Business: Made In India

Part of the problem with the budget exercise these days is that it's become inextricably linked with political rhetoric and policy announcements. Manmohan Singh used it to announce his high-profile delicensing programme in 1991, P. Chidambaram used it to promote his so-called dream budget last year. And now Yashwant Sinha has used it to unveil an unabashedly pro-rural budget. And yet, with bombshells like announcing an intention to divest government stake in public-sector undertakings and cut staff, using the guise of raising revenue from disinvestment.

Often in all this, the way the finance minister says things becomes more important than what the finance minister says. It leads to a cult of the finance minister, and a profit and loss exercise for the government becomes a crucible for the development of the country.

So what is this budget all about? Will it lead to growth? How will it affect our lives? What does the finance minister have to say for himself, about the fact that the budget lacks the feel of a grand vision? What are the initiatives, gains, sleights and pitfalls? What more should have been done, using the platform of the budget statement? An INDIA TODAY team comprising Senior Editor Sudeep Chakravarti, Associate Editor V. Shankar Aiyar and Special Correspondent Shefali Rekhi talked to the finance minister and other ministers, opposition party members, bureaucrats, insiders, economists, businessmen, stock and financial service analysts, and coordinated special projects and polls. This is an undiluted look at the budget from the ground up.

Good News

Bad News

The extra expenditure of Rs 32,682 crore this year will spur growth.

The rural thrust is necessary and can, in the long-term, transform India.

Intent to disinvest and push VRS, sell units was long overdue and is very welcome.

Simplifying tax procedures and clearing litigation-locked funds will help industry and the exchequer.

Government burdened with high interest cost (48.5% of total revenue receipts) and a Rs 91,000 crore deficit (5.9% of GDP). Danger of borrowing more: higher inflation, interest cost, very weak rupee.

Policy and proposals still mostly talk. No one sure of what, when, how?

There is a very real fear that exports won't pick up this year. Markets are depressed, incentives aren't many.

Finance Minister Yashwant Sinha gets bashful when pushed to label his budget. He calls it "practical". It's intensely political. Parts of Sinha's budget speech mirror a 1992 BJP economic policy statement, Humanistic Approach to Economic Development (A Swadeshi Alternative), when hard-liner Murli Manohar Joshi was BJP president. Rural India is the BJP's newest vote bank target, which is as, if not more, important than its traditional audience rewarded in the budget: unorganised and small-scale sector and the lower middle-class.

The reality in 1998 has meant a redefinition of swadeshi, "For India" instead of "By India" -- as much political gain as capital gain. The fine print of the budget, policies announced since April, add up to this new truth. But the BJP will do everything to try and project an image for the masses to prevent a recurrence of the pro-rich perception nightmare that practically sealed the fate of the Congress in the 1996 general elections. And yet, continue with trying to boost industry, attract foreign investment -- and absorb its newest lesson of the international political economy, exactly like the one aimed at the Indian masses: you have to give in order to receive.

MAPPING THE NEXT FIVE YEARS
Better than bleak

Real GDP growth: average of 6.5-7% a year
Price: will bounce up to 8% a year, then decline
Exports: Between 8.4% and14% a year
Trade Deficit: Stays below 3% of GDP, belying scares of
South-east Asia-type crisis
The Rupee: Depreciates by Rs 2-3 a year against US dollar

Source: India Today-AT Kearney Project

India Today-ORG MARG POLL:
The budget's going to hurt

INTERVIEW:YASHWANT SINHA
"Criticisms are urban India's"

The Finance Ministry made two specific proposals: increase petrol price by Re 1/litre for the National Highway Authority (gain: Rs 790 crore), and excise by an average of Rs 3/litre (gain: Rs 2,220