UPA�s last full budget
before the next general election, he has been surprisingly
circumspect.
Barring the farm waiver, which is estimated to cost a
whopping Rs 60,000 crore, more than the entire revenue
deficit, he has presented a workman-like, sensible
budget. One could argue, of course, that the farm loan
waiver is bad enough. And certainly there is no case
whatsoever for giving a 25% rebate for all farm loans regardless
of farm size or loan distress.
But in the case of the small and marginal farmers, the
loan waiver has two redeeming features. One, there is
little possibility of leakage in that the waiver will benefit
only those who are being targeted, i.e., the genuinely
distressed. Two, unlike in the past when banks were
used as instruments to achieve socio-political goals, this
time round they are likely to be reimbursed by the exchequer
(though the budget speech is silent on this).
The bigger damage that the waiver does is in terms of
vitiating the lending climate and window-dressing the
fiscal deficit since this expenditure has not been provided
for in the budget. It has taken Indian banks years
to recover from the damage done by loan melas and
waivers of the pre-reform days. And now, just when
they need to be more competitive to face the challenges
of the post 2009 scenario (when it is
hoped the RBI will ease its stranglehold
on entry of new/foreign banks)
they have been served a googly.
Why would any farmer want to repay
his loan when he knows it is only
a matter of time before the government
tells banks to forgive and forget?
More important, why would any bank want to extend
loans to farmers when there is the possibility that one
bright day the government will write them off? If the
government is serious about increasing farmers� access
to bank credit, this is the wrong way of going about it.
Equally, if it is serious about improving the lot of
farmers it needs to go in for meaningful agriculture reform
of the kind undertaken in industry.
Instead of denying farmers higher
prices for their products by banning
export whenever the international
price rises and then trying to compensate
by giving sops, it must allow free
play of market forces. Both inputs
(read power, water, fertiliser, seeds) as
well as output must be priced at market-related rates
and farmers allowed to hedge their risks through institutional
mechanisms such as commodity exchanges.
True, this may seem many light years removed
from the subsistence farming that is the norm in India
today. But remember, much the same argument was
made against de-reservation of small-scale industries
and see how they are thriving now.
This is not to deny the importance of public investment
in agriculture. Rather, it is to point to the heavy
price we pay when we try to correct one distortion with
another. Unfortunately, while successive governments
have found the will to push through economic reform
in industry, few have shown the stomach for similar reforms
in agriculture. The result is that Indian agriculture
reform is now a Pandora�s box that few political parties
would like to open, at least not until the numbers dependent
on agriculture come down significantly.
Mythili Bhusnurmath
Chidambaram the politician holds on to his FM cap
ECONOMICSPOLITICS VS
ADITYA MITTAL
CFO, ARCELORMITTAL
Election
triumphs
over reform
EVERY UNION FINANCE MINISTER FACES THREE KINDS OF
challenges while preparing the Budget. First, he has to take steps
to improve the quality of life of the people; second, he has to take
care of the economy so that it continues to grow, and third, he has
to balance the Budget and reduce the deficits to the minimum.
This year�s challenges were no different. Let us see, how the finance
minister has tackled them.
As far as the first is concerned, on the face of it he appears to be
very liberal. While the usual sentiments have been mouthed about
health, education, women and child development, science and
technology, and so on, his thunder is contained in the scheme of
loan waiver for farmers. The manner in which the Congress and its
president had started raising the farmers� issue towards the fag end
of February, when the Budget is all sewn up, made it amply clear
that the Budget proposal had been selectively leaked by the FM to
his party. This led to competitive populism and the stalemate in Parliament.
The FM expects the loan remission work to be completed
by June 30. Considering the administrative implications, this appears
unlikely if not impossible. He has not provided any relief to
such farmers who have borrowed from private moneylenders. This
is a big omission because they are also a sizeable chunk.
But the most important question is where will this money come
from? The FM has maintained a deafening silence on this issue. He
has not provided for it in the Budget. It will be extremely unfair if he
issues bonds for this purpose and passes on the burden to future
governments as he has done in the case of food, fertiliser and petroleum
subsidies. The government had earlier announced a package
of Rs 17,000 crore for the distressed farmers of the four states of
Andhra Pradesh, Maharashtra, Karnataka and Kerala. It did not
stop the farmers in these states from committing suicide. Indian
agriculture needs much more than merely such palliatives.
In every Budget Mr Chidambaram has set up a new organisation.
In this Budget, too, he has promised
to set up the Irrigation and Water Resources
Finance Corporation. It has taken
four years for a proposal to be received
from the government of Tamil Nadu for
the Chennai desalination plant. The FM
has generously provided for Rs 300 crore
in the Budget for this purpose. He has not
been equally generous to other states.
On the tax side, in view of the unprecedented
growth in personal income-tax, I
would have expected the FM to have
been more liberal with regard to the tax
slabs. He should have also removed the
surcharges on income-tax. He should
have abolished the Fringe Benefit Tax and
not postponed the abolition of the Banking
Cash Transaction tax to April 1, 2009.
I am also disappointed that he has introduced new rates of Cenvat
and once again indulged in discretionary tax concessions. The Herculean
effort I had made to simplify the Cenvat structure has once
again been made complicated by the present FM in his five Budgets.
He has not laid out a road map for GST in this Budget as was expected.
If GST is to come into force from April 1, 2010, the road map
should have been laid out in this Budget itself.
My greatest disappointment with this Budget, however, is from
the point of view of the economy, which has already entered the
slowdown phase. One would have expected the FM to announce
steps to shore up the economy. He has completely failed to do so.
This is one Budget in a long time, which is completely silent on economic
reforms. The Economic Survey has clearly brought out the
challenges before the economy and a whole chapter has been devoted
to policy responses. Juxtaposing it against the FM�s budget
speech, it appears as if he has not read the Economic Survey. High
inflation, which has been the hallmark of this government will accentuate
in the coming months. This, combined with high interest
rates, will have an adverse impact on the economy. The finance
minister has not dealt with this issue. His complete neglect of the infrastructure

sector in this Budget is also highly disappointing.

As far as balancing the Budget is concerned, the finance minister
has taken the convenient way out. He had taken credit for notifying
the FRBM Act passed by the NDA government. In his very first
Budget, he postponed its implementation by one year. Even with
this postponement, he was supposed to completely eliminate the
revenue deficit by 2008-09. He has taken the easy way out by deferring
this too. The FRBM Act has been reduced to a nullity.
Clearly, out of the three challenges that a finance minister faces in
preparing a Budget, this finance minister has failed to score any
marks on the second and third. As far as the first is concerned, looking
at what he has done, can elections be far away?
Ambitious,
achievable,
inclusive
WHEN I WAS AT THE WORLD ECONOMIC FORUM,
Davos recently, I could sense an undercurrent of concern
about which way the global economy is headed with the traditional
engine of demand, the United States, showing some
signs of strain. I have always believed that developing
economies have plenty more to offer than just being stereotyped
as sources of cheap labour and a low-cost production
base. It is especially at times like these that they are in the enviable
position of drawing upon enormous latent reserves of
captive growth. They can leverage the size of their markets,
not only to act as stabilisers when the rest of the world is in disarray
but also to underscore their long-term importance.
It has been a delight to watch, over the past few years, strong
growth being clocked by India and the attention it has been enjoying
in the world media as it leaps confidently forward on the
path of progress � average GDP growth of 8.8% per annum
over three years is no mean achievement for so complex an
economy. With the present global context in mind, I asked myself
whether Budget 2008-09 will enable the country to sustain
its growth and withstand some of the turbulence along the
way. The answer is a big yes. This Union Budget does work to
address the main issues of education, infrastructure, and social
disparity while maintaining a high growth rate.
A typical challenge for any government is to balance the
needs of its growth plans without jeopardising the fiscal health
of the economy. It is indeed commendable that this Budget
aims to rein in fiscal deficit to 2.5% of the GDP and the revenue
deficit to 1.4%, in keeping with the government�s fiscal commitments,
without compromising on schemes vital for
strengthening the foundations of future growth. At the same
time, measures such as easing personal taxation should provide
a fillip to domestic consumption in the short term. Although
we could debate the nitty-gritty on
specific aspects of the various announcements
made in the Budget, I
think there is no ambiguity in the general
direction of economic policies
enunciated. In my opinion, this Budget
has taken the challenge head-on to
help the government fulfil its key role
as a facilitator and a provider of the
right building blocks.
I am particularly heartened by increase
in allocations for education,
which I believe is fundamental in
shaping development and efficient
utilisation of human resources of the
country. While the immediate benefits
of such measures are seldom
recognisable, their value in cementing
and enhancing the future competitiveness of the economy
cannot be overstated.
For an economy aiming to maintain its rate of growth, one
of the first stumbling blocks is usually a paucity of skills and talent.
The announcements made in the Budget are balanced between
enhancing technical and managerial talent pools as
well as providing basic education to those in social strata,
which are yet to reap the benefits of India�s growth. While
some of the measures announced run the risk of being labelled
populist, once again I would prefer to place these in a longer
term perspective.
�Leave no one behind� is a common ethic of military operations
but with equal applicability in the social context. Access
to healthcare and insurance for the underprivileged, care for
the elderly, rural employment guarantee and debt relief for
the agriculture sector should all go towards ensuring equitable
growth of the nation as a whole. On a broader note, I believe
that the Budget has the potential to help the nation take some
firm steps towards reducing a variety of social and structural
imbalances in the Indian economy and society.
Finally, I think there should be a unanimous agreement
that allocations and plans outlined for infrastructure development
are in the right direction. Investments in power generation,
roads, railways, IT, the SME sector, rural development
and agriculture infrastructure are much needed to improve
competitiveness and productivity of the three major components
of the Indian economy.
Further, these will have the positive knock-on effect of
making India more attractive for foreign direct investment. In
summary, the Budget sets out an ambitious but achievable
plan for the next year, fruition of which would be underpinned
by equally �bold� plans for timely implementation.
YASHWANT SINHA
FORMER FINANCE MINISTER
DUMP FISCAL CONSERVATISM
Fiscal fundamentalism and a
neo-liberal outlook have
tainted an otherwise realistic
Budget, and ensured that key
commitments of the
government�s NCMP continue
to remain unfulfilled
PRAKASH KARAT
GENERAL SECRETARY, CPI(M)
The herculean
effort I had made
to simplify the
Cenvat structure
has once again
been made
complicated by
the present FM
While some of
the measures
run the risk of
being labelled
populist, I would
prefer to place
these in a longer
term perspective
ESPITETHE GDP GROWTH RATE
being over 8% in the past four
years, the country is still experiencing
an agrarian crisis and the
people face the problem of price
rise and unemployment. The
Union Budget of 2008-09 was
expected to deal with these
problems that affect all sections of the people. This being
the final Budget of the UPA government, it was
also the last opportunity to fulfil some of the major
commitments made in the National Common Minimum
Programme.
The Union Budget has made some attempts with
regard to both these aspects but the record is a mixed
one. The Budget should be welcomed for its major
step of debt relief for farmers. The Rs 60,000-crore
debt relief directed mainly at small and marginal
farmers stems from a belated realisation on the part of
the UPA government that the agrarian crisis and the
distress of farmers cannot be tackled by token measures.
The write-off of farm loans has been possible because
of the wide-ranging support for this demand
across the political spectrum.
The Budget disappoints when it comes to measures
to tackle inflation and price rise. The food subsidy
has been increased by only 3. 5% over the previous
year and since the Budget assumes an inflation
rate of over 6%, this entails a reduction in real food
subsidy. In the face of the steep rise in prices of food
items and the fact that the Economic Survey itself
admits that 55% of the monthly per capita expenditure
by the rural poor is spent on food, it is essential
to take substantial steps to strengthen and expand
the public distribution system. As it stands, the food
subsidy cannot provide protection for the people
against the increase in prices of foodgrains and the
price of imported food. The raising of the income-tax
slabs will provide some relief to the middle classes
who are also suffering due to the price rise of essential
commodities.
Overall, the Budget is a victim of fiscal conservatism.
This is evident in the manner in which the
FRBM Act provisions have been adhered to. Due to
this, development expenditures in crucial areas like
health and education are seriously affected. The left
parties had asked the government to increase the
gross budgetary support for the central plan by at least
Rs 60,000 crore over the last year. This was necessary
to fulfil the commitments made in the Common Minimum
Programme. By providing for Rs 38,286 crore,
the Budget has really fallen behind in its allocations
for the social sector, and education in particular. Last
year, education expenditure was only 2.84% of GDP.
Given the Right to Education Act still hangs fire, there
is no financial commitment to universalising school
education. Total expenditure on elementary education
shows only a marginal increase. Universalisation
of the ICDS, increased allocation for the National Rural
Health Mission, increased allocation for health and
social security provision for workers of the unorganised
sector, who number 35 crore, have all fallen short
or are totally inadequate.
The left parties had urged the government to reintroduce
the long-term capital gains tax and increase
the rate of short-term capital gains tax. This was necessary
to curb speculative capital inflows. The government
has not found the courage to plug the loopholes
in the Mauritius route so that long-term capital gains
tax can be imposed. However, the 5% increase in the
short-term capital gains tax and the introduction of a
commodity transaction tax are in the correct direction.
The increase in the oil prices and the successive
hikes in petrol and diesel prices have contributed to
the inflationary trends, a fact acknowledged by the
Economic Survey. The left parties have been arguing
consistently for a revision of the indirect tax structure
on petroleum. Reduction of customs and excise duties,
doing away with the ad valorem duty structure
and replacing it with specific duties and a price stabilisation
fund for petro products with the resources
generated through the oil cess were some of the
measures advocated. The finance minister has desisted
from restructuring the tax structure and confined
it to just doing away with the ad valorem duty on the
excise part. This means that the rising oil prices will
continue to impact on inflation and the burden is to
be borne by the consumers.
The UPA government has shown a greater sense of
realism as this Budget is a run-up towards the next general
election. The write-off of farmers� loans and some
of the social sector measures are welcome features.
However, fiscal fundamentalism and a neo-liberal outlook
have prevented the government from taking the
substantial steps required to fulfil the remaining commitments
in the Common Minimum Programme.
D
THE BRAVE NEW
WORLD BECKONS

1.Provisional tax includes corporate tax and FBT

2. Reduction in tax outgo relative to PBT can be attributed
to the shift of business from onsite to offshore and to
accounting changes undertaken by companies from time
to time
3. PBT = Profit before tax
IT�S TAXING!
TAX INCIDENCE AS A % OF PBT
LARGE SIZE IT COS TAX PROVISION/PBT (%)
FY06 FY07 FY08
TATA CONSULTANCY SERVICES 13.3 12.7 10.0
WIPRO 14.6 14.9 13.2
INFOSYS TECHNOLOGIES 14.7 11.8 11.2
SATYAM COMPUTER SERVICES 13.5 14.3 9.5
HCL TECHNOLOGIES 4.1 2.9 2.4
MEDIUM SIZE IT COS
ROLTA INDIA 11.7 7.5 9.4
HEXAWARE TECHNOLOGIES 3.1 2.4 3.9
SONATA SOFTWARE 16.4 15.6 12.6
NIIT 5.1 6.5 4.9
MASTEK 4.8 1.8 6.9
SMALL SIZE IT COS
KPIT CUMMINS INFOSYSTEMS 3.8 5.5 4.9
NIIT TECHNOLOGIES -1.6 1.9 2.8
ZENSAR TECHNOLOGIES 1.7 3.5 5.6
AZTECSOFT 0.3 -1.8 10.1
INFOTECH ENTERPRISES 23.9 19.2 14.7
SOURCE: Prowess
16 CENTRAL UNIVERSITIES,
THREE IITs AND TWO IISERs
Helps IT/BPO industry tackle talent
shortage and increases number of
qualified professionals
THRUST ON NATIONAL
BROADBAND NETWORKING
Makes the country more internet-enabled
and boosts e-governance, especially
in villages
CUSTOMISED SOFTWARE
NOW UNDER SERVICE TAX NET
Software adoption to become expensive
PACKAGED SOFTWARE
CUSTOMS DUTY AT 12%
Software products to get costlier
SMART CARD-BASED PDS IN
HARYANA & CHANDIGARH
Nascent smart card technology gets a
boost; companies serving the government
and promoting digital identification
systems to gain
OUTSOURCED R&D TO GET
125% DEPRECIATION
Research-focused companies and firms
getting into research collaborations to
benefit. Research costs to come down
EXCISE DUTY ON ALL PHARMA
GOODS CUT TO 8% FROM 16%
Overall drug prices to come down. Move
to benefit small and medium drug makers
outside duty-free zones
CUSTOMS DUTY ON LIFESAVING
DRUGS CUT TO 5%
Imported essential medicines to
be cheaper
Rs 75 CR FOR SETTING UP
1,00,000 RURAL KIOSKS
Government schemes and online
businesses to spread to more villages
S RAMADORAI
CEO, TATA CONSULTANCY SERVICES
THE EXPECTED INCREASE IN THE USE OF
technology in government operations, both at
the central and state levels, is a salutary change
in mindset, as is the move from an outlay approach
to one focused on end outcomes. The move
to provide greater connectivity also has major
implications for leveraging electronically-enabled
benefit management systems, which can provide
a new set of services to citizens. This has
highlighted the opportunity for IT in the domestic
market, with the decision to allocate additional
funds towards state-wide area networks, common
service centres and data centres at the state
level, and initiatives like the central plan monitoring
system for Planning Commission outlays.
There is no change from an export perspective,
with no extension of STPI scheme. For domestic
customised software, there are small changes,
with the sector being brought under the service
tax net, which will raise the cost of technology
and push up automation costs, not only in the
private sector but also in the public sector and
government departments. Another factor that
could push up costs for deploying technology is
that customs duty for importing packaged
software has been increased from 8% to 12%.
The tax incentives for stepping up
expenditure on R&D are also welcome,
as is the continuing investment in education
to create a knowledge society.
Software was exempted
from customs duty
Duty was cut on
computer parts, circuit
boards, cellphones &
telecom equipment
Electronic hardware tech
park scheme liberalised
Govt-promoted societies
recognised by CSIR
allowed to invest in the
equity of private cos
Noemie Bisserbe &
Gireesh Chandra Prasad
TEAM ET
MR CHIDAMBARAM SAID IN HIS
Budget speech that providing succour
to the weak was one of his four
objectives. He demonstrated this in the new
measures for the healthcare
sector, cutting duties to help
bring down drug prices, especially
for life-saving drugs,
and giving another push for
pharmaceutical research.
Sources at the National
Pharmaceutical Policy Authority
said that in the light of the
excise cut across the board for
pharma products, the regulator
will reduce prices of all
scheduled medicines, passing
the benefit to the consumer.
The price fall should be about
4.6%. The sources also said
they expect companies to do
the same for drugs which fall
outside price control.
The main beneficiaries will
be the small and medium
drug makers. Many products
are already manufactured in tax-free zones.
Therefore, the move may have little impact on
large companies like Sun Pharma, Nicholas Piramal,
Cipla and Ranbaxy.
Former pharma hubs which have lost out to
such tax-free zones could see a revival in activity
with easier tax norms, a source said. �Contract
manufacturing units in Maharashtra, AP and Gujarat
may also be revived,� said Nicholas Piramal
India director (strategic alliances) Swati Piramal.
The FM has also extended the scope of R&D
incentives. The current provision allows drug
manufacturing companies to set off 1.5 times the
money spent on in-house R&D. Now, pharma
companies may set off 1.25
times the money spent on
outsourced R&D. �This is
something we had been
pushing for and will help
our research efforts,� said
Ranbaxy MD and CEO
Malvinder Singh. But it
remains unclear if standalone
R&D companies
will benefit. Industry officials
said they were yet to
understand how to read
the law with respect to
hived-off units. But a
government official said
these companies can also
avail of the benefit.
Finally, the FM has
not provided further export-
related sops. India�s
pharma industry, troubled
by the appreciating rupee and market
challenges abroad, was hoping he would extend
export-related tax benefits to export-oriented
units. �The opportunity to support pharma
exports has been missed out. That�s a pity,�
said Cipla CEO Amar Lulla.
Mr Chidambaram has strengthened his commitment
to the knowledge economy by proposing
to set up 6,000 model schools, 16 central universities
and IITs in Andhra Pradesh, Bihar and Rajasthan,
besides several institutions of higher
learning. Marry e-governance with education,
and a compelling business model evolves. �It�s an
outstanding Budget. There will be a bigger market
for high-end educational products (like digital
content distribution) and online learning will also
get a boost,� Educomp Solutions MD Shantanu
Prakash said.
But the full benefits of a networked government
and armies of brilliant scholars coming out
thanks to Mr Chidambaram�s new initiatives will
take a while to arrive. An extension of the income
tax holiday would have guaranteed IT companies
financial health in the short-term. �Most companies
would now, by default, consider it as a withdrawal
of the scheme,� said Firstsource Solutions
MD and CEO Ananda Mukerji . Industry players
believe this could lead to some consolidation. This
is because big companies can manage the transition
to a higher tax regime, but smaller and medium
size companies would have to rethink their future.
Polaris Software chairman and CEO Arun
Jain said that smaller services companies would be
forced to sell out or shut shop. So this might be fishing
time for bigger firms.
If the 90s was the decade of export promotion,
this is the age of domestic growth. Mr Chidambaram�s
de-emphasis of technology exports
and the corresponding emphasis on the local IT
market is a reflection of this. In the year before the
tax holiday began, the IT/BPO industry had exports
of just $3 billion, which have crossed $40 billion.
�From a long-term view, the Budget brings in
focus the �supply� side challenges and if that focus
is continued, we would see India retaining its competitive
edge in the coming years,� said HCL Technologies
CEO Vineet Nayar.
S Srinivasan & Shelley Singh
PP Thimmaya
TEAMT ET
FOR THE EXPORT-DRIVEN IT INDUSTRY, THE
suspense continues. With the Budget remaining silent on the
extension of the income tax exemption under the STPI
scheme beyond March 31, 2009, some IT companies are
readying to take a huge tax knock. Though CFOs will tell you
that the precise quantum of incremental tax is hard to decipher,
back-of-the-envelope calculations put the figure in a
range of 8% to 10%. Which means that against an industry
average of 12% tax paid (including corporate tax and FBT),
companies may have to fork out
22% from 2009-10.
However, not all appears lost. At
least, Nasscom president Som Mittal is
hopeful that continuing dialogue
with the government may see a likely
extension of the 10-year tax holiday
granted to export-oriented IT services
companies under sections 10A and
10B of the STPI scheme.
Though there is a year to go before
the scheme comes to a close, a section
of the industry has interpreted the silence on the issue as an indication
that they would have to start paying taxes from FY10.
Predictably, the overriding mood in the industry is one of
disappointment. According to Infosys CFO V Balakrishnan,
the lack of clarity would have a significant impact on the smaller
companies, which cannot avail of the SEZ scheme in view of
high rentals at these parks. For Infosys, the tax rates would
work out to 20-22% by 2010 against the current level of 1415%,
he said. The industry was hoping to neutralise an appreciating
rupee and rising wages through the extension.
(With inputs from Deepshikha Sikarwar)
LOOMING
CLOUDS
Some sections feel
that the silence on
STPI is an indication
that they would have
to start paying
taxes soon
GRACE & GIGABYTES: If the IT-BPO sector still wears a Madhubala smile
despite the escalating rupee and subprime blues, thank the fundamentals
and our diversified exposure. Slated to touch $75 billion in revenues by 2010,
the mercurial infotech bandwagon is now enjoying the resilience rhythm.
UNION BUDGET 2007 - 2008UNION BUDGET 2008 - 2009 THE ECONOMIC TIMES SATURDAY 1
MARCH 2008 *WWW.ECONOMICTIMES.COM 11
KNOWLEDGE &
TECHNOLOGY
FM runs
through IT
The tech industry may have to
fork out 22% tax from 2009-10
PILL BOX
STORY SO FAR
74 active pharma
ingredients under
price control
Such drugs form about
25% of total domestic
pharma market
Domestic market at
Rs 33,000 crore is
growing at 13-14%
Market may grow to
$20 billion by 2015,
says McKinsey
T
T
HE FM HAS SIGNALLED
the end of a decade of hand-
holding for the knowledge
economy, that was dominated
by tax breaks and export
incentives, and put forward
two compelling propositions.
He has sought to ad

dress the long-term crisis in

higher education and taken a series of steps to

chaperon the central and state governments into

the internet age.

But CAs at software and business process out

sourcing firms are grappling with pressing prob

lems. Global technology spending is showing

signs of slippage, the forex arbitrage enjoyed by

rupee spenders is evaporating and wages are go

ing up. Captains of the IT/BPO industry were

looking to the Budget to mitigate some of the

profit reductions from these with an extension of

tax holidays. Instead, the FM treated them as a

mature industry that must begin contributing

more to the exchequer.

�The FM forgot we exist,� said call centre pione

er Raman Roy, but that was true only when the

FM was talking of concessions. In the tax section,

he did remember them, albeit, in a negative way.

Software sold in the country will become more ex

pensive, what with packaged software seeing a

higher customs duty of 12% and customised soft

ware being brought under the service tax net. This

can affect technology adoption by small compa

nies and cash-strapped government agencies.

Indian companies have been turning to the do

mestic IT market, as global demand eases, and the

FM�s thrust on broadband connectivity for all

nooks and corners of the government should

cheer them up. The decision to set up a national

knowledge network, 1,00,000 high-speed kiosks

in villages, state-wide area networks and data cen

tres will take e-governance to the people. This will

translate into plum contracts for IT companies.

Get ready to chill with

a sugar-coated pill
EXCISE ON BULK CEMENT
UP AT RS 400/TONNE
Cement makers will be forced to hike
prices. Cost of construction, and real estate
prices may go up marginally
SUBSIDY ON HOUSING FOR
POOR UP BY 40%
More real estate players to get into low-
end housing and slum rehabilitation
RAJIV GANDHI GRAMEEN
VIDYUTIKARAN YOJANA TO
GET RS 5,500 CR
Almost 5,000 villages to get electricity.
Private power utilities and equipment
manufacturers will benefit
FUND FOR TRANSMISSION
AND DISTRIBUTION (T&D)
T&D companies will gain
CUSTOMS DUTY ON PROJECT
IMPORTS TO BE CUT TO 5%
Steel, oil & gas and power projects
may go for more imports;
dry bulk shipping to benefit
EXCISE DUTY ON PAPER,
PAPERBOARD DOWN TO 8%
To save Rs 204 cr for the 1.70-mt industry
5% IMPORT DUTY IMPOSED
ON NAPHTHA
Price to rise for naphtha. RIL & Haldia
Petrochemicals will be impacted
CUSTOMS DUTY ON CRUDE &
UNREFINED SULPHUR AT 2%
Will reduce production costs for domestic
fertiliser companies
DUTY ON STEEL MELTING
SCRAP DOWN TO NIL
Secondary steel manufacturers to benefit.
Large greenfield and brownfield projects
will also benefit
VINAYAK CHATTERJEE
CHAIRMAN, FEEDBACK VENTURES
HAVING GOT LULLED INTO BELIEVING THIS
will be an �aam aadmi-agri Budget�, infrastructure
players were not too gung-ho about any
path-breaking initiatives. Expectations were
routine: Section 10 (23G) would be reinstated,
infrastructure status for new activities, dividend
distribution tax (DDT) for multi-tiered SPV-oriented
structures will be rationalised, and Sebiregistered
VC/PE funds would be allowed to bid
on their own. Further, there were hopes that ECBs
with more than a $20-million ceiling would be
allowed, tax-free investment limit for individuals
would be raised for infrastructure bonds and that
�special dividends� would be allowed to mitigate
against long profit-gestation periods. Boosting
the shelf of bankable projects was also expected.
The apprehensions proved right! It is a �business-
as-usual� Budget with only four interventions:
rationalisation of DDT, a coal regulator,
a new irrigation and water resources finance
firm, and a national fund for transmission and
distribution reforms. No breakthroughs on
fiscal, policy, regulatory or implementation
fronts. For a sector that clearly affects the aam
aadmi, this is disappointing. What is also
disheartening is that there is no contextual
reference to the only relevant macro-economic
statistic � gross capital formation in
infrastructure as a percentage of GDP (GCFI).
Global price parity for oil
exploration companies
Five-year tax holiday for
oil exploration and
industrial parks
Assignment rights for
telecom companies
Freedom to market
crude oil and gas in the
domestic market
Higher outlay for
highway development
Anto T Joseph & Nevin John
TEAM ET
THE POWER SECTOR HAS THREE
things to cheer about and one issue to
sulk over. A national fund for power
transmission and distribution (T&D) ,
a coal regulator along with a coal
distribution policy, and increased
budget allocation for rural electrification
are all likely to benefit the industry.
But imposition of a 4% special
countervailing duty on imports for
power plants less than 1,000 MW is
causing grief.
Finance minister P Chidambaram
announced this new duty even as he
was cutting duties on imports for other
projects to 5% from 7.5%.
The industry, predictably, is
crying foul, saying that the move
increases their cost at a time when
the country desperately needs investment
in the sector.
Industry analysts said the proposed
national fund for T&D would aim to
bridge the huge investment gap in the
sector. The proposal for a coal
regulator spells relief for generation
companies hit by rising fuel prices. This
is one of the recommendations of the
Hyderabad-based Administrative Staff
College and the Shankar Committee
on larger coal sector reforms, currently
under consideration by the central
government, said Union coal secretary
HC Gupta.
Said Coal India chairman Partha S
Bhattacharyya: �The regulator should
also take care of the environmental
and social sustainability issues in
mining. Rural electrification will pick
up pace, too. The FM has allocated
Rs 5,500 crore in 2008-09 to light up
5,000 villages across the country, as
part of the Rajiv Gandhi Grameen
Vidyutikaran Yojana (RGGVY).
Villagers below poverty line can get
free electricity connections under
this scheme.
The new fund outlay will clearly
accelerate the setting up of
distribution and transmission
backbones in many villages. Backof-
the-envelope calculations suggest
that it costs Rs 12-Rs15 lakh to set up
a distribution backbone in a village.
However, there is one proposal
which is unlikely to cheer the power
sector. The finance minister has
amended service tax rules, which
could adversely affect T&D turnkey
contractors, says KEC International
managing director and CEO Ramesh
Chandak. �The service tax applicable
on works contracts under the composition
scheme for payment has been
doubled to 4%. This will affect all engineering,
procurement and
construction (EPC) players in the
industry,� he said.
POWER
MAJORS
NTPC, Tata Power, REL,
PTC, PowerGrid, Rural
Electrification Corporation
STORY SO FAR
India faces a huge power
deficit. More than 1,00,000
MW need to be added over
the next few years to
sustain 8%-plus GDP
growth. Govt has a crash-
plan to kick-start
investment in generation.
But more needs to be done
Private sector is keen, but
bureaucratic and political
hurdles remain
UNION BUDGET 2007 - 2008UNION BUDGET 2008 - 2009 THE ECONOMIC TIMES SATURDAY 1
MARCH 2008 WWW.ECONOMICTIMES.COM 12
CORE &
INFRASTRUCTURE
N THE COURSE OF HIS POST-
Budget press conference, the finance
minister referred to the
1956 AICC session at Awadhi (of
�socialistic-pattern-of-society�
fame). It was perhaps the sepia-
tinged tone and the 1980s loan
mela-style debt waiver, along
with the hike in short-term capital
gains tax, which caused markets to crash.
Industry�s reaction on the whole has, however,
been oscillating between the neutral and
the positive. The cut in peak Cenvat rate (from
16% to 14%) is in keeping with the government�s
desire to boost consumption. The pay
commission and the money saved by way of
the more tax payer-friendly slabs should also
boost spending. The average growth of industrial
production had declined from 11% at the
beginning of the fiscal to a
monthly average of 9%.
Clearly, IIP growth in the
latter half of the year is
tending towards the 5%7%
range. IIP growth in
December was only 7.6%.
The six core and infrastructure
sectors have been
struggling recently, with
growth down to the low
single digits. Growth in December
was an alarmingly low 4%, while in
November, it was an anaemic 5.3%. Growth
rates of cement, steel, electricity generation and
petroleum production have decelerated.
It is against this bleak backdrop that the FM
has lowered central excise and customs duties
on a range of inputs. Customs duties on project
imports have been cut from 7.5% to 5%, a move
which will probably spur companies to build
new refineries, and steel and cement plants. �It�s
a budget which will harm nobody and help industry
and infrastructure across the board,� says
Vimal Bhandari, country head, Ageon NV, a
Dutch financial major. Those likely to benefit include
Essar Oil, BPCL, IOC and Tata Steel. Rationalising
the dividend distribution tax (DDT) for
holding companies may popularise the holding
company structure used by firms like Reliance
Energy, GMR and L&T, which are implementing
major projects through subsidiaries and special
purpose vehicles.
Aseem Chawla, a partner at law firm
Amarchand Mangaldas, feels this will prevent
double taxation of dividends. �In a domestic
two-tier structure, the holding company would
not be liable to pay DDT on the dividends distributed
to its shareholders to the extent of dividend
received by its subsidiary,� says Mr
Chawla. HDFC Bank chief economist Abheek
Barua feels the FM could have announced steps
like easing restrictions on external commercial
borrowings for infrastructure companies.
Two-wheeler excise duty has gone down
from 16% to 12%. And those intending to
purchase Nanos can now do so at lower prices
as excise duty on small cars has been brought
down to 14%. The only
uncertainty, industry observers
say, is in the context
of the move towards
a unified goods and service
tax. Experts say that
the central Cenvat rate
will have had to come
down from 16% to a lower
rate as the Centre and
the states were moving
towards a composite
(Centre plus state) GST rate of 20%. In the
context of an industrial slowdown, the excise
cut makes sense.
The rest of the indirect tax proposals are a
grab-bag of concessions to specific sectors. Thus,
there are excise concessions to the cold chain
industry and customs duty cuts for inputs going
into production of electronic hardware, gems
and jewellery and the sports sector. Hospitals
outside major urban centres and two-, three-
and four-star hotels in certain locations get 5year
tax breaks. Spending on research and agricultural
seeds gets a 150% cut, joining pharma
which already enjoys this exemption, while
outsourcing of research is sought to be encouraged
by providing a 125% tax deduction.
Bodhisatva Ganguli
I BUT DUTY CUTS OFFER SOME SUCCOUR
Rajesh Unnikrishnan
TEAM ET
THE FINANCE MINISTER�S PROPOSALTO
increase the excise duty on bulk cement
and cement clinker � an intermediate for
the cement industry � has added to the woes of
the cement sector, the country�s highest-taxed essential
infrastructure input. Excise on bulk cement
has been increased by Rs 50 per tonne,
while that on clinker has been hiked by Rs 100
per tonne to Rs 450 per tonne.
Cement companies will be forced to pass on
the hike to consumers, who in the case of bulk
cement, are real estate and construction majors
with buildings and complexes to construct. Bulk
cement is largely used by these segments and
their cost is likely to go up.
�The Budget has disappointed us by not
cutting excise duty and countervailing duties.
However, the fillip given to infrastructure will
facilitate growth,� India Cements vice-chairman
N Srinivasan said. Grasim whole-time director
and CFO DD Rathi was more positive: �I
don�t think the increase in excise on bulk cement
would make an impact as the exposure
of most of the cement companies is in the retail
segment.�
Lodha Developers director Abhishek Lodha
felt that though the Budget was neutral for the
real estate sector, it will benefit �largely because
the finance minister has proposed a series of
measures to sustain economic growth and enhance
infrastructure.�
Said EmaarMGF vice-chairman and managing
director Shravan Gupta: �Overall, the Budget
is a balanced one. However, the government�s
silence on FDI in realty and REIT may
raise concerns on availability of finance for this
capital-intensive sector. The fear is further propelled
with the announcement of waiving
farmer bank loans. While this will support the
farming community at large, it will burden the
banking sector by Rs 60,000 crore.�
Industry officials said that the real estate sector
had been expecting an extension of tax holiday
for the Software Technology Parks of India
(STPI) scheme. Many builders operate STPIs
and they would benefit from an extension of
the scheme. However, analysts pointed out that
many builders are also building IT SEZs, which
would be a major beneficiary if the STPI
scheme is phased out. The software and technology
companies will move to SEZs where tax
concessions will be available for 15 years.
�Now, all IT players would move to SEZs,� a
leading developer said.
The Jawaharlal Nehru National Urban Renewal
Mission (JNNURM) has got a 25% increase with
an allocation of Rs 6,866 crore. Said Fitch Ratings
regional head (South India) S Nanda Kumar: �The
real challenge is for urban local bodies to come up
with a basket of bankable and viable project proposals
to become eligible to receive the grant.�
(With inputs from J Padmapriya, M Rochan,
V Balasubramanian and Nirbhay Kumar)
Cement makers run
into excise duty hike
Power sector sees light at end of tunnel
CORE PINES FOR MORE
LONG WAY TO GO
India has the second largest
road network in the world �
about 3.3 million km
National highways (66,590 km)
constitute only 2% of the total
road network and share about
40% of the total traffic
Rs 6,541 crore invested for
national highway
development in 2007-08
CONCRETE
BLOCKS
Infrastructure and realty
boom has pushed up demand
Consolidation wave in 2005-06
wasn�t evident last year,
except for deals like Cimpor-
Digvijay Cement
Huge demand-supply
mismatch and high prices
forced government to
allow imports
ROADS & CEMENT
BALANCING
BUBBLY:
Wait a while
before the
infrastructure
champagne is
uncorked �
China spends
seven times
what we put
into infra. But
if the new PPP
regime has its
way, roads,
ports and
power pylons
will acquire a
high-octane
life of their
own soon. Till
then, it�s a
balancing act.
EXCISE ON BULK CEMENT
UP AT RS 400/TONNE
Cement makers will be forced to hike
prices. Cost of construction, and real estate
prices may go up marginally
SUBSIDY ON HOUSING FOR
POOR UP BY 40%
More real estate players to get into low-
end housing and slum rehabilitation
RAJIV GANDHI GRAMEEN
VIDYUTIKARAN YOJANA TO
GET RS 5,500 CR
Almost 5,000 villages to get electricity.
Private power utilities and equipment
manufacturers will benefit
FUND FOR TRANSMISSION
AND DISTRIBUTION (T&D)
T&D companies will gain
CUSTOMS DUTY ON PROJECT
IMPORTS TO BE CUT TO 5%
Steel, oil & gas and power projects
may go for more imports;
dry bulk shipping to benefit
EXCISE DUTY ON PAPER,
PAPERBOARD DOWN TO 8%
To save Rs 204 cr for the 1.70-mt industry
5% IMPORT DUTY IMPOSED
ON NAPHTHA
Price to rise for naphtha. RIL & Haldia
Petrochemicals will be impacted
CUSTOMS DUTY ON CRUDE &
UNREFINED SULPHUR AT 2%
Will reduce production costs for domestic
fertiliser companies
DUTY ON STEEL MELTING
SCRAP DOWN TO NIL
Secondary steel manufacturers to benefit.
Large greenfield and brownfield projects
will also benefit
VINAYAK CHATTERJEE
CHAIRMAN, FEEDBACK VENTURES
HAVING GOT LULLED INTO BELIEVING THIS
will be an �aam aadmi-agri Budget�, infrastructure
players were not too gung-ho about any
path-breaking initiatives. Expectations were
routine: Section 10 (23G) would be reinstated,
infrastructure status for new activities, dividend
distribution tax (DDT) for multi-tiered SPV-oriented
structures will be rationalised, and Sebiregistered
VC/PE funds would be allowed to bid
on their own. Further, there were hopes that ECBs
with more than a $20-million ceiling would be
allowed, tax-free investment limit for individuals
would be raised for infrastructure bonds and that
�special dividends� would be allowed to mitigate
against long profit-gestation periods. Boosting
the shelf of bankable projects was also expected.
The apprehensions proved right! It is a �business-
as-usual� Budget with only four interventions:
rationalisation of DDT, a coal regulator,
a new irrigation and water resources finance
firm, and a national fund for transmission and
distribution reforms. No breakthroughs on
fiscal, policy, regulatory or implementation
fronts. For a sector that clearly affects the aam
aadmi, this is disappointing. What is also
disheartening is that there is no contextual
reference to the only relevant macro-economic
statistic � gross capital formation in
infrastructure as a percentage of GDP (GCFI).
Global price parity for oil
exploration companies
Five-year tax holiday for
oil exploration and
industrial parks
Assignment rights for
telecom companies
Freedom to market
crude oil and gas in the
domestic market
Higher outlay for
highway development
Anto T Joseph & Nevin John
TEAM ET
THE POWER SECTOR HAS THREE
things to cheer about and one issue to
sulk over. A national fund for power
transmission and distribution (T&D) ,
a coal regulator along with a coal
distribution policy, and increased
budget allocation for rural electrification
are all likely to benefit the industry.
But imposition of a 4% special
countervailing duty on imports for
power plants less than 1,000 MW is
causing grief.
Finance minister P Chidambaram
announced this new duty even as he
was cutting duties on imports for other
projects to 5% from 7.5%.
The industry, predictably, is
crying foul, saying that the move
increases their cost at a time when
the country desperately needs investment
in the sector.
Industry analysts said the proposed
national fund for T&D would aim to
bridge the huge investment gap in the
sector. The proposal for a coal
regulator spells relief for generation
companies hit by rising fuel prices. This
is one of the recommendations of the
Hyderabad-based Administrative Staff
College and the Shankar Committee
on larger coal sector reforms, currently
under consideration by the central
government, said Union coal secretary
HC Gupta.
Said Coal India chairman Partha S
Bhattacharyya: �The regulator should
also take care of the environmental
and social sustainability issues in
mining. Rural electrification will pick
up pace, too. The FM has allocated
Rs 5,500 crore in 2008-09 to light up
5,000 villages across the country, as
part of the Rajiv Gandhi Grameen
Vidyutikaran Yojana (RGGVY).
Villagers below poverty line can get
free electricity connections under
this scheme.
The new fund outlay will clearly
accelerate the setting up of
distribution and transmission
backbones in many villages. Backof-
the-envelope calculations suggest
that it costs Rs 12-Rs15 lakh to set up
a distribution backbone in a village.
However, there is one proposal
which is unlikely to cheer the power
sector. The finance minister has
amended service tax rules, which
could adversely affect T&D turnkey
contractors, says KEC International
managing director and CEO Ramesh
Chandak. �The service tax applicable
on works contracts under the composition
scheme for payment has been
doubled to 4%. This will affect all engineering,
procurement and
construction (EPC) players in the
industry,� he said.
POWER
MAJORS
NTPC, Tata Power, REL,
PTC, PowerGrid, Rural
Electrification Corporation
STORY SO FAR
India faces a huge power
deficit. More than 1,00,000
MW need to be added over
the next few years to
sustain 8%-plus GDP
growth. Govt has a crash-
plan to kick-start
investment in generation.
But more needs to be done
Private sector is keen, but
bureaucratic and political
hurdles remain
UNION BUDGET 2007 - 2008UNION BUDGET 2008 - 2009 THE ECONOMIC TIMES SATURDAY 1
MARCH 2008 WWW.ECONOMICTIMES.COM 12
CORE &
INFRASTRUCTURE
N THE COURSE OF HIS POST-
Budget press conference, the finance
minister referred to the
1956 AICC session at Awadhi (of
�socialistic-pattern-of-society�
fame). It was perhaps the sepia-
tinged tone and the 1980s loan
mela-style debt waiver, along
with the hike in short-term capital
gains tax, which caused markets to crash.
Industry�s reaction on the whole has, however,
been oscillating between the neutral and
the positive. The cut in peak Cenvat rate (from
16% to 14%) is in keeping with the government�s
desire to boost consumption. The pay
commission and the money saved by way of
the more tax payer-friendly slabs should also
boost spending. The average growth of industrial
production had declined from 11% at the
beginning of the fiscal to a
monthly average of 9%.
Clearly, IIP growth in the
latter half of the year is
tending towards the 5%7%
range. IIP growth in
December was only 7.6%.
The six core and infrastructure
sectors have been
struggling recently, with
growth down to the low
single digits. Growth in December
was an alarmingly low 4%, while in
November, it was an anaemic 5.3%. Growth
rates of cement, steel, electricity generation and
petroleum production have decelerated.
It is against this bleak backdrop that the FM
has lowered central excise and customs duties
on a range of inputs. Customs duties on project
imports have been cut from 7.5% to 5%, a move
which will probably spur companies to build
new refineries, and steel and cement plants. �It�s
a budget which will harm nobody and help industry
and infrastructure across the board,� says
Vimal Bhandari, country head, Ageon NV, a
Dutch financial major. Those likely to benefit include
Essar Oil, BPCL, IOC and Tata Steel. Rationalising
the dividend distribution tax (DDT) for
holding companies may popularise the holding
company structure used by firms like Reliance
Energy, GMR and L&T, which are implementing
major projects through subsidiaries and special
purpose vehicles.
Aseem Chawla, a partner at law firm
Amarchand Mangaldas, feels this will prevent
double taxation of dividends. �In a domestic
two-tier structure, the holding company would
not be liable to pay DDT on the dividends distributed
to its shareholders to the extent of dividend
received by its subsidiary,� says Mr
Chawla. HDFC Bank chief economist Abheek
Barua feels the FM could have announced steps
like easing restrictions on external commercial
borrowings for infrastructure companies.
Two-wheeler excise duty has gone down
from 16% to 12%. And those intending to
purchase Nanos can now do so at lower prices
as excise duty on small cars has been brought
down to 14%. The only
uncertainty, industry observers
say, is in the context
of the move towards
a unified goods and service
tax. Experts say that
the central Cenvat rate
will have had to come
down from 16% to a lower
rate as the Centre and
the states were moving
towards a composite
(Centre plus state) GST rate of 20%. In the
context of an industrial slowdown, the excise
cut makes sense.
The rest of the indirect tax proposals are a
grab-bag of concessions to specific sectors. Thus,
there are excise concessions to the cold chain
industry and customs duty cuts for inputs going
into production of electronic hardware, gems
and jewellery and the sports sector. Hospitals
outside major urban centres and two-, three-
and four-star hotels in certain locations get 5year
tax breaks. Spending on research and agricultural
seeds gets a 150% cut, joining pharma
which already enjoys this exemption, while
outsourcing of research is sought to be encouraged
by providing a 125% tax deduction.
Bodhisatva Ganguli
I BUT DUTY CUTS OFFER SOME SUCCOUR
Rajesh Unnikrishnan
TEAM ET
THE FINANCE MINISTER�S PROPOSALTO
increase the excise duty on bulk cement
and cement clinker � an intermediate for
the cement industry � has added to the woes of
the cement sector, the country�s highest-taxed essential
infrastructure input. Excise on bulk cement
has been increased by Rs 50 per tonne,
while that on clinker has been hiked by Rs 100
per tonne to Rs 450 per tonne.
Cement companies will be forced to pass on
the hike to consumers, who in the case of bulk
cement, are real estate and construction majors
with buildings and complexes to construct. Bulk
cement is largely used by these segments and
their cost is likely to go up.
�The Budget has disappointed us by not
cutting excise duty and countervailing duties.
However, the fillip given to infrastructure will
facilitate growth,� India Cements vice-chairman
N Srinivasan said. Grasim whole-time director
and CFO DD Rathi was more positive: �I
don�t think the increase in excise on bulk cement
would make an impact as the exposure
of most of the cement companies is in the retail
segment.�
Lodha Developers director Abhishek Lodha
felt that though the Budget was neutral for the
real estate sector, it will benefit �largely because
the finance minister has proposed a series of
measures to sustain economic growth and enhance
infrastructure.�
Said EmaarMGF vice-chairman and managing
director Shravan Gupta: �Overall, the Budget
is a balanced one. However, the government�s
silence on FDI in realty and REIT may
raise concerns on availability of finance for this
capital-intensive sector. The fear is further propelled
with the announcement of waiving
farmer bank loans. While this will support the
farming community at large, it will burden the
banking sector by Rs 60,000 crore.�
Industry officials said that the real estate sector
had been expecting an extension of tax holiday
for the Software Technology Parks of India
(STPI) scheme. Many builders operate STPIs
and they would benefit from an extension of
the scheme. However, analysts pointed out that
many builders are also building IT SEZs, which
would be a major beneficiary if the STPI
scheme is phased out. The software and technology
companies will move to SEZs where tax
concessions will be available for 15 years.
�Now, all IT players would move to SEZs,� a
leading developer said.
The Jawaharlal Nehru National Urban Renewal
Mission (JNNURM) has got a 25% increase with
an allocation of Rs 6,866 crore. Said Fitch Ratings
regional head (South India) S Nanda Kumar: �The
real challenge is for urban local bodies to come up
with a basket of bankable and viable project proposals
to become eligible to receive the grant.�
(With inputs from J Padmapriya, M Rochan,
V Balasubramanian and Nirbhay Kumar)
Cement makers run
into excise duty hike
Power sector sees light at end of tunnel
CORE PINES FOR MORE
LONG WAY TO GO
India has the second largest
road network in the world �
about 3.3 million km
National highways (66,590 km)
constitute only 2% of the total
road network and share about
40% of the total traffic
Rs 6,541 crore invested for
national highway
development in 2007-08
CONCRETE
BLOCKS
Infrastructure and realty
boom has pushed up demand
Consolidation wave in 2005-06
wasn�t evident last year,
except for deals like Cimpor-
Digvijay Cement
Huge demand-supply
mismatch and high prices
forced government to
allow imports
ROADS & CEMENT
BALANCING
BUBBLY:
Wait a while
before the
infrastructure
champagne is
uncorked �
China spends
seven times
what we put
into infra. But
if the new PPP
regime has its
way, roads,
ports and
power pylons
will acquire a
high-octane
life of their
own soon. Till
then, it�s a
balancing act.
EXCISE
PAIN FOR
PETCHEM
PLAYERS
TROUBLE AT HOME
Piyush Pandey & Ramkrishna Kashelkar
TEAM ET
BUDGET 2008 HAS MADE IT MORE DIFFICULT
for export-oriented units (EOUs) to sell in the
domestic market. EOUs, generally eligible to sell
up to 50% of their annual sales domestically, will
now have to pay customs duty at 50% of applicable
rates for such sales, compared to 25% till
now. India�s largest petrochemicals company,
Reliance Industries (RIL), whose Jamnagar refinery
enjoys EOU status, is likely to be affected
by the change. Others like South Asian Petrochemicals
and IG Petrochemicals, which enjoy
EOU status, will also witness an erosion in their
competitive advantage when selling in India.
Also, costs are likely to go up for polymer
manufacturers as the finance minister has reimposed
5% import duty on naphtha, from nil
last year. �Thanks to a complex regime of export
benefits and duty exemptions, naphtha is exported
from refineries and is imported by manufacturers
of polymers, leading to price distortions
and revenue losses,� he said.
This will adversely impact companies like
RIL and Haldia Petrochemicals, which use
naphtha for polymer production. Till now,
RIL used to export naphtha from its refinery
availing of the benefits of being an EOU,
while its erstwhile subsidiary IPCL used to
import it duty-free.
Petrochemicals manufacturers are not happy
with the development. �We are disappointed by
the re-imposition of 5% import duty on naphtha
used in production of polymers. This is not in
line with the basic rule that customs duty on raw
materials should be less than that on the finished
product,� said Chemicals and Petrochemicals
Manufacturers Association of India president
KG Ramanathan.
The general reduction in excise rates from
16% to 14% and the cut in central sales tax to
2% will help the petrochemicals industry.
�The waiver of loans and interests to farmers
will help increase plastic consumption in the
agriculture sector,� said Supreme Industries
MD MP Taparia.
The fertiliser industry will benefit from the reduction
in duty on sulphur, which has been cut
from 5% to 2%.
BROOM...VROOM
13UNION BUDGET 2007 - 2008UNION BUDGET 2008 - 2009 THE ECONOMIC TIMES SATURDAY 1
MARCH 2008 WWW.ECONOMICTIMES.COM
Consumer�s got
a ticket to ride
the eco boom
Will the excise duty cuts help spur consumption?
This year�s Budget ensures that the growth momentum will
continue. There is continuing fiscal consolidation, increased
thrust on social spending and a fillip to consumption growth.
The substantial rise in the threshold limit at which income becomes
taxable will also increase disposable income and lead to
growth in savings as well as consumption.
Is waiving farm debt the best way to alleviate rural
distress?
While the merits of such a write-off may be debated, the fact
is that farmers are the backbone of the Indian economy and
there are non-economic factors which often have to be
weighed. This was an issue that would have presented difficult
options for the FM, but if a holistic view is taken, this
may have been the best possible option. The priority for the
agriculture sector and on basic development issues has been
substantially stepped up.
The outlays for irrigation, education and healthcare have
been increased considerably. Initiatives such as the setting
up of 6,000 high-quality model schools, bringing 2.5 crore
more children under the mid-day meal scheme, etc are good
news. Measures such as providing health cover for workers
in the unorganised sector and extension of the rural employment
guarantee programme to all 596 districts are big
moves towards bringing the poor into the mainstream.
What about the impact on the fiscal front, and the
industrial sector?
On the fiscal front, the government has surpassed its targets,
reining in the fiscal deficit to barely 2.5% of the GDP. This is a
significant achievement.
More so, when viewed in the context of the government�s expenditure
priorities and global inflationary pressures. The industrial
sector should also be able to maintain its growth momentum.
The reduction in the general Cenvat duty rate from
16% to 14% is positive for industry.
PROJECT IMPORTS GOT A SHOT IN
the arm with the government slashing
customs duty from 7.5% to 5%.
Projects in the irrigation, steel, oil
and gas, pipeline and mining sectors which
bank on imports will benefit from this, especially
with lower costs making companies
source more from abroad.
The reduced customs duty will be available
for select items. The list includes items of machinery
like prime movers, instruments, apparatus
and appliances, control gear and transmission
equipment as well as raw materials needed
to manufacture these items.
KPMG executive director Arvind Mahajan
said projects will get a boost, especially in midstream,
pipeline and steel sectors. �For power
projects, the FM has announced a special countervailing
duty (CVD) of 4%, making it expensive
to import project cargo. Probably, this is to
help local companies like Bhel,� he said.
SAIL chairman SK Roongta said the lowering
of customs duty will help the steel sector. �Reduction
of duty on project imports would have a
positive impact on steel and capital-
oriented industries,� said Tata
Steel MD B Muthuraman.
However, the decision to introduce
4% special CVD for power
sector imports has stirred a hornet�s
nest. JSW Energy vice-
chairman NK Jain said that for
power generation companies
which want to set up more projects,
it is a disappointing Budget.
�The Budget has proposed to decrease CVD
by 2% to 14%, but imposed 4% special CVD for
specified projects in the power sector, which are
below 1,000 megawatt (MW) capacity. Eventually,
indirect taxes have increased by 2% for
power projects,� he said. Scrapping the 5% customs
duty on steel scrap may benefit secondary
steel makers. JSW Steel MD Sajjan Jindal said
the cut will help steel players using induction
furnaces.
However, a senior Ispat Industries
official said the cut would have only a
marginal impact. �It will lead to Rs 6070
crore savings per annum on import
of scrap for Ispat, as it is the largest importer
of scrap of about 0.6 million
tonnes,� he said.
The other major impact on steel sector
is an excise duty cut from 16% to 14% . It will
bring down prices marginally for steel used in
construction and roofing. Also, reduction in project
import duty would help the industry tide over
the rising cost of input marginally.
Said Srei Infrastructure vice-president Hemant
Kanoria: �Though the finance minister is
confident of 9% GDP growth, to my mind, unless
he responds favourably to the industry�s demand
to give a boost to infrastructure, we will not be
able to mobilise the requisite capital for building
of infra � the foundation of India.�
Lowering of excise duty on automobiles and
two- and three-wheelers will also promote use of
steel. �The government�s continued commitment
towards ensuring double-digit manufacturing
growth by carrying on with the ongoing
reforms process looks reassuring, especially for
an infrastructure sector like steel,� Essar Steel
Holdings CEO J Mehra said.
Anto T Joseph & Rakhi Mazumdar
POWER ON
THE BLINK
The 4% CVD on
power sector
imports has made
power companies
unhappy
For oilcos, there
will be blood
But Duty Rejig Protects From Global Shocks
Curtains up for
project imports
INFRASTRUCTURE
MAJORS
L&T, HCC, IVRCL, GMR, GVK,
Punj Lloyd, Gammon
STORY SO FAR
Key infrastructure development in
roads, power, ports, airports,
hamstrung by red tape and lack of
investment over the years
Companies have raised
funds through various routes
to finance their expansion
plans. Construction companies
raised an estimated
$3 billion last year
Implementation still remains a
problem due to fluctuating
government policies
CUSTOMS CUT TO BENEFIT SECTOR; STEEL PRICES MAY COOL OFF
KUMAR BIRLA
CHAIRMAN, ADITYA BIRLA GROUP
CORE &
INFRASTRUCTURE
read full text on www.economictimes.com
EXCISE
PAIN FOR
PETCHEM
PLAYERS
TROUBLE AT HOME
Piyush Pandey & Ramkrishna Kashelkar
TEAM ET
BUDGET 2008 HAS MADE IT MORE DIFFICULT
for export-oriented units (EOUs) to sell in the
domestic market. EOUs, generally eligible to sell
up to 50% of their annual sales domestically, will
now have to pay customs duty at 50% of applicable
rates for such sales, compared to 25% till
now. India�s largest petrochemicals company,
Reliance Industries (RIL), whose Jamnagar refinery
enjoys EOU status, is likely to be affected
by the change. Others like South Asian Petrochemicals
and IG Petrochemicals, which enjoy
EOU status, will also witness an erosion in their
competitive advantage when selling in India.
Also, costs are likely to go up for polymer
manufacturers as the finance minister has reimposed
5% import duty on naphtha, from nil
last year. �Thanks to a complex regime of export
benefits and duty exemptions, naphtha is exported
from refineries and is imported by manufacturers
of polymers, leading to price distortions
and revenue losses,� he said.
This will adversely impact companies like
RIL and Haldia Petrochemicals, which use
naphtha for polymer production. Till now,
RIL used to export naphtha from its refinery
availing of the benefits of being an EOU,
while its erstwhile subsidiary IPCL used to
import it duty-free.
Petrochemicals manufacturers are not happy
with the development. �We are disappointed by
the re-imposition of 5% import duty on naphtha
used in production of polymers. This is not in
line with the basic rule that customs duty on raw
materials should be less than that on the finished
product,� said Chemicals and Petrochemicals
Manufacturers Association of India president
KG Ramanathan.
The general reduction in excise rates from
16% to 14% and the cut in central sales tax to
2% will help the petrochemicals industry.
�The waiver of loans and interests to farmers
will help increase plastic consumption in the
agriculture sector,� said Supreme Industries
MD MP Taparia.
The fertiliser industry will benefit from the reduction
in duty on sulphur, which has been cut
from 5% to 2%.
BROOM...VROOM
13UNION BUDGET 2007 - 2008UNION BUDGET 2008 - 2009 THE ECONOMIC TIMES SATURDAY 1
MARCH 2008 WWW.ECONOMICTIMES.COM
Consumer�s got
a ticket to ride
the eco boom
Will the excise duty cuts help spur consumption?
This year�s Budget ensures that the growth momentum will
continue. There is continuing fiscal consolidation, increased
thrust on social spending and a fillip to consumption growth.
The substantial rise in the threshold limit at which income becomes
taxable will also increase disposable income and lead to
growth in savings as well as consumption.
Is waiving farm debt the best way to alleviate rural
distress?
While the merits of such a write-off may be debated, the fact
is that farmers are the backbone of the Indian economy and
there are non-economic factors which often have to be
weighed. This was an issue that would have presented difficult
options for the FM, but if a holistic view is taken, this
may have been the best possible option. The priority for the
agriculture sector and on basic development issues has been
substantially stepped up.
The outlays for irrigation, education and healthcare have
been increased considerably. Initiatives such as the setting
up of 6,000 high-quality model schools, bringing 2.5 crore
more children under the mid-day meal scheme, etc are good
news. Measures such as providing health cover for workers
in the unorganised sector and extension of the rural employment
guarantee programme to all 596 districts are big
moves towards bringing the poor into the mainstream.
What about the impact on the fiscal front, and the
industrial sector?
On the fiscal front, the government has surpassed its targets,
reining in the fiscal deficit to barely 2.5% of the GDP. This is a
significant achievement.
More so, when viewed in the context of the government�s expenditure
priorities and global inflationary pressures. The industrial
sector should also be able to maintain its growth momentum.
The reduction in the general Cenvat duty rate from
16% to 14% is positive for industry.
PROJECT IMPORTS GOT A SHOT IN
the arm with the government slashing
customs duty from 7.5% to 5%.
Projects in the irrigation, steel, oil
and gas, pipeline and mining sectors which
bank on imports will benefit from this, especially
with lower costs making companies
source more from abroad.
The reduced customs duty will be available
for select items. The list includes items of machinery
like prime movers, instruments, apparatus
and appliances, control gear and transmission
equipment as well as raw materials needed
to manufacture these items.
KPMG executive director Arvind Mahajan
said projects will get a boost, especially in midstream,
pipeline and steel sectors. �For power
projects, the FM has announced a special countervailing
duty (CVD) of 4%, making it expensive
to import project cargo. Probably, this is to
help local companies like Bhel,� he said.
SAIL chairman SK Roongta said the lowering
of customs duty will help the steel sector. �Reduction
of duty on project imports would have a
positive impact on steel and capital-
oriented industries,� said Tata
Steel MD B Muthuraman.
However, the decision to introduce
4% special CVD for power
sector imports has stirred a hornet�s
nest. JSW Energy vice-
chairman NK Jain said that for
power generation companies
which want to set up more projects,
it is a disappointing Budget.
�The Budget has proposed to decrease CVD
by 2% to 14%, but imposed 4% special CVD for
specified projects in the power sector, which are
below 1,000 megawatt (MW) capacity. Eventually,
indirect taxes have increased by 2% for
power projects,� he said. Scrapping the 5% customs
duty on steel scrap may benefit secondary
steel makers. JSW Steel MD Sajjan Jindal said
the cut will help steel players using induction
furnaces.
However, a senior Ispat Industries
official said the cut would have only a
marginal impact. �It will lead to Rs 6070
crore savings per annum on import
of scrap for Ispat, as it is the largest importer
of scrap of about 0.6 million
tonnes,� he said.
The other major impact on steel sector
is an excise duty cut from 16% to 14% . It will
bring down prices marginally for steel used in
construction and roofing. Also, reduction in project
import duty would help the industry tide over
the rising cost of input marginally.
Said Srei Infrastructure vice-president Hemant
Kanoria: �Though the finance minister is
confident of 9% GDP growth, to my mind, unless
he responds favourably to the industry�s demand
to give a boost to infrastructure, we will not be
able to mobilise the requisite capital for building
of infra � the foundation of India.�
Lowering of excise duty on automobiles and
two- and three-wheelers will also promote use of
steel. �The government�s continued commitment
towards ensuring double-digit manufacturing
growth by carrying on with the ongoing
reforms process looks reassuring, especially for
an infrastructure sector like steel,� Essar Steel
Holdings CEO J Mehra said.
Anto T Joseph & Rakhi Mazumdar
POWER ON
THE BLINK
The 4% CVD on
power sector
imports has made
power companies
unhappy
For oilcos, there
will be blood
But Duty Rejig Protects From Global Shocks
Curtains up for
project imports
INFRASTRUCTURE
MAJORS
L&T, HCC, IVRCL, GMR, GVK,
Punj Lloyd, Gammon
STORY SO FAR
Key infrastructure development in
roads, power, ports, airports,
hamstrung by red tape and lack of
investment over the years
Companies have raised
funds through various routes
to finance their expansion
plans. Construction companies
raised an estimated
$3 billion last year
Implementation still remains a
problem due to fluctuating
government policies
CUSTOMS CUT TO BENEFIT SECTOR; STEEL PRICES MAY COOL OFF
KUMAR BIRLA
CHAIRMAN, ADITYA BIRLA GROUP
CORE &
INFRASTRUCTURE
read full text on www.economictimes.com
Rajeev Jayaswal & Piyush Pandey

TEAM ET

THE EXCISE DUTY REJIG ON PETROL

anddiesel is unlikely to provide any immediate
relief to oilcos suffering huge losses
due to auto fuel prices being kept artificially
low. The govern

ment�s decision to re-

marketing com

place the 6% ad val

panies (OMCs)

orem component of

expressed disap

the prevailing excise

pointment. �We

duty on unbranded

expected the

petrol and diesel with

Budget to pro-

specific duty will,

vide some relief

however, provide

from the losses

protection to the oil-

suffered by

cos from global oil

OMCs on retail

price volatility.

sale of petrol and

In other words, ir

diesel, by lower-

respective of global

ing of the excise

oil price fluctuations,

duty. But this has

companies would be

not come about,�

certain about their

said Essar Oil MD

excise duty obligations

on unbranded petrol and diesel at Rs
14.35/litre and Rs 4.60/litre, respectively,
(excluding the 3% education cess). Excise
duty on branded auto fuels will, however,
remain unchanged.

�This is a well-calculated move of the

government which would, in no way,
result in any revenue loss for the ex

chequer,� said a senior official of a public

sector oil company. �Retail prices are unlikely
to increase; hence, the government
would not have made any windfall
gain on account of ad valorem duty. Secondly,
it has saved itself from the criticism
of gaining from oil price volatility.�

Private oil

Naresh Nayyar.

Ernst & Young partner Ravi Mahajan,

however, termed it as a move �in the
right direction� on the lines of the Rangarajan
Committee�s recommendations.
The committee on pricing and
taxation of petroleum products had suggested
that the government sacrifice
�windfall gains� in revenue.

Rural healthcare gets a boost

5-Year Tax Holiday Gives Corporate Hospitals A Reason To Expand In Bharat

J Padmapriya

TEAM ET

C
C
ORPORATE HOSPITALS AND
nursinghomes now have a great
reason to dive deep and expand in rural

India, with Mr Chidambaram announcing the

gift of a five-year tax holiday. Labelling health

as one of the pillars of social sector reforms, FM

has delivered a sugar-coated pep-up pill with

marked-up public healthcare spending at

Rs 16,534 crore (up 15%) and brand-new

interventions such as an insurance plan for the

unorganised workforce and a special facility

for geriatric care.

Corporate healthcare will witness

heightened activity with a new sub-section

(11C) in Section 80-IB that will grant a five-

year tax holiday to hospitals set up

anywhere in India, except in specified urban

agglomerations. This window will be open

between April 2008 and March 2013 during

which the hospital has to begin operations.

Corporate hospitals may now take a

relook at their growth strategies and deploy

investments in these regions. High-tech
healthcare facilities in rural India will reduce
the need for patients to travel to urban
centres for primary referrals. Apollo
Hospitals chairman Prathap C Reddy said:
�Given the need to have one lakh beds in the
next two decades, these incentives will help
bridge the gap.�

More than corporate hospitals, the move

may trigger expansion by regional
neighbourhood clinics and nursing homes.
Healthcare trackers see growth in the
number of 50-100 bed hospitals, which will
offer speciality treatment in a few areas like
cardiac or trauma care.

�We still need to look at the list of cities,

which will benefit from this plan. We may
modify part of our strategy accordingly, even
if tier II and III cities have always been part of
our expansion plans,� said Fortis Healthcare
CMD Shivinder Singh.

Chains like Apollo Hospitals and

Wockhardt already have well-defined plans

to spread wings to these cities. Apollo may be

looking at investments of up to Rs 3,000
crore to set up 100 such hospitals in tier II
and tier III cities. Wockhardt plans to set up
17 hospitals in cities like Nagpur, Rajkot and
Bhopal, said Wockhardt Hospitals CEO
Vishal Bali.

On the delivery side, the government is

upgrading 323 district hospitals and is
planning to set up community-owned, 24/7
decentralised health centres under the
Rs 12,050-crore National Rural Health
Mission. Nearly 4.62 lakh social health
activists have been trained to activate this
plan. The Budget has also enhanced outlays
for drives against AIDS (Rs 993 crore) and
polio (Rs 1,042 crore).

The government is piloting a health insurance

plan that will offer cover of Rs 30,000
for every worker in the unorganised sector
under the BPL category. The plan, for which
the Centre�s share of premia will be Rs 205
crore, is being rolled out in Delhi, Haryana
and Rajasthan.
BREATHE EASY
DIVIDEND RECEIVED FROM SUBSIDIARIES &
DIVIDEND PAID TO SHAREHOLDERS IN FY07
COMPANY DIVIDEND RECEIVED DIVIDEND PAYOUT
SBI 428 737
IOC 253 2,251
ICICI BANK 222 901
BPCL 184 578
ONGC 140 6,631
L&T 68 374
TATA MOTORS 62 578
M&M 61 282
HDFC 57 557
GRASIM INDS 50 252
INDIAN HOTELS 14 96
TATA TEA 12 93
TCS 12 1,125
ITC 11 1,166
(Rs crore) Source: Prowess
DIVIDEND FROM SUBSIDIARIES
NOT TO ATTRACT DDT
Reduces dividend distribution tax for
holding companies. Benefit will not be
available if the holding company is
a subsidiary of another firm
ONUS OF CAP GAINS TAX IN AN
ACQUISITION TO BE ON BUYER
Acquisition of Indian companies by foreign
firms will become more expensive
SERVICES SECTOR NEED NOT
PAY TAX ON PRELIMINARY
EXPENSES FOR EXPANSION
Brings down tax liabilities for companies
in the services sector
CENVAT RATE CUT TO 14%
FROM 16%
Prices of most goods likely to drop
by 1.5% to 2%
FBT ON ESOPS DEEMED TO BE
TAX PAID BY EMPLOYEE
Employees may get credit depending on
the tax policy of their home country
LIMIT FOR SERVICE TAX
EXEMPTION RAISED TO
Rs 10 LAKH FROM Rs 8 LAKH
Move likely to benefit 65,000 small
service providers
NISHITH DESAI
INTERNATIONAL TAX LAWYER
THE BUDGET LACKS A GLOBAL MINDSET. NOW
that Indian firms are going global, the FM should
have provided for global tax consolidation and
participation exemptions as prevalent in Holland
and other EU countries. I wish he had
encouraged the setting up of regional HQs,
trading firms and AMCs in India. Also, he should
have focussed on putting in place the long-
awaited mechanism for advance pricing. He
could have also made available advance rulings
to companies going global.
The FM has mitigated the cascading effect of
dividend distribution tax only for single tier
parent-subsidiary structures. Foreign firms
prefer multi-tier units for risk management and,
therefore, would prefer a complete pass through
for tax purposes, especially for DDT.
Short-term capital gains tax has been hiked to
15%. This means foreign investors are
vulnerable to budgetary changes. There are no
tax exemptions to Indian firms going in for
overseas M&As. Further, tax laws for expatriates
employed by Indian companies are ambiguous.
The Budget does not address issues faced by
Indian residents on international M&As. While
mergers of Indian firms are tax-exempt, notional
gains arising on the merger of foreign
companies are taxable in the hands of Indian
shareholders.
Corp tax cut to 35%,
foreign cos to pay 48%
No surcharge on corp tax
Export profits exempted
from MAT. Carry forward
system for MAT introduced
Dividend distribution tax of
10% imposed on cos
VDIS launched to harness
black money
Tax holiday for telecom
sector investments
UNION BUDGET 2007 - 2008UNION BUDGET 2008 - 2009 THE ECONOMIC TIMES SATURDAY 1
MARCH 2008 *WWW.ECONOMICTIMES.COM 14
CORPORATE
TAX - DIRECT
UNION BUDGET 2007 - 2008UNION BUDGET 2008 - 2009 THE ECONOMIC TIMES SATURDAY 1
MARCH 2008 *WWW.ECONOMICTIMES.COM 14
CORPORATE
TAX - DIRECT
Charity ends when profits start kicking in

Hema Ramakrishnan & to rake in as much as Rs 5,000 crore of companies will have to
pay tax on only on donations,� said Daksha Baxi, a
Ravi Ananthanarayanan extra revenues by taxing these trusts. It income earned
through business oper-direct tax expert.
TEAM ET will also impact entities which have set ations,� says Aseem Chawla,
partner, According to RSM Astute founder
up trusts to deal in art and handicrafts. Amarchand Mangaldas. Suresh Surana, even
sports

F
F
OR YEARS, CORPORATES HAVE No longer will they get a tax break on For long, the
government has been organisations and the activities of trade
been masking various commercial such income. Interestingly, even trying to bring
certain categories of char-bodies organising trade exhibitions and
activities in the garb of charitable spiritual organisations that charge a itable
institutions under the tax net, giv-seminars may not qualify for tax relief.
trusts to escape tax. It�s a simple no-brain-�fee� for their teachings cannot
claim a en the huge revenue implications in Besides, the rental income that a
charitaer
that almost all the business houses in tax exemption. But there�s the catch:
doling out tax breaks. Over the years, it ble or a religious trust earns by
renting
the country indulge in. In what could be a such organisations will still get a tax
has been tightening the norms for chari-out its property for a commercial activity

tricky terrain in the tax landscape, the break if they call themselves �public re-
table institutions that claim tax would also attract tax. But there are
Budget has tried to plug this loophole. ligious purposes trust� and get the
exemptions. Further, all charitable insti-some grey areas, and some tax experts
READ THE FINE PRINT

The income generated by charitable approval of a designated authority. tutions

were asked to file returns. �In feel that the proposed move could lead
trusts from commercial activities � The move will also impact �not-for-the 2008-09
Budget, the government to disputes on classification of income. Income generated
by charitable
like a hospital earning through sale of profit companies� � better known as has
signalled that any organisation For example, would a hospital earning trusts from
commercial activities has
medicines � will now be taxed. Such Section 25 companies in corporate whose
activity is not specifically directed income from incidental activities �

been brought under tax net. The move

windows of income may look parlance � that generate income from towards relief of
the poor, education or that are not strictly medical in nature

could impact many an institution.

innocuous, but the government plans similar activities. �Even these medical relief
would have to survive � qualify for tax exemption?

FOR EVERY POUND,

PAY A PENNY

RAY-DEFINED: If Satyajit Ray were to make his classic Charulata now,

he would have had his characters reading out the headlines from
The Economic Times. That act would have been yet another headline
reflecting the taxing times and its most faithful chronicler.

CROSS-BORDER M&As SINCE 2002 TO ATTRACT CAP GAINS TAX

O
O
N THE FACE OF IT,
nothing seems to
have changed for India
Inc. Buoyant tax
revenues and better
compliance haven�t
influenced the finance
minister
enough to prune the
corporate tax rate, or even the surcharge.
But, for overseas firms, acquiring companies
in India just got costlier. The FM may not
have spelled it out in his speech, but the Budget
fine-print reveals that the government
has opened the doors for taxing cross-border
deals. And that too with retrospective effect
from June 2002. The onus of paying capital
gains tax on an acquisition in India will now
rest with the buyer. The buyer is expected to
deduct tax at source and failure to do so
would leave him liable to pay the tax.

LONG ARM OF TAX

The obvious target: cross-border M&A
transactions that have escaped the capital
gains tax net so far. The government woke up
to the possibility of a tax revenue goldmine
when British mobile giant Vodafone bought a
controlling stake in India�s Hutchison Essar
for nearly $11 billion last year. More such
deals have followed, and they seem to have
strengthened the government�s case.

SOME CROSS-BORDER M&A

DEALS THAT WILL BE TAXED NOW
YEAR TARGET ACQUIRER AMOUNT
2007 HUTCHISON VODAFONE
ESSAR GROUP 11,100
2006 I-FLEX ORACLE 1,063
2006 FLEXTRONICS KKR & CO 900
2006 MPHASIS EDS 384
2004 GENPACT 2 US PE FIRMS 500
In $ million
The government�s contention is simple. If close to $5 billion as capital gains tax
from

controlling interest in an Indian company M&A deals struck after June 2002,
according

changes hands after equity is transferred to an estimate by a leading tax

consultant.

from one foreign firm to another in a tax In August 2007, the income-tax
authorities

haven, the Indian government loses out on asked the renamed Vodafone Essar to pay

capital gains tax. In its reckoning, although nearly $2 billion in capital gains
tax on the
the deal may not have been made in India, deal, which involved Vodafone buying a
52%

tax is payable because the deal-making in-stake in Hutchison Essar from Hong
Kong�s

volves an Indian asset, which is part of the Hutchison. The company mounted a
legal

valuation of the transaction. challenge and the matter is still pending in

If the government has its way, the pro-court. Since then, around 400 other firms
posed changes in the tax law could bring in have been served notice by the tax
authorities.

The deals include GE�s sale of 60% stake in

Genpact to US-based private equity investors
and the Tatas� acquisition of AT&T stake in
Idea Cellular. The $120-million Foster�s India-
SABMiller deal, too, is believed to be under
the scanner.

Vodafone has argued that the transaction

was between offshore companies owned by
it and Hutchison, and the deal is outside Indian
jurisdiction. Further, the Birtish telco
says it is not liable to pay capital gains tax
since it is the buyer and not the seller. The
government has now plugged the loophole
in the Income-Tax Act by placing the onus
of paying the tax on the buyer.

Experts aren�t pleased with the development.

�The FM has resorted to a retrospective
amendment of law with effect from 2002,
while the matter is still under adjudication in
the court. A retrospective amendment unnerves
the investor community and shows
disregard for the judicial system,� says Dinesh
Kanabar, head of tax practice at PwC.

On its part, Vodafone remains unfazed.

�We believe Budget changes in India regarding
withholding taxes do not have any significant
impact on the case pending before the
Bombay High Court. We have been advised
that there should be no tax arising on the
transaction and Vodafone will continue to defend
its position vigorously,� said a spokesperson.
Potentially, any transaction in the world
could be taxed in India provided the connection
with an Indian company is established.

Amidst this cloud over M&A deals,

there�s a silver lining for India Inc. The FM
has left major tax exemptions virtually unchanged
which means most corporates pay
a lot less tax than the prescribed 33.99%.
Hema Ramakrishnan &
M Padmakshan

(With inputs from Karthik Subbaraman)

Your arms to
bring in rich
dividends

Holding cos need not pay DDT

on dividend from subsidiaries

Ravi Ananthanarayanan & Anto Joseph

TEAM ET

HOLDING COMPANIES, ESPECIALLY IN SECTORS LIKE

infrastructure and financial services, stand to gain from the
amendment to the dividend distribution tax (DDT) rules, which
exempts dividends received from subsidiaries from the tax.

Companies have been complaining about the cascading effect

of the DDT, currently levied at 15%. They said as dividend
income is taxed once, taxing dividend payouts amounts to
double taxation. Now, companies can deduct dividend earned
from subsidiaries from dividend payable, before paying DDT.
The amendment takes effect from April 1, 2008.

The amendment is a stripped-down version of the discontinued

Section 80 M. �It does not seem as good as Section
80M, which exempted every
layer of subsequent dividend declaration,�
says Mukesh Butani,
partner, BMR & Associates. Section
80M allowed companies to deduct
all dividend income from dividend
payments, and pay tax only on the
net income.

The proposed amendment is not

as generous. For one, the benefit is
available only for dividend income
from subsidiaries; and two, the
company claiming the benefit can-CRORES TO
not be a subsidiary. So, in a chain-

BE MADE

holding structure, only the topmost

holding company will get the In FY07, 1,900 cos
benefit. The move will benefit hold-

paid a dividend of

ing companies in sectors like finan-

Rs 55,992 cr and
cial services and infrastructure
projects, where many projects are received Rs 3,521 cr
executed through special purpose

as dividend from

vehicles. Major infrastructure proj

subsidiaries

ects are executed through consortia.

�There could be huge savings
for them,� says Arvind Mahajan, executive director, KPMG.
In the real estate sector, too, companies have set up separate
subsidiaries for each project.

The immediate benefit will be for promoter-owned holding

entities. Oil & gas sector companies like ONGC, IOC and BPCL
earn significant dividend income from subsidiaries. Says Coal
India chairman Partha S Bhattacharyya: �Coal India is likely
to save about Rs 200 crore. We paid a dividend of Rs 1,500
crore to the Centre in 2006-07, while five of our subsidiaries
paid us a dividend of Rs 2,629 crore.� In the financial services
sector, many banks operate through subsidiaries in allied sectors
like insurance, investment banking and mutual funds.
They also stand to gain from the move.

The promoters will benefit, too, but only if a single holding

company owns more than 50% in the group company.
Generally, promoters tend to disperse their shareholding
across a number of companies. Now, they may even think
of going in for a recast of their holding structures. But as
such a move will have other complications, they may prefer
to wait and watch. DDT is a sunk cost for domestic companies
as it is not allowed as a deduction while calculating the
taxable income. As per the new rule, the subsidiary should
have paid DDT, and the same dividend can�t be claimed more
than once as a deduction.
FILE IT. DON�T FORGET IT Inclusive for
sure, but does
it really click?
This is a high-expenditure Budget with focus on the social
and farm sector. Will this help induce inclusive growth?
Despite per-capita incomes growing by close to 7% in each of
the past four years, our farmers continue to be a distressed lot.
The FM has indeed taken a bold step by waiving overdue loans
for small and marginal farmers. This is a step towards inclusive
growth. The large increase in outlay for water projects would
hopefully increase food production.
Higher education is a dark spot. Though FM has enhanced allocation
for education, he hasn�t done much for higher education.
Starting a few IITs is not going to make much difference to the
country.Bold steps are called for to open the sector and to globalise.
The Budget has remained quiet on the IT sector other
than small moves like broadband in rural areas and a
higher outlay for rural data centres. What is the IT industry
preparing for?
The IT industry expected significant measures to enhance investment
in higher education to increase the supply base of high-
quality knowledge workers. While steps have been announced to
invest in skills development and education, clearly they are timid.
Will the policy prescription spur manufacturing sector
into double-digit growth? Will it boost consumption?
The manufacturing sector has grown 9.4% and the FM has focused
on increasing growth by reducing excise duties. India clearly
needs to accelerate her manufacturing capabilities to be a dominant
player. Restructuring direct tax rates would boost consumption
and production. This would also dampen wage inflation.
It is a strategic Budget, both politically and economically. The
Budget would qualitatively enhance the country�s position in
the world. It will make domestic industry more competitive. It
will increase compliance among the middle class and the tax
payers. It will increase the welfare of the citizens due to enhanced
spending on health, education and women, and the social sector,
and this has indeed set the stage for further growth.
K G Narendranath
TEAM ET
CALL IT MANUFACTURING HAPPINESS.
Thanks to the slashing of general cenvat
by 2 percentage points, the prices of most
manufactured goods other than food
items could come down 1.5-2%. Medicines, electronic
hardware, and small and hybrid cars are
among products that could see steep price cuts.
The ad valorem part of the excise tax on petrol
and diesel has been replaced by an equivalent
specific duty when oil prices are high. So,
the revenue managers would no longer secretly
yearn for oil prices to go up further, even as
the government struggled to fight inflation. The
rise of rupee has undermined protection to domestic
industry, so peak Customs duty is intact.
The receipts budget this time is marked by
direct taxes emerging as the largest resource.
This is historic. In its revenue calculation, the
government has put excise duty, conventionally
its largest tax head, not only behind corporation
tax but also the tax on personal income.
This was inevitable as the share of indirect taxes
in gross tax revenue has dropped 20 percentage
points due to the consistent
ceding of space to direct taxes in 12
years. �Direct taxes are more equitable,�
says Govinda Rao of NIPFP.
Cut in the cenvat rate is also in
sync with the plan to introduce the
goods and services tax (GST) from
April 1, 2010. More could have been
done by removing a large chunk of
exemptions to broaden GST base. A
revenue-neutral GST rate (cumulative
tax on the final price) is reckoned at 20%.
With cenvat rate cut (and corresponding cut in
the CVD on imports), the tax content in consumer
price of most goods would become 22-23%
post-Budget (sundry local levies not factored in).
Indirect taxes pinch the taxpayer, despite central
and state VAT chains that negate tax cascades.
By global comparison, a 20% aggregate rate of
GST is on the higher side. The combined incidence
of indirect taxes on the consumer price of a
manufactured good is 19.6% in France, 17.5% in
UK, 13% in Canada and 10% in Australia.
The countries have low import
duties and hardly any hidden tax (input
tax that cannot be offset against
output tax burden). However, a third
of India�s indirect tax levy is on inputs
that go into an output on which the
tax liability is less. An example is the
exemption for electricity while some
of its inputs like fuel oil are taxed. This
hidden tax is a cost to businesses,
Ernst & Young tax partner Satya Poddar says.
Tax compliance is rising, but not in tandem
with the clamour for low rates. The taxpayer
base is being tapped efficiently. For revenue to
grow 20-30% in the medium term, the economy
should grow 8-9%. Even today, 20 million
can be added to the 30 million direct tax payers.
WIDENING
SERVICE
LANE
Deepshikha Sikarwar
TEAM ET
SERVICE PROVIDERS HAVE REASON TO
cheer the Budget. Though the finance minister
P Chidambaram reduced the median excise
duty to 14% from 16%, he has left the service
tax rate unchanged at 12%. Also, the threshold
for exemption has been raised to Rs 10 lakh
from the earlier Rs 8 lakh.
Like the rest of his tax strategy, the FM used a
combo package of relief and wider tax net in the
services sector as well. Asset management services
provided under unit-linked insurance schemes
will now attract service tax. This brings them on
par with mutual funds. Services provided by stock
exchanges, commodity exchanges and clearing
houses have also come under the tax net.
The biggest blow, however, has been to the IT
industry as customised software will now attract
service tax. With this, the government has
made it clear that software would now be classified
as a service and not as a good. Service with
regard to promotion of lottery and other such
games of chance will also attract service tax.
Sale and purchase transactions of money
changers will attract service tax instead of just
the commission charged by them. Renting of
open space in malls would also attract service
tax. Services with regard to tangible goods also
come under tax net.
A large number of changes have also been
proposed in the cenvat credit rules. �The Budget
has made many changes in the cenvat
credit rules which were warranted,� KPMG
national head (indirect taxes) S Harishanker
said. A dispute settlement scheme has also
been announced. However, the threshold for
the settlement of arrears will only be applicable
for amounts not exceeding Rs 25,000. Export
of service rules have been amended for clarity
in definition of export of taxable services.
SETTING FREE
K G Narendranath
TEAM ET
THE FM HAS REITERATED
the Centre�s resolve to have a
goods and services tax (GST)
from 2010-11. Keeping with the
road map prepared by a Centre-
state joint committee, he proposed
to reduce the central sales tax from
3% to 2% from April 1, 2008. The
reduction in cenvat rate from 16%
to 14% is a step towards aligning
the excise and service taxes rates.
As per the plan, the GST, a multipoint
tax with input tax credit facility,
would comprise two components:
central GST and state GST.
The two won�t intersect. Both the
imposts could apply on roughly the
same base of goods and services.
Policy makers may, however, keep
petroleum products and many local
levies out of GST and allow differential
rates � both compromises
from purists� point of view. The
states might even be taxing an
exclusive list of services.
An extension of federal tax to
the retail level would mean
expanding the taxpayer base 60fold
overnight. A more plausible
option could be for the Centre to
assign taxpayers below a turnover
level to states, according to tax expert
T R Rustagi.
A two-chain GST structure is
more feasible than a single-chain
tax as the latter would require
states to forego their taxation
powers. �The roadmap for GST,
which may have a dual structure,
is expected to be finalised by April-
May,� empowered committee of
state finance ministers chairman
Asim Dasgupta said. There are
constitutional and administrative
issues involved. No more time to
spend beating the bushes.
With inputs from
Manisha Choudhury
ExtendingTaxTo RetailWould Expand Base 60-Fold Overnight
EXCISED
DUTY
Excise receipts
now fall behind
corporation tax
as well as tax on
personal income
G Ganapathy Subramaniam &
Amiti Sen
TEAM ET
FEEL LIKE BUYING IRANIAN CAR-
pets, Colombian coffee or Belgian crystal?
Now is the time to splurge as imports
are getting cheaper than ever before.
While the rupee�s strength was making
imports cheaper anyway, here�s
the icing on the cake: countervailing
duty on most manufactured goods has
gone down to 14% �� thanks to cenvat
rate coming down from 16% to 14%.
In some cases like small cars and
motorbikes, the CVD now stands at
12% while pharma products would
attract a CVD of only 8%. That sure is
good news, especially since the tax
burden on individual taxpayers has
come down, leaving more cash in
hand. No need to feel guilty: as many
would argue, the more you spend, the
better it is for the economy.
Apart from the common man, India
Inc too has been given goodies on the
Customs duty front. Power project promoters
have reasons to rejoice: the 4%
additional duty of Customs has been
waived. Transmission, sub-transmission,
distribution projects and goods for
high-voltage transmission have also
been freed of the 4% levy. The Budget
has also brought down Customs duty
on project imports to 5% compared to
7.5% earlier, bringing down costs of refineries,
steel plants, cement units and
power projects. UMPPs, however, may
not gain much since they are exempted
from most import levies.
While the FM has refrained from
cutting the peak Customs duty for the
first time since he took over, there are
a bagful of goodies for India Inc in the
form of cheaper raw materials.
Customs-made benefits
Both Individuals & Corporates Can Now Wield The Greenbacks
Budget booster puts GST in right orbit
Deepshikha Sikarwar
TEAM ET
A GLOBAL SLOWDOWN MAY STILL BE A BIT AWAY,
but the country is already putting on the armour. In a
move aimed at insulating domestic manufacturing and
facilitating more consumption, the
Union Budget has slashed median excise
duty from 16% to 14%.
�The manufacturing sector is the backbone
of any economy. It is consumption
that drives production, and it is production
that drives investment. I believe there
is a need to give a stimulus to the manufacturing
sector,� finance minister P Chidambaram
said announcing the move.
The 2% cut meets the long-standing
demand of the industry, which now
has the option of boosting its sales by
passing on the benefit to consumers or
pumping up its bottom lines.
The automobile sector, which lately witnessed dwindling
sales, would be the biggest beneficiary of the FM�s bounty.
Excise duty on small cars, two-wheelers and three-wheelers
has come down from 16% to 12%. On hybrid cars, the
duty is down to 16% from 24%. Excise duty on drugs has
been slashed to 8% from 16%.
The oil sector also stands to gain from a major structural
change in duty structure. Thanks to the new measure, it would
have a specific rate instead of ad valorem, which would
give relief to oil companies when global crude prices go up.
Food processing companies and retail chains could draw
comfort from the reduction in duty on refrigeration equipment
used in cold chains and vehicles. Besides reduction in
duty on packaged foods like breakfast
cereals and tea and coffee premixes,
packaging material used by producers
in the sector will become cheaper too.
Packaged software will attract a higher
duty even though specified convergence
products will witness lower excise at
8%. Riding on the boom in the telecom
sector, the minister has imposed 1% National
Calamity & Contingent Duty. Non-
filter cigarettes, so far enjoying a lower
duty, will attract duty similar to filter ones.
The paper industry, which had seen
drop in activity, can draw relief from the
cut in excise from 12% to 8%. Plugging
a tax loophole, the excise duty on bulk cement has been revised
to 14% of Rs 400 per tonne. The move is expected to
impact the construction sector majorly. As an anti-evasion
measure, the government has armed itself with the powers
to charge excise duty on the basis of production.
EOUs and software technology parks will have to pay
higher duty on their domestic tariff area sales.
Industry Can Pass On The Benefit Or Pump Up Its Bottom Lines
OVERVIEW
No change in rate
Customised software
in tax net
Sales and purchase
of foreign currency,
including money changing,
to attract tax
New dispute resolution
mechanism
Export of service rules
amended
Works contract to attract
4% service tax under
composition scheme
Cenvat credit rules to be
changed
Stock exchanges, commodity
exchanges and
clearing houses under
tax net
Goods transport agents get
exemption of 75% of the
amount charged
OPTIMUM SERVICE
ON THE RIGHT TRACK
FOR REVENUE TO GROW 30% IN MEDIUM TERM, ECONOMY SHOULD GROW 9%
SWEET HOME
EOUs and software
technology parks will
have to pay higher
duty on DTA sales
NANDAN NILEKANI
CO-CHAIRMAN, INFOSYS TECHNOLOGIES
OVERVIEW
General cenvat rate reduced from
16% to 14%
Excise duty on small cars cut from
16% to 12% and on hybrid cars
from 24% to 14%. Excise on two-
and three-wheelers down to 12%
Service tax exemption limit
increased to Rs 10 lakh
Four new services, including asset
management services under Ulip,
brought under service tax net
KEY PLAYERS
Auto majors such as Maruti Suzuki
& Tata Motors stand to benefit
LIC, Bajaj Allianz & Prudential ICICI
may price some products higher
MAPPING GST
Introduction of GST will coincide with
elimination of central sales tax, a thorn
in the flesh. CST will be cut from 3% to
2% from April 1
Under GST, the taxpayer, other than the
final consumer, gets credit for the tax
content in his input good or service
The tax is aimed at creating a uniform
pan-India market for goods and services.
The system exists in as many as 120
countries, with structural variations
Stable move, but
structure is shaky
15UNION BUDGET 2008 - 2009UNION BUDGET 2008 - 2009 THE ECONOMIC TIMES SATURDAY 1
MARCH 2008WWW.ECONOMICTIMES.COM
2% cut exercise in right direction
CORPORATE TAXINDIRECT
read full text on www.economictimes.com
FILE IT. DON�T FORGET IT Inclusive for
sure, but does
it really click?
This is a high-expenditure Budget with focus on the social
and farm sector. Will this help induce inclusive growth?
Despite per-capita incomes growing by close to 7% in each of
the past four years, our farmers continue to be a distressed lot.
The FM has indeed taken a bold step by waiving overdue loans
for small and marginal farmers. This is a step towards inclusive
growth. The large increase in outlay for water projects would
hopefully increase food production.
Higher education is a dark spot. Though FM has enhanced allocation
for education, he hasn�t done much for higher education.
Starting a few IITs is not going to make much difference to the
country.Bold steps are called for to open the sector and to globalise.
The Budget has remained quiet on the IT sector other
than small moves like broadband in rural areas and a
higher outlay for rural data centres. What is the IT industry
preparing for?
The IT industry expected significant measures to enhance investment
in higher education to increase the supply base of high-
quality knowledge workers. While steps have been announced to
invest in skills development and education, clearly they are timid.
Will the policy prescription spur manufacturing sector
into double-digit growth? Will it boost consumption?
The manufacturing sector has grown 9.4% and the FM has focused
on increasing growth by reducing excise duties. India clearly
needs to accelerate her manufacturing capabilities to be a dominant
player. Restructuring direct tax rates would boost consumption
and production. This would also dampen wage inflation.
It is a strategic Budget, both politically and economically. The
Budget would qualitatively enhance the country�s position in
the world. It will make domestic industry more competitive. It
will increase compliance among the middle class and the tax
payers. It will increase the welfare of the citizens due to enhanced
spending on health, education and women, and the social sector,
and this has indeed set the stage for further growth.
K G Narendranath
TEAM ET
CALL IT MANUFACTURING HAPPINESS.
Thanks to the slashing of general cenvat
by 2 percentage points, the prices of most
manufactured goods other than food
items could come down 1.5-2%. Medicines, electronic
hardware, and small and hybrid cars are
among products that could see steep price cuts.
The ad valorem part of the excise tax on petrol
and diesel has been replaced by an equivalent
specific duty when oil prices are high. So,
the revenue managers would no longer secretly
yearn for oil prices to go up further, even as
the government struggled to fight inflation. The
rise of rupee has undermined protection to domestic
industry, so peak Customs duty is intact.
The receipts budget this time is marked by
direct taxes emerging as the largest resource.
This is historic. In its revenue calculation, the
government has put excise duty, conventionally
its largest tax head, not only behind corporation
tax but also the tax on personal income.
This was inevitable as the share of indirect taxes
in gross tax revenue has dropped 20 percentage
points due to the consistent
ceding of space to direct taxes in 12
years. �Direct taxes are more equitable,�
says Govinda Rao of NIPFP.
Cut in the cenvat rate is also in
sync with the plan to introduce the
goods and services tax (GST) from
April 1, 2010. More could have been
done by removing a large chunk of
exemptions to broaden GST base. A
revenue-neutral GST rate (cumulative
tax on the final price) is reckoned at 20%.
With cenvat rate cut (and corresponding cut in
the CVD on imports), the tax content in consumer
price of most goods would become 22-23%
post-Budget (sundry local levies not factored in).
Indirect taxes pinch the taxpayer, despite central
and state VAT chains that negate tax cascades.
By global comparison, a 20% aggregate rate of
GST is on the higher side. The combined incidence
of indirect taxes on the consumer price of a
manufactured good is 19.6% in France, 17.5% in
UK, 13% in Canada and 10% in Australia.
The countries have low import
duties and hardly any hidden tax (input
tax that cannot be offset against
output tax burden). However, a third
of India�s indirect tax levy is on inputs
that go into an output on which the
tax liability is less. An example is the
exemption for electricity while some
of its inputs like fuel oil are taxed. This
hidden tax is a cost to businesses,
Ernst & Young tax partner Satya Poddar says.
Tax compliance is rising, but not in tandem
with the clamour for low rates. The taxpayer
base is being tapped efficiently. For revenue to
grow 20-30% in the medium term, the economy
should grow 8-9%. Even today, 20 million
can be added to the 30 million direct tax payers.
WIDENING
SERVICE
LANE
Deepshikha Sikarwar
TEAM ET
SERVICE PROVIDERS HAVE REASON TO
cheer the Budget. Though the finance minister
P Chidambaram reduced the median excise
duty to 14% from 16%, he has left the service
tax rate unchanged at 12%. Also, the threshold
for exemption has been raised to Rs 10 lakh
from the earlier Rs 8 lakh.
Like the rest of his tax strategy, the FM used a
combo package of relief and wider tax net in the
services sector as well. Asset management services
provided under unit-linked insurance schemes
will now attract service tax. This brings them on
par with mutual funds. Services provided by stock
exchanges, commodity exchanges and clearing
houses have also come under the tax net.
The biggest blow, however, has been to the IT
industry as customised software will now attract
service tax. With this, the government has
made it clear that software would now be classified
as a service and not as a good. Service with
regard to promotion of lottery and other such
games of chance will also attract service tax.
Sale and purchase transactions of money
changers will attract service tax instead of just
the commission charged by them. Renting of
open space in malls would also attract service
tax. Services with regard to tangible goods also
come under tax net.
A large number of changes have also been
proposed in the cenvat credit rules. �The Budget
has made many changes in the cenvat
credit rules which were warranted,� KPMG
national head (indirect taxes) S Harishanker
said. A dispute settlement scheme has also
been announced. However, the threshold for
the settlement of arrears will only be applicable
for amounts not exceeding Rs 25,000. Export
of service rules have been amended for clarity
in definition of export of taxable services.
SETTING FREE
K G Narendranath
TEAM ET
THE FM HAS REITERATED
the Centre�s resolve to have a
goods and services tax (GST)
from 2010-11. Keeping with the
road map prepared by a Centre-
state joint committee, he proposed
to reduce the central sales tax from
3% to 2% from April 1, 2008. The
reduction in cenvat rate from 16%
to 14% is a step towards aligning
the excise and service taxes rates.
As per the plan, the GST, a multipoint
tax with input tax credit facility,
would comprise two components:
central GST and state GST.
The two won�t intersect. Both the
imposts could apply on roughly the
same base of goods and services.
Policy makers may, however, keep
petroleum products and many local
levies out of GST and allow differential
rates � both compromises
from purists� point of view. The
states might even be taxing an
exclusive list of services.
An extension of federal tax to
the retail level would mean
expanding the taxpayer base 60fold
overnight. A more plausible
option could be for the Centre to
assign taxpayers below a turnover
level to states, according to tax expert
T R Rustagi.
A two-chain GST structure is
more feasible than a single-chain
tax as the latter would require
states to forego their taxation
powers. �The roadmap for GST,
which may have a dual structure,
is expected to be finalised by April-
May,� empowered committee of
state finance ministers chairman
Asim Dasgupta said. There are
constitutional and administrative
issues involved. No more time to
spend beating the bushes.
With inputs from
Manisha Choudhury
ExtendingTaxTo RetailWould Expand Base 60-Fold Overnight
EXCISED
DUTY
Excise receipts
now fall behind
corporation tax
as well as tax on
personal income
G Ganapathy Subramaniam &
Amiti Sen
TEAM ET
FEEL LIKE BUYING IRANIAN CAR-
pets, Colombian coffee or Belgian crystal?
Now is the time to splurge as imports
are getting cheaper than ever before.
While the rupee�s strength was making
imports cheaper anyway, here�s
the icing on the cake: countervailing
duty on most manufactured goods has
gone down to 14% �� thanks to cenvat
rate coming down from 16% to 14%.
In some cases like small cars and
motorbikes, the CVD now stands at
12% while pharma products would
attract a CVD of only 8%. That sure is
good news, especially since the tax
burden on individual taxpayers has
come down, leaving more cash in
hand. No need to feel guilty: as many
would argue, the more you spend, the
better it is for the economy.
Apart from the common man, India
Inc too has been given goodies on the
Customs duty front. Power project promoters
have reasons to rejoice: the 4%
additional duty of Customs has been
waived. Transmission, sub-transmission,
distribution projects and goods for
high-voltage transmission have also
been freed of the 4% levy. The Budget
has also brought down Customs duty
on project imports to 5% compared to
7.5% earlier, bringing down costs of refineries,
steel plants, cement units and
power projects. UMPPs, however, may
not gain much since they are exempted
from most import levies.
While the FM has refrained from
cutting the peak Customs duty for the
first time since he took over, there are
a bagful of goodies for India Inc in the
form of cheaper raw materials.
Customs-made benefits
Both Individuals & Corporates Can Now Wield The Greenbacks
Budget booster puts GST in right orbit
Deepshikha Sikarwar
TEAM ET
A GLOBAL SLOWDOWN MAY STILL BE A BIT AWAY,
but the country is already putting on the armour. In a
move aimed at insulating domestic manufacturing and
facilitating more consumption, the
Union Budget has slashed median excise
duty from 16% to 14%.
�The manufacturing sector is the backbone
of any economy. It is consumption
that drives production, and it is production
that drives investment. I believe there
is a need to give a stimulus to the manufacturing
sector,� finance minister P Chidambaram
said announcing the move.
The 2% cut meets the long-standing
demand of the industry, which now
has the option of boosting its sales by
passing on the benefit to consumers or
pumping up its bottom lines.
The automobile sector, which lately witnessed dwindling
sales, would be the biggest beneficiary of the FM�s bounty.
Excise duty on small cars, two-wheelers and three-wheelers
has come down from 16% to 12%. On hybrid cars, the
duty is down to 16% from 24%. Excise duty on drugs has
been slashed to 8% from 16%.
The oil sector also stands to gain from a major structural
change in duty structure. Thanks to the new measure, it would
have a specific rate instead of ad valorem, which would
give relief to oil companies when global crude prices go up.
Food processing companies and retail chains could draw
comfort from the reduction in duty on refrigeration equipment
used in cold chains and vehicles. Besides reduction in
duty on packaged foods like breakfast
cereals and tea and coffee premixes,
packaging material used by producers
in the sector will become cheaper too.
Packaged software will attract a higher
duty even though specified convergence
products will witness lower excise at
8%. Riding on the boom in the telecom
sector, the minister has imposed 1% National
Calamity & Contingent Duty. Non-
filter cigarettes, so far enjoying a lower
duty, will attract duty similar to filter ones.
The paper industry, which had seen
drop in activity, can draw relief from the
cut in excise from 12% to 8%. Plugging
a tax loophole, the excise duty on bulk cement has been revised
to 14% of Rs 400 per tonne. The move is expected to
impact the construction sector majorly. As an anti-evasion
measure, the government has armed itself with the powers
to charge excise duty on the basis of production.
EOUs and software technology parks will have to pay
higher duty on their domestic tariff area sales.
Industry Can Pass On The Benefit Or Pump Up Its Bottom Lines
OVERVIEW
No change in rate
Customised software
in tax net
Sales and purchase
of foreign currency,
including money changing,
to attract tax
New dispute resolution
mechanism
Export of service rules
amended
Works contract to attract
4% service tax under
composition scheme
Cenvat credit rules to be
changed
Stock exchanges, commodity
exchanges and
clearing houses under
tax net
Goods transport agents get
exemption of 75% of the
amount charged
OPTIMUM SERVICE
ON THE RIGHT TRACK
FOR REVENUE TO GROW 30% IN MEDIUM TERM, ECONOMY SHOULD GROW 9%
SWEET HOME
EOUs and software
technology parks will
have to pay higher
duty on DTA sales
NANDAN NILEKANI
CO-CHAIRMAN, INFOSYS TECHNOLOGIES
OVERVIEW
General cenvat rate reduced from
16% to 14%
Excise duty on small cars cut from
16% to 12% and on hybrid cars
from 24% to 14%. Excise on two-
and three-wheelers down to 12%
Service tax exemption limit
increased to Rs 10 lakh
Four new services, including asset
management services under Ulip,
brought under service tax net
KEY PLAYERS
Auto majors such as Maruti Suzuki
& Tata Motors stand to benefit
LIC, Bajaj Allianz & Prudential ICICI
may price some products higher
MAPPING GST
Introduction of GST will coincide with
elimination of central sales tax, a thorn
in the flesh. CST will be cut from 3% to
2% from April 1
Under GST, the taxpayer, other than the
final consumer, gets credit for the tax
content in his input good or service
The tax is aimed at creating a uniform
pan-India market for goods and services.
The system exists in as many as 120
countries, with structural variations
Stable move, but
structure is shaky
15UNION BUDGET 2008 - 2009UNION BUDGET 2008 - 2009 THE ECONOMIC TIMES SATURDAY 1
MARCH 2008WWW.ECONOMICTIMES.COM
2% cut exercise in right direction
CORPORATE TAXINDIRECT
read full text on www.economictimes.com
EBB AND FLOW OF HOPE
INSTITUTIONAL CREDIT FLOW TO AGRICULTURE
COMMERCIAL
COOPERATIVES RRBs BANKS TOTAL
2003-04 26959 7581 52441 86981
2004-05 31424 12404 81481 125309
2005-06 39404 15223 125859 180486
2006-07 42480 20435 140382 203297
2007-08* 33070 15925 88765 137760
* Up to November 2007 Source: Economic Survey (Rs Cr)
Rs 50,000 cr loan waiver for small & marginal farmers
Rs 10,000 cr one-time settlement of debt
for big farmers
Irrigation and Water Resources Finance
Corporation set up
Rs 644 cr for National Agriculture Insurance Scheme
Package for reviving long-term co-operative
credit structure
FROM THE FIELD
HE BUDGET, FOR ALL
its overt populism, is still
pro-growth. The low
fiscal and revenue
deficits projected for the
current year and 200809
make room for low
inflation and low interest
rates. The steep cuts
in personal income tax and lowering of excise
duties would boost growth. The farm
sector needs massive investment, instead it
gets a massive loan waiver and some modest
investment. This is political economy for
you � beats pure economics every time.
The fundamental question about the
Budget is its macroeconomic impact: will it
spur inflation or hike interest rates? This one
does not, although the fiscal deficit reduction
projected is unrealistic. Both the loan
waiver compensation to banks and the
Sixth Pay Commission award, currently not
provided for, will hike total expenditure
above budgeted levels. To meet that, the
government would have to borrow more,
even after factoring in one, steeper growth
in tax revenues than the modest 17.5% rise
assumed and two, bank compensation staggered
over three years.
Past experience shows that growth in
tax collections would be higher: gross tax
receipts in 2007-08 have been 25.5%
higher than in 2006-07 (revised estimates
over revised estimates), although the Budget
last year had projected a growth of only
17%. However, even this higher borrowing
will not be particularly destabilising because
of the cushion afforded by the low
fiscal deficit target of 2.5% of GDP, below
the prescribed target of 3%. India�s current
account deficit has stubbornly stayed below
1% of GDP whereas it could easily be
double that level without even the moodiest
international rating agency raising an
eyebrow. This allows for some leeway on
the fiscal deficit front. So while the government
would miss its targets as per the fiscal
responsibility law while pleasing farmers
and the middle class, the economy would
not be particularly strained.
Corporate tax emerges the biggest contributor
to government finances (24% of total
receipts) bigger than borrowings (a modest
14%), income tax and excise (15%
each) and Customs (13%). Direct taxes
have finally overtaken indirect taxes,
achieving a form of substantive equity, even
if it is difficult to explain to voters.
The real magnitude of loan-waiver is
lower: one has to take out the bad loans that
banks would have written off in the normal
course. But, even so, loan waivers give rise
to expectations of future waivers. This is bad
for the banks, struggling to adjust to a culture
of financial inclusion and taking on rural
customers in droves. And it is bad for
farmers, too � fear of default would force
banks to hike the risk premium they build
into the interest rate on farm loans.
The share of central government expenditure
in GDP is slated to come down to
14.1% (it was 17.1% in the last year of NDA
rule). While plan expenditure is slated to go
up 17.3%, the bulk of it is revenue expenditure.
Plan capital expenditure is slated to go
up a meagre 5.3%. In other words, the Budget
acts out the philosophy of the government
playing the role, primarily, of facilitator
while actual investments would be made
by the private sector. The government
would focus on rural welfare, primary
health, education, etc. Total resources transferred
to the states is slated to go up 19% to
Rs 3,28,422 crore. States too should not
complain. If the Budget pleases everyone
save the cheesed off Opposition, shouldn�t
we expect early elections, soon after the nuclear
deal is signed, say in June?
T K Arun
RS 60,000-CR DEBT WAIVER &
RELIEF FOR FARMERS
Pressure on government finances; creates
moral hazard
FRBM AIM OF ZERO REVENUE
DEFICIT SHIFTED BY A YEAR
Government expenditure will not be cut
sharply to meet targets; expects revenue
growth to help meet FRBM targets
EXCISE RATIONALISED;
MODVAT LOWERED
Yield lower prices and/or higher corporate
profits. Should help spur demand and
investments
NO TDS ON PAPERLESS
LISTED CORPORATE BONDS
Will help develop corporate bond market,
which will facilitate corporate financing,
including for infrastructure
PERSONAL I-T SLABS RECAST
The increase in disposable income should
boost consumption and growth
SMART CARDS FOR PDS
Will help target food subsidy better; may
even help reduce subsidy in the long run
A NEW RS 15,000-CR SKILLS
DEVELOPMENT ORGANISATION
Skill development initiative gets attention
RAJIV KUMAR
DIRECTOR & CE, ICRIER
GOOD POLITICS AND GOOD ECONOMICS.
The Budget promises to bring down the fiscal
deficit to 2.5% of the GDP next year, which is
0.5% off the FRBM target, and reduces revenue
deficit by 0.5% this year though it will take
another two years to achieve the targeted zero
revenue deficit. This is a weakness no doubt, but
it will be churlish to take issues with this in a
colossal election year. The buoyancy in tax
revenues, mainly direct taxes, has allowed the
finance minister to literally spread the largesse
with both hands and leave all opposition a bit
stunned and speechless at the enormity of the
handouts. Of this, the 100% waiver of loans for
small and marginal farmers is, of course, the
piece the resistance. The Budget has several
measures to boost domestic demand to
compensate for a likely decline in external
demand and address some of the critical
constraints through large increase in public
expenditure on infrastructure and rural areas.
These measures also include the 20% increase
in education outlays; the cut in cenvat from 16%
to 14% and further cuts in some sectors; the
standstill on peak Customs duties; and raising
the exemption limit for the personal income-tax.
I cannot see any section of the population left
unhappy. This is quite an achievement and
proves once again that rapid growth can make
possible the unbelievable.
IN 1997 FEBRUARY,
India had seen three
straight years of high
(7% plus) growth for the
first time. And the Asian
crisis was still months
away. Chidambaram
articulated industry's
newfound confidence
and ambition by setting
Asean levels of taxes
as the goal
LOW FISCAL
& REVENUE
deficits
projected for
the current
year and
2008-09
make room
for low
inflation and
low interest
rates. Both the
loan waiver
compensation
to banks and
the Sixth Pay
Commission
award,
currently not
provided for,
will hike total
expenditure
above
budgeted
levels
T INCOME TAX AND EXCISE DUTY CUTS TO BOOST GROWTH
GROWTH HAS NOT
BEEN WAIVED OFF
16 UNION BUDGET 2008 - 2009UNION BUDGET 2008 - 2009 THE ECONOMIC TIMES SATURDAY 1
MARCH 2008WWW.ECONOMICTIMES.COM
HE BUDGET, FOR ALL
its overt populism, is still
pro-growth. The low
fiscal and revenue
deficits projected for the
current year and 200809
make room for low
inflation and low interest
rates. The steep cuts
in personal income tax and lowering of excise
duties would boost growth. The farm
sector needs massive investment, instead it
gets a massive loan waiver and some modest
investment. This is political economy for
you � beats pure economics every time.
The fundamental question about the
Budget is its macroeconomic impact: will it
spur inflation or hike interest rates? This one
does not, although the fiscal deficit reduction
projected is unrealistic. Both the loan
waiver compensation to banks and the
Sixth Pay Commission award, currently not
provided for, will hike total expenditure
above budgeted levels. To meet that, the
government would have to borrow more,
even after factoring in one, steeper growth
in tax revenues than the modest 17.5% rise
assumed and two, bank compensation staggered
over three years.
Past experience shows that growth in
tax collections would be higher: gross tax
receipts in 2007-08 have been 25.5%
higher than in 2006-07 (revised estimates
over revised estimates), although the Budget
last year had projected a growth of only
17%. However, even this higher borrowing
will not be particularly destabilising because
of the cushion afforded by the low
fiscal deficit target of 2.5% of GDP, below
the prescribed target of 3%. India�s current
account deficit has stubbornly stayed below
1% of GDP whereas it could easily be
double that level without even the moodiest
international rating agency raising an
eyebrow. This allows for some leeway on
the fiscal deficit front. So while the government
would miss its targets as per the fiscal
responsibility law while pleasing farmers
and the middle class, the economy would
not be particularly strained.
Corporate tax emerges the biggest contributor
to government finances (24% of total
receipts) bigger than borrowings (a modest
14%), income tax and excise (15%
each) and Customs (13%). Direct taxes
have finally overtaken indirect taxes,
achieving a form of substantive equity, even
if it is difficult to explain to voters.
The real magnitude of loan-waiver is
lower: one has to take out the bad loans that
banks would have written off in the normal
course. But, even so, loan waivers give rise
to expectations of future waivers. This is bad
for the banks, struggling to adjust to a culture
of financial inclusion and taking on rural
customers in droves. And it is bad for
farmers, too � fear of default would force
banks to hike the risk premium they build
into the interest rate on farm loans.
The share of central government expenditure
in GDP is slated to come down to
14.1% (it was 17.1% in the last year of NDA
rule). While plan expenditure is slated to go
up 17.3%, the bulk of it is revenue expenditure.
Plan capital expenditure is slated to go
up a meagre 5.3%. In other words, the Budget
acts out the philosophy of the government
playing the role, primarily, of facilitator
while actual investments would be made
by the private sector. The government
would focus on rural welfare, primary
health, education, etc. Total resources transferred
to the states is slated to go up 19% to
Rs 3,28,422 crore. States too should not
complain. If the Budget pleases everyone
save the cheesed off Opposition, shouldn�t
we expect early elections, soon after the nuclear
deal is signed, say in June?
T K Arun
RS 60,000-CR DEBT WAIVER &
RELIEF FOR FARMERS
Pressure on government finances; creates
moral hazard
FRBM AIM OF ZERO REVENUE
DEFICIT SHIFTED BY A YEAR
Government expenditure will not be cut
sharply to meet targets; expects revenue
growth to help meet FRBM targets
EXCISE RATIONALISED;
MODVAT LOWERED
Yield lower prices and/or higher corporate
profits. Should help spur demand and
investments
NO TDS ON PAPERLESS
LISTED CORPORATE BONDS
Will help develop corporate bond market,
which will facilitate corporate financing,
including for infrastructure
PERSONAL I-T SLABS RECAST
The increase in disposable income should
boost consumption and growth
SMART CARDS FOR PDS
Will help target food subsidy better; may
even help reduce subsidy in the long run
A NEW RS 15,000-CR SKILLS
DEVELOPMENT ORGANISATION
Skill development initiative gets attention
RAJIV KUMAR
DIRECTOR & CE, ICRIER
GOOD POLITICS AND GOOD ECONOMICS.
The Budget promises to bring down the fiscal
deficit to 2.5% of the GDP next year, which is
0.5% off the FRBM target, and reduces revenue
deficit by 0.5% this year though it will take
another two years to achieve the targeted zero
revenue deficit. This is a weakness no doubt, but
it will be churlish to take issues with this in a
colossal election year. The buoyancy in tax
revenues, mainly direct taxes, has allowed the
finance minister to literally spread the largesse
with both hands and leave all opposition a bit
stunned and speechless at the enormity of the
handouts. Of this, the 100% waiver of loans for
small and marginal farmers is, of course, the
piece the resistance. The Budget has several
measures to boost domestic demand to
compensate for a likely decline in external
demand and address some of the critical
constraints through large increase in public
expenditure on infrastructure and rural areas.
These measures also include the 20% increase
in education outlays; the cut in cenvat from 16%
to 14% and further cuts in some sectors; the
standstill on peak Customs duties; and raising
the exemption limit for the personal income-tax.
I cannot see any section of the population left
unhappy. This is quite an achievement and
proves once again that rapid growth can make
possible the unbelievable.
IN 1997 FEBRUARY,
India had seen three
straight years of high
(7% plus) growth for the
first time. And the Asian
crisis was still months
away. Chidambaram
articulated industry's
newfound confidence
and ambition by setting
Asean levels of taxes
as the goal
LOW FISCAL
& REVENUE
deficits
projected for
the current
year and
2008-09
make room
for low
inflation and
low interest
rates. Both the
loan waiver
compensation
to banks and
the Sixth Pay
Commission
award,
currently not
provided for,
will hike total
expenditure
above
budgeted
levels
T INCOME TAX AND EXCISE DUTY CUTS TO BOOST GROWTH
GROWTH HAS NOT
BEEN WAIVED OFF
16 UNION BUDGET 2008 - 2009UNION BUDGET 2008 - 2009 THE ECONOMIC TIMES SATURDAY 1
MARCH 2008WWW.ECONOMICTIMES.COM
Farmers
reap poll
harvest
Loans overdue up to
Dec 31,2007,written off

Prabha Jagannathan

TEAM ET

FORGET FARM FUNDAMENTALS AIMED AT REMEDYING

the drastic deceleration of growth. Instead, the finance minister�s
moving Hand has written a 70mm poll manifesto with intentions
of �paying back a debt of gratitude�. In truth, roof-raising
hallelujahs should be raised by scheduled commercial banks
(SCBs) and regional rural banks (RRBs) than by the 4 crore
farmers targeted by P Chidambaram�s mammoth Rs 60,000crore
farm debt relief package.

SCBs and RRBs account for 75-79% of farm credit and are
likely to gain from the package rather than PSU banks. The Budget
deal writes off NPAs and overdue loans up to December 31,
2007, that remained unpaid until February 29, 2008. Only 5560%
of small and marginal farmers (who make up 80% of all
farmers) access institutional credit. Money lenders, who charge
usurious rates, also play a big role in farm distress incidences.

It�s a script with all the thrills: from insurance to soil nutrition,
burgeoning food and fertiliser subsidies, high food prices and
volatile producer prices to increasing food demand at home.
There�s even a one-time settlement for big farmers for all loans
overdue and unpaid for the same period
as smaller ones. Significantly, the
FM seems to have brushed every
meaningful nodal measure to stem decline
in the sector under the carpet.

It will allow more, if not new, farmers

to be enrolled afresh into the sagging
credit statistics (despite disbursal
of higher quantum of farm credit) this
year. Thanks to that, the Budget has
smugly hiked the credit target for the REGIONAL
year to an impressive Rs 2,80,000

GAINS

crore compared to the Rs 2,50,000

crore expected. The package, howev-Regional rural banks
er, enslaves the farmer to the same

and scheduled

faulty credit system that led to distress

commercial banks

in the first place. The long-term impact

of the package raises several bit-likely to gain from
ter questions, including on fiscal pru-the relief package
dence, as cautioned by the Radhakr

rather than public

ishna panel report on farm debt.

sector banks

Inbuilt into the package, sectoral observers

point out, is the possibility that
the discipline of functioning credit systems could be undermined
and the repayment of other loans jeopardised even in
the future. Worse, those farmers who have been servicing their
loans have now been proved fools. The Rs 3,750-crore failed
Vidarbha debt relief package was proof that waiving and
rescheduling cannot be a long-term answer to anything except
the next big election round the corner.

The Budget makes not even a passing reference to the massive

produce price fluctuation problems being faced by the farmer. Rationalisation
of the PDS may be imperative to trim food subsidies,
but the only reference to this is the introduction of smart cards on
a pilot basis in Haryana and Chandigarh. Risk mitigation in a transitional
market environment is imperative to the farm sector: the
Budget has fallen back on the flawed national agricultural insurance
scheme without any assessment of unit charges. Since
1996-97, the Centre has spent Rs 20,598.48 crore under the Accelerated
Irrigation Benefit Programme (AIBP), with states releasing
an additional Rs 15,000 crore. Despite this huge public
funds infusion, India�s net officially irrigated farm area has remained
virtually static at 53-55 million hectares (mh).
DOES IT MAKE SENSE?
Expect stable,
softer rates
next quarter
Will measures enabling companies to offset dividend
distribution tax paid by subsidiaries enable creation of
holding companies?
The proposed amendments will enable companies to structure
and allocate capital to their businesses more efficiently. It has
helped mitigate the cascading effect of taxation on dividend. The
anomaly of double taxation has been rectified.
What will be the impact of the measures to develop
bond currency and derivative market?
It has been a long-standing demand to develop a bond-currency-
derivatives nexus in order to have a well-functioning
financial market. Corporate bonds are now put on a par with
government securities where TDS was abolished in 2000.
TDS on corporate bonds was a hindrance as it was not applicable
uniformly and this made trading between different
classes of investors difficult.
Do you feel that the measures to control capital flows
will affect markets/liquidity?
I don�t think there is an attempt to block capital flows as much as
there is a need to moderate flows keeping in mind the monetary
policy objectives and ensuring financial stability within the system.
Given the huge requirements of debt by the infrastructure
sector, it may be prudent to relook the current controls on debt
capital flows into the country.Certainly a trillion-dollar economy
like India can absorb more long-term international debt.
Given government spending and proposals to control
capital flow, where do you see interest rates headed?
One is sceptical on the way debt waiver will work on agricultural
loans. But looking at it optimistically, it is probably good for
banks who can clean up their balance sheets and get better stock
market valuations! I believe there will continue to be stability in
interest rates, with a bias towards softer rates in the next quarter.
What is the budget�s broad message?
The growth story is intact. But the story has to become
more inclusive. The sector that feels largely left out is
agriculture. So an attempt has been made to give it relief
and make it more inclusive.
How does the relief to the farmer work out?
Please remember this is money out of the banking system.
Some of it is already overdue, already non-performing
assets. So banks are already unsure as to how
much of this Rs 60,000 crore would come back to
them. So let me write off the loans and we agree to provide
liquidity of the equivalent amount to the banks.
The banks are welcoming this arrangement because
they will have fresh liquidity to lend. So we will
only have to work out the systems. And we
will do so over a period of three years. Because
the money will come back to the
banking system in a period of three years.
Will the budget insulate the economy
from the global slowdown?
Some of the measures are intended to
ward off any slowdown. The cut in excise
duty and income-tax rates are intended to
boost demand.
The excise cut�is it also to move towards
a Goods and Services Tax?
That is the second objective. If we want to move
towards GST in 2010, excise has to be cut.
Also service tax and excise rates will
converge. Clearly, excise could
not have been at 16%. It had
to go down and simultaneously,
I also wanted to give
some fiscal stimulus.
Are we moving towards
an FRBM II?
I can�t yet call it FRBM II.
The intention is to have
a revised FRBM
target. We have substantially achieved the targets.
You have mentioned taking into account off-
budget subsidies.
We have made a mention of that. And the 13th Finance
Commission will be looking at the new FRBM targets.
You have mentioned the Sixth Pay Commission,
but there is no provisioning.
We have an idea. But I am not willing to go public at this
stage. We have left some headroom for ourselves in the
fiscal deficit target.
What about extension of sops to export-oriented
units and STPI scheme?
That�s not coming to an end this year. That�ll end on
March 31, 2009. We have time to take a call till then.
You have given a major relief to the middle class on
income tax because of higher compliance. How
much will be revenue loss on account of that?
On paper, there will be a loss of revenue, but it will be
made up by higher compliance.
Corporate taxes also have been growing.
Wasn�t there a case for reduction
here too?
The effective corporate tax rate is
only 22 or 23%. They�re still below
the marginal rate. They are
doing well. They are making
good profits.
What about companies�
expectation on rate cuts?
The question must be addressed
to the RBI. I have a
view, but I�ll express it privately
to the governor. I
wont express it
publicly.
A LAVISH
SPREAD
FOR ALMS
AADMI
Subhash Narayan
TEAM ET
WITH AN EYE ON THE NEEDS OF THE KEY
social sector programmes of the UPA government,
the finance minister has hiked gross budgetary
support (GBS) for the annual plan 200809
by 18% to Rs 2,43,386 crore, up from GBS of
Rs 2,05,100 crore for 2007-08. The additional
budgetary support is higher than the assumption
of Rs 2,28,725 crore made in the Plan document
for the second year of the Eleventh Plan. �In our
view, that will not be enough. Hence, I propose
to increase the GBS...,� the finance minister said,
adding that higher GBS would ensure ample
funds for all ongoing programmes.
While FM has indicated higher than desired
levels of GBS for 2008-09, in percentage terms
the increase is similar to the 18% in 2007-08.
However, the support is much lower than the
ministries� demand of Rs 3,44,761 crore.
Budget 2008-09 has a Plan `B� that would
provide additional funds of Rs 10,000 crore for
development schemes at the supplementary
stage. The release from this fund would be performance-
based and would be available to central
ministries, departments and state governments
that achieve the physical and quality targets
of Plan schemes. Out of GBS, the allocation
for the central plan will be Rs 1,79,954 crore,
marking an increase of 16% over 2007-08. This
would be largely used up by allocation to programmes
like Sarva Shiksha Abhiyan, Mid-Day
Meal Scheme, National Rural Health Mission,
Integrated Child Development Scheme, National
Rural Employment Guarantee Scheme,
Jawaharlal Nehru National Urban Renewal
Mission, Rajiv Gandhi Drinking Water Mission
and the Total Sanitation Campaign.
POLL POT
Priti Patnaik &
Gireesh Chandra Prasad
TEAM ET
THE GOVERNMENT HAS
acknowledged that fiscal and revenue
deficits are understated as they do not
reflect the significant liabilities of the
government in the form of oil and fertiliser
bonds. The numbers have been
provided in the 2008 Budget documents,
but taking credit for putting
these details in the
public domain
does sound amusing
though!
�I acknowledge
that significant liabilities
of the government
on account
of oil, food
and fertiliser
bonds are currently
below the
line. This accounting
arrangement
is consistent with
past practice. Nevertheless, our fiscal
and revenue deficits are understated to
that extent. There is a need to bring
these liabilities into our fiscal accounting,�
the FM admitted.
He didn�t fight shy, though, of patting
himself on the back for meeting the
target on fiscal deficit comfortably. The
�cushion� available from this is likely to
be used to absorb any impact from the
massive debt waiver package for farmers,
and additional outgo for the Pay
Commission recommendations. At the
same time, FRBM targets are being
pushed back due to greater social sector
expenditure, as suggested by the Planning
Commission for a while.
�I am happy to report that the revenue
deficit for the current year will be
1.4% against a Budgeted Estimate of
1.5% and the fiscal deficit will be 3.1%
against a Budgeted Estimate of 3.3%.
However, because of the conscious shift
in expenditure in favour of health, education
and the social
sector, we
may need one
more year to
eliminate revenue
deficit. This
is an acceptable
deferment,� Mr
Chidambaram
said.
The off-balance
sheet items
may be integrated
into Budget at a
later stage � may
be when election mania no longer
mandates populist measures. The government
plans to ask the 13th Finance
Commission to revisit the plan for fiscal
adjustment and suggest a suitably revised
road map to accommodate these
items, including the obligations for the
Sixth Central Pay Commission.
For 2008-09, the government has
projected a revenue receipt of Rs
6,02,935 crore and an expenditure of
Rs 6,58,119 crore.
Deficits bond
with oil, get hazy
FRBM Targets Pushed Back On Social Expenses
Prabha Jagannathan
TEAM ET
IT�S SET TO BE YET ANOTHER
year of high off-Budget accounting.
The government�s bill for major
subsidies is pegged at Rs 66,537.38
crore for budget estimates (BE)
2008-09, only Rs 2,000 crore above
the revised estimates (RE) (200708)
of Rs 64,928.60 crore. But those
figures may be unrealistic.
A big part of the off-Budget accounting
is likely to be due to
farm/food subsidies, which together
made for an estimated Rs 80,000
crore in 2007-08. Fertiliser subsides
alone were pegged at Rs 47,000
crore-odd for 07-08 but RE for 07-08
is only Rs 30,501 crore. For 2008-09,
the DoF estimates the subsidy bill at
Rs 65,000 crore. What it has got is just
Rs 30,986.36 crore. In effect, farm
loans would be waived off but the
farmer could face acute short supply
in inputs to buy with his fresh credit.
The botching up of fertiliser subsidy
accounting shows up in the
Budget papers. Vol 1 of the Expenditure
Budget pegs BE 08-09 for indigenous
urea subsidy at Rs
12,900.37 crore, the same as RE 0708.
But Vol 2 hikes the RE (07-08)
figure to Rs 16,400.37 crore. The
food subsidy bill has also risen by Rs
5,850 crore in the RE stage compared
to Rs 25,696 crore (BE 07-08),
thanks to high-priced wheat import
orders of almost 1.8 million tonnes.
SUBSIDY
BILLS TO
KEEP ALL
GUESSING
GENEROUS GRANT
Funds initially demanded by
ministries and departments for
fiscal 2008-09 added up to a GBS
of Rs 3,44,771 crore
Planning Commission
pruned the amount to
Rs 2,86,124 crore and
approached the finance
ministry for approval
The finmin agreed to
provide a GBS of just
Rs 2,28,725 crore, way short
of the Plan panel demand
The PMO negotiated a
settlement between the
Planning Commission and
the finmin. The magic
figure of Rs 2,43,386 crore
was mutually agreed upon
The higher allocation
would support additional
requirements of the UPA
government�s eight
flagship programmes
WELFARE STATE
DEEPAK PAREKH
CHAIRMAN, HDFC
WITH FARM FIREWORKS, PC TAKES AIM AT AN INCLUSIVE STORY
Growth is intact
but for agri zone
17UNION BUDGET 2008 - 2009UNION BUDGET 2008 - 2009 THE ECONOMIC TIMES SATURDAY 1
MARCH 2008WWW.ECONOMICTIMES.COM
Let me write off
the loans and
we agree to
give liquidity of
the equivalent
amount to the
banks...Banks
are welcoming
this because
they will have
fresh liquidity
to lend
Some of the
fiscal moves�
cut in excise
duty and
income-tax
rates�are
intended to
boost demand
and ward off
slowdown
BUDGET AT A GLANCE
�07-08 �08-09
(RE) (BE)
REVENUE RECEIPTS 525098 602935
CAPITAL RECEIPTS* 40622 14662
TOTAL EXPENDITURE 709373 750884
REVENUE DEFICIT 63488 55184
FISCAL DEFICIT 143653 133287
PRIMARY DEFICIT -28318 -57520
* Excluding borrowings (RS CR)
read full text on www.economictimes.com
FM has reason to be happy�only Manmohan
Singh has presented five consecutive
budgets before him. �Finance
ministers of 120 countries would give
an arm and leg to be in my position,� he
tellsDeepshikha Sikarwar. Excerpts: DOES IT MAKE SENSE?
Expect stable,
softer rates
next quarter
Will measures enabling companies to offset dividend
distribution tax paid by subsidiaries enable creation of
holding companies?
The proposed amendments will enable companies to structure
and allocate capital to their businesses more efficiently. It has
helped mitigate the cascading effect of taxation on dividend. The
anomaly of double taxation has been rectified.
What will be the impact of the measures to develop
bond currency and derivative market?
It has been a long-standing demand to develop a bond-currency-
derivatives nexus in order to have a well-functioning
financial market. Corporate bonds are now put on a par with
government securities where TDS was abolished in 2000.
TDS on corporate bonds was a hindrance as it was not applicable
uniformly and this made trading between different
classes of investors difficult.
Do you feel that the measures to control capital flows
will affect markets/liquidity?
I don�t think there is an attempt to block capital flows as much as
there is a need to moderate flows keeping in mind the monetary
policy objectives and ensuring financial stability within the system.
Given the huge requirements of debt by the infrastructure
sector, it may be prudent to relook the current controls on debt
capital flows into the country.Certainly a trillion-dollar economy
like India can absorb more long-term international debt.
Given government spending and proposals to control
capital flow, where do you see interest rates headed?
One is sceptical on the way debt waiver will work on agricultural
loans. But looking at it optimistically, it is probably good for
banks who can clean up their balance sheets and get better stock
market valuations! I believe there will continue to be stability in
interest rates, with a bias towards softer rates in the next quarter.
What is the budget�s broad message?
The growth story is intact. But the story has to become
more inclusive. The sector that feels largely left out is
agriculture. So an attempt has been made to give it relief
and make it more inclusive.
How does the relief to the farmer work out?
Please remember this is money out of the banking system.
Some of it is already overdue, already non-performing
assets. So banks are already unsure as to how
much of this Rs 60,000 crore would come back to
them. So let me write off the loans and we agree to provide
liquidity of the equivalent amount to the banks.
The banks are welcoming this arrangement because
they will have fresh liquidity to lend. So we will
only have to work out the systems. And we
will do so over a period of three years. Because
the money will come back to the
banking system in a period of three years.
Will the budget insulate the economy
from the global slowdown?
Some of the measures are intended to
ward off any slowdown. The cut in excise
duty and income-tax rates are intended to
boost demand.
The excise cut�is it also to move towards
a Goods and Services Tax?
That is the second objective. If we want to move
towards GST in 2010, excise has to be cut.
Also service tax and excise rates will
converge. Clearly, excise could
not have been at 16%. It had
to go down and simultaneously,
I also wanted to give
some fiscal stimulus.
Are we moving towards
an FRBM II?
I can�t yet call it FRBM II.
The intention is to have
a revised FRBM
target. We have substantially achieved the targets.
You have mentioned taking into account off-
budget subsidies.
We have made a mention of that. And the 13th Finance
Commission will be looking at the new FRBM targets.
You have mentioned the Sixth Pay Commission,
but there is no provisioning.
We have an idea. But I am not willing to go public at this
stage. We have left some headroom for ourselves in the
fiscal deficit target.
What about extension of sops to export-oriented
units and STPI scheme?
That�s not coming to an end this year. That�ll end on
March 31, 2009. We have time to take a call till then.
You have given a major relief to the middle class on
income tax because of higher compliance. How
much will be revenue loss on account of that?
On paper, there will be a loss of revenue, but it will be
made up by higher compliance.
Corporate taxes also have been growing.
Wasn�t there a case for reduction
here too?
The effective corporate tax rate is
only 22 or 23%. They�re still below
the marginal rate. They are
doing well. They are making
good profits.
What about companies�
expectation on rate cuts?
The question must be addressed
to the RBI. I have a
view, but I�ll express it privately
to the governor. I
wont express it
publicly.
A LAVISH
SPREAD
FOR ALMS
AADMI
Subhash Narayan
TEAM ET
WITH AN EYE ON THE NEEDS OF THE KEY
social sector programmes of the UPA government,
the finance minister has hiked gross budgetary
support (GBS) for the annual plan 200809
by 18% to Rs 2,43,386 crore, up from GBS of
Rs 2,05,100 crore for 2007-08. The additional
budgetary support is higher than the assumption
of Rs 2,28,725 crore made in the Plan document
for the second year of the Eleventh Plan. �In our
view, that will not be enough. Hence, I propose
to increase the GBS...,� the finance minister said,
adding that higher GBS would ensure ample
funds for all ongoing programmes.
While FM has indicated higher than desired
levels of GBS for 2008-09, in percentage terms
the increase is similar to the 18% in 2007-08.
However, the support is much lower than the
ministries� demand of Rs 3,44,761 crore.
Budget 2008-09 has a Plan `B� that would
provide additional funds of Rs 10,000 crore for
development schemes at the supplementary
stage. The release from this fund would be performance-
based and would be available to central
ministries, departments and state governments
that achieve the physical and quality targets
of Plan schemes. Out of GBS, the allocation
for the central plan will be Rs 1,79,954 crore,
marking an increase of 16% over 2007-08. This
would be largely used up by allocation to programmes
like Sarva Shiksha Abhiyan, Mid-Day
Meal Scheme, National Rural Health Mission,
Integrated Child Development Scheme, National
Rural Employment Guarantee Scheme,
Jawaharlal Nehru National Urban Renewal
Mission, Rajiv Gandhi Drinking Water Mission
and the Total Sanitation Campaign.
POLL POT
Priti Patnaik &
Gireesh Chandra Prasad
TEAM ET
THE GOVERNMENT HAS
acknowledged that fiscal and revenue
deficits are understated as they do not
reflect the significant liabilities of the
government in the form of oil and fertiliser
bonds. The numbers have been
provided in the 2008 Budget documents,
but taking credit for putting
these details in the
public domain
does sound amusing
though!
�I acknowledge
that significant liabilities
of the government
on account
of oil, food
and fertiliser
bonds are currently
below the
line. This accounting
arrangement
is consistent with
past practice. Nevertheless, our fiscal
and revenue deficits are understated to
that extent. There is a need to bring
these liabilities into our fiscal accounting,�
the FM admitted.
He didn�t fight shy, though, of patting
himself on the back for meeting the
target on fiscal deficit comfortably. The
�cushion� available from this is likely to
be used to absorb any impact from the
massive debt waiver package for farmers,
and additional outgo for the Pay
Commission recommendations. At the
same time, FRBM targets are being
pushed back due to greater social sector
expenditure, as suggested by the Planning
Commission for a while.
�I am happy to report that the revenue
deficit for the current year will be
1.4% against a Budgeted Estimate of
1.5% and the fiscal deficit will be 3.1%
against a Budgeted Estimate of 3.3%.
However, because of the conscious shift
in expenditure in favour of health, education
and the social
sector, we
may need one
more year to
eliminate revenue
deficit. This
is an acceptable
deferment,� Mr
Chidambaram
said.
The off-balance
sheet items
may be integrated
into Budget at a
later stage � may
be when election mania no longer
mandates populist measures. The government
plans to ask the 13th Finance
Commission to revisit the plan for fiscal
adjustment and suggest a suitably revised
road map to accommodate these
items, including the obligations for the
Sixth Central Pay Commission.
For 2008-09, the government has
projected a revenue receipt of Rs
6,02,935 crore and an expenditure of
Rs 6,58,119 crore.
Deficits bond
with oil, get hazy
FRBM Targets Pushed Back On Social Expenses
Prabha Jagannathan
TEAM ET
IT�S SET TO BE YET ANOTHER
year of high off-Budget accounting.
The government�s bill for major
subsidies is pegged at Rs 66,537.38
crore for budget estimates (BE)
2008-09, only Rs 2,000 crore above
the revised estimates (RE) (200708)
of Rs 64,928.60 crore. But those
figures may be unrealistic.
A big part of the off-Budget accounting
is likely to be due to
farm/food subsidies, which together
made for an estimated Rs 80,000
crore in 2007-08. Fertiliser subsides
alone were pegged at Rs 47,000
crore-odd for 07-08 but RE for 07-08
is only Rs 30,501 crore. For 2008-09,
the DoF estimates the subsidy bill at
Rs 65,000 crore. What it has got is just
Rs 30,986.36 crore. In effect, farm
loans would be waived off but the
farmer could face acute short supply
in inputs to buy with his fresh credit.
The botching up of fertiliser subsidy
accounting shows up in the
Budget papers. Vol 1 of the Expenditure
Budget pegs BE 08-09 for indigenous
urea subsidy at Rs
12,900.37 crore, the same as RE 0708.
But Vol 2 hikes the RE (07-08)
figure to Rs 16,400.37 crore. The
food subsidy bill has also risen by Rs
5,850 crore in the RE stage compared
to Rs 25,696 crore (BE 07-08),
thanks to high-priced wheat import
orders of almost 1.8 million tonnes.
SUBSIDY
BILLS TO
KEEP ALL
GUESSING
GENEROUS GRANT
Funds initially demanded by
ministries and departments for
fiscal 2008-09 added up to a GBS
of Rs 3,44,771 crore
Planning Commission
pruned the amount to
Rs 2,86,124 crore and
approached the finance
ministry for approval
The finmin agreed to
provide a GBS of just
Rs 2,28,725 crore, way short
of the Plan panel demand
The PMO negotiated a
settlement between the
Planning Commission and
the finmin. The magic
figure of Rs 2,43,386 crore
was mutually agreed upon
The higher allocation
would support additional
requirements of the UPA
government�s eight
flagship programmes
WELFARE STATE
DEEPAK PAREKH
CHAIRMAN, HDFC
WITH FARM FIREWORKS, PC TAKES AIM AT AN INCLUSIVE STORY
Growth is intact
but for agri zone
17UNION BUDGET 2008 - 2009UNION BUDGET 2008 - 2009 THE ECONOMIC TIMES SATURDAY 1
MARCH 2008WWW.ECONOMICTIMES.COM
Let me write off
the loans and
we agree to
give liquidity of
the equivalent
amount to the
banks...Banks
are welcoming
this because
they will have
fresh liquidity
to lend
Some of the
fiscal moves�
cut in excise
duty and
income-tax
rates�are
intended to
boost demand
and ward off
slowdown
BUDGET AT A GLANCE
�07-08 �08-09
(RE) (BE)
REVENUE RECEIPTS 525098 602935
CAPITAL RECEIPTS* 40622 14662
TOTAL EXPENDITURE 709373 750884
REVENUE DEFICIT 63488 55184
FISCAL DEFICIT 143653 133287
PRIMARY DEFICIT -28318 -57520
* Excluding borrowings (RS CR)
read full text on www.economictimes.com
FM has reason to be happy�only Manmohan
Singh has presented five consecutive
budgets before him. �Finance
ministers of 120 countries would give
an arm and leg to be in my position,� he
tellsDeepshikha Sikarwar. Excerpts:
Learn to earn and stay healthy is the mantra
No Mention Of Right To Education, Healthcare Gets A Leg Up

Urmi A Goswami & emphasis, however, is on state-fund-expansion of higher education

insti-
Gireesh Chandra Prasad ed health care though a five-year tax tutes due to OBC
reservation.
TEAM ET holiday for hospitals may give a wel-It seems that the government is
come boost to private healthcare. more concerned about �skill devel

G
G
OVERNMENT�S SPENDING On education, FM enunciated opment� than �education�. That
on education is slated to the list of projects and schemes explains the Rs 1,000
crore for the
increase by 19.96% to Rs already on paper but yet to be Skill Development Mission.
Also,
34,400 crore in 2008-09 (up from Rs implemented. This is particularly the Right to
Education finds no
28,674 crore in 2007-08), but true for higher and technical educa-mention in the
Budget.
Budget contains little by way of new tion � three IITs (announced in NRHM has got
Rs 12,050 crore to
efforts. Meanwhile, the finance min-2006), new IIM in Shillong (2004), strengthen
healthcare at the
ister has earmarked Rs 16,534 crore new School of Planning & Architec-grassroots.
Besides Rs 6,300 crore
(15% more than 2007-08) for the ture (2006) and 16 new central uni-for ICDS for
children and mothers,
health ministry for projects including versities in 2007. FM is silent on the Rs
205 crore will be the Centre�s
the National Rural Health Mission use of the Rs 5,577 crore collected as share of
the premia for the health
(NRHM) and the Integrated Child the 1% education cess. Part of the insurance
scheme for the poor �
development Services (ICDS). The proceeds were to be used in Rashtriya Swasthya
Bima Yojna.
ET: You have always been a fervent supporter of economic reforms.
So, how did you agree to the farm loan waiver?
PM: It was not easy. We wrestled with the problem at great length, but as
you know, the benefits of growth have not filtered down equally to all. So,
we had to do something to ease the distress in rural areas. Yes, there may
not be that much distress among bigger farmers, but we want to unleash
the animal spirit among our farmers as much as
among our businessmen.
ET: The Budget has increased the outlay
on both education as well as health, but we
are still nowhere near the avowed goal of
6% and 3% of GDP spending on these two
sectors, respectively. Why?
PM: We are very keen to do more in these areas,
but we have our resource constraints. So,
we cannot do everything at one go. Moreover,
it is not only a question of funds; the money
has to be spent effectively. We are hoping the
new monitoring mechanism will help us ensure
better outcomes.
ET: The finance minister also spoke about
listing all public sector undertakings. What
are the chances your government will be
able to do anything, given that in the past
four years we've seen so little action on
this front?
PM: No, we mean to move forward on this more
aggressively. After all, how else will we be able to
raise money for things that we view as very important
to us such as the just-announced loan waiver?
ET: Why is there this huge disconnect between
what has been stated in the Economic
Survey and the policy pronouncements in the Budget?
PM: The Survey is essentially a blueprint of what we would like to do. But,
as you know, politics is the art of the possible; so we often have to settle for
less than the best.
ET: The Survey is emphatic about SEZs. Does that mean one can
take it that the debate on SEZs is settled?
PM: Yes. SEZs are very much part of government policy. I am aware the finance
minister harbours some reservations, but there is no going back.
mythili bhusnurmath
IT�S NOT JUST RED: Mass movements are back again, thanks to rights
issues of a political kind. Naya Daur�s hero wouldn't have found himself
a stranger in new India, just like our villages that have learnt to take a
Jaguar in their stride. Bottom of pyramid today decides bottom lines.
INANCE MINISTER
P Chidambaram on
Friday encroached on
the Left�s compassion
monopoly and doled
out spending proposals
for enhancing the Congress�
popular appeal.
Following Ms Sonia
Gandhi�sscript of outdoing others in promising
a significant part of the central kitty for
rural India and expanding victimhood, the
finance minister converted the farm credit
system into a candy dispenser and pledged
to write off loans worth Rs 60,000 crore. The
subsidy hungry special interests groups, the
salaried and middle classes, were also beneficiaries
of his goodies package. In the
process, the budget gave the Congress a trophy
to showcase for the next election.
The minister�s announcement reinforced
the point that welfare is beyond reform and
that economic reality will not come in the way
of election-eve pandering. The experience of
Devi Lal�s loan waiver had no meaning for the
government. Or the fact that the Rs 3,750
crore Vidarbha debt relief package failed to
stem farmer suicides. Or the nagging feeling
that those who repay loans have no premium.
This was not unexpected as the Congress�
main concern was on appropriating the compassion
theme. Till this morning, the government
was confronted with nasty taunts from
the Left and the Opposition that the Manmohan
Singh government was a mean-spirited
dispensation wanting to famish the farmer,
deprive the school children of the meal
scheme and elders of medicare. The Congress
wanted the government to erase this impression
before it takes a call on the next election.
And through the fiscal windfall from a buoyant
revenue collection, Mr Chidambaram did
just that � creation of a giggly good feeling
among important sectional interests.
With the Congress effectively beating the
Communists at its game of political marketing
of the compassion agenda, there was acknowledgement
in the Left corner that the
budget has put the ruling party in the election
mode. Mr Chidambaram�s June 30
deadline for the loan waiver package indicated
that the Congress was keen to tap the
goodwill from the budget soon.
That the Left is finding itself on the defensive
was evident from the response of its
leaders. These leaders, who have made policy
incursions a favourite past-time, admitted
that Chidambaram had kicked off the
Congress� campaign for the next election.
The only thing that now comes between
the Congress and the election is the preparedness
of its units in politically important
states. Although the UPA appears to be cohesive
in all states barring Bihar, the Congress
has not been able to put together a credible
leadership in major northern states. But the
fact that there is no scope for any dramatic
improvement in the coming months could
prompt the party to call for elections soon. A
delay could taper off the post-budget goodwill
for the government, besides giving more
time for the rival side to consolidate.
The legacy-seeking section within the
government can be expected to use the interregnum
to take a shot at the operationalisation
of the Indo-US nuclear deal. An indulgent
US administration has said that it was
willing to wait till early July. The government
will have to clear the remaining hurdles �
working out the safeguards agreement at the
IAEA and the NSG waiver � before the
agreement is taken to the US Congress.
PR Ramesh
PC WINS BOTH: POLITICS OF BUSINESS AND BUSINESS OF POLITICS F
Prime Minister Manmohan Singh explains why
his government had to take measures that may
look unpalatable to those supporting reforms.
Yes, SEZs
here to stay,
says Singh
UNION BUDGET 2008 - 2009UNION BUDGET 2008 - 2009 THE ECONOMIC TIMES SATURDAY 1
MARCH 2008WWW.ECONOMICTIMES.COM18
The survey is
essentially a
blueprint of
what we would
like to do. But,
as you know,
politics is the
art of the
possible; so we
often have to
settle for less
than the best.
PALANI�S PLEASANT
PEASANT PRESENT

Finance minister has something for all vote banks

.
##From Page 1 class�as well as Indian industry�will benefit and makes no mention
at all of extending the Unorganised workers, another potentially
from the cut in cenvat from 16% to 14%, and fur-corporate tax exemptions for
software parks, ex-huge vote bank, are wooed with an expanded
HOWEVER, HIS FRBM CALCULATIONS EXCLUDE ther duty reductions for small cars, two-
wheel-port-oriented units or industries set up in Ut-health insurance scheme
(Rashtriya Swasthya
under-recoveries of fertiliser and oil marketing com-ers, paper and
pharmaceuticals. tarakhand and Himachal Pradesh. If these are al-Bima Yojana)
cover of Rs 30,000 per family. The
panies, which could exceed 2% of GDP, and will be The Budget aims at combating the
impact of the lowed to expire, they will give corporation tax Aam Aadmi Bima
Yojana will provide life insuronly
partially offset by the issue of bonds. So, fiscal global slowdown by stimulating
domestic con-collections a boost in the coming years. This will, ance cover to an
additional one crore poor famiwindow-
dressing cloaks the sad fact that FRBM tar-sumption through lower excise duties
and Cus-however, be offset, partly or wholly, by tax lies. And the Indira Gandhi
National Old Age
gets have become meaningless in practice. toms duty cuts on select industrial
inputs (such as breaks for special economic zones. Pension Scheme will now benefit
157 lakh peo-

Wages will rise by 50% for 1.8 lakh anganwa-steel and aluminium scrap). Import
duties on The flagship programmes of the government, ple against 87 lakh earlier.
di workers, a new vote bank. Special schemes in project imports have been cut from
7.5% to 5% to aimed at the aam voter, all get big increases in out-One promising
innovation is the use of smart
education, insurance and area development are boost investment. Since an
appreciating rupee has lays. The National Rural Employment Guarantee cards to
deliver government funds directly to
targeted at a variety of traditional vote banks� affected exporters and made
imports cheaper, the Scheme will now cover all 596 rural districts in In-
beneficiaries. Haryana and Chandigarh have
women, senior citizens, minorities, Dalits, tribals finance minister has put off
import duty cuts to dia, and the outlay will rise from Rs 12,000 crore to agreed
to a pilot programme providing cash
and other backward castes. To woo the middle Asean levels, as earlier promised.
This postpone-Rs 16,000 crore. Bharat Nirman, the rural pro-transfers to the poor
of rations from the public
class, the Budget raises the exemption limit for ment will ensure a larger
marketshare for domes-gramme, will get Rs 31,280 crore against Rs 24,603
distribution system. This has the potential to
income tax from Rs 1.1 lakh to Rs 1.5 lakh and tic producers during a global
slowdown that could crore in 2007-08. Education spending will rise 20% eliminate
leakages and give poor beneficiaries the
widens the tax slabs, gifting every taxpayer at hit some sectors badly. and
similar increases are provided for the missions full benefit of food subsidies.
least Rs 4,000 more in his pocket. The middle The Budget leaves corporate tax
untouched, for rural health and drinking water. Swaminathan S Anklesaria Aiyar

CHEERLEADERS AND JEERLEADERS

TODAY IS A VERY HAPPY IT IS THE SIGNAL THAT REDUCTION IN EXCISE THE BUDGET
CONTAINS THERE IS NOTHING TO THE LOAN WAIVER IS AN
occasion. The waiver of elections are being held duty of drugs will reduce nothing
at all to contain mitigate or reverse the encouraging step. This will
loans to farmers by the early. The nature of budget their prices by at least 5%
inflation.... This is the most regional disparity. hopefully mark the end of
UPA government is a is virtual declaration of and I hope industry will burning
issue today which The waiver is not going to suicides of farmers
revolutionary step. mid-term polls. pass on the benefit. has been neglected. be
very significant. in the country.
SONIA GANDHI MUKHTAR ABBAS NAQVI RAM VILAS PASWAN SITARAM YECHURY NITISH KUMAR M S
SWAMINATHAN
C ONGR ESS BJP LJP CP M J D(U) AG R I S C I ENTI S T

Will waiver
cover shark
loans too:
Rae Bareli

Man Mohan Rai

TEAM ET

THE WORDS EMANATING FROM PARLIAMENT

are a long way off from the dusty villages of Dalmau
block in Rae Bareli. For the villagers of Sonia
Gandhi�s parliamentary constituency, the Union
Budget holds little meaning.

Hours after the budget was presented, people

here had heard little of it. And whoever has heard
of it, has queries. In Kharagpur village, for instance,
on being told that that agri-loans have
been waived by the Centre, there�s a sharp increase
in the attention span of the folks, an eagerness
to know more. �What of those who have
taken loans from private lenders? Many villagers
have taken loans from them. Getting loans from
banks is tedious and involves a lot of time and paperwork.
While the private moneylenders hand
over the money instantly, though they charge a
backbreaking 3% per month. What will happen
to them?� asks Jagjivan Singh.

Dr Arun Kumar, reader in the commerce department

of Feroze Gandhi College in the city, also
feels that though the budget has brought back the
focus on agriculture and farmers, a large number
of farmers who borrow from local moneylenders
will remain deprived of the benefits of the loan
waiver. �Many will remain untouched as they will
not fulfil the criteria, having borrowed money
from the local merchants or money lenders,� he
says. The farmers themselves pose other concerns.
Virender Kumar of Puranpran Singh village, who
owns about 11 bighas
of land, says that agriculture
has turned
unprofitable and
blames the lack of irrigation
facilities.
�Water for irrigation
is not available. The

FROM GROUND ZERO

canal that passes through our village is dry and
whene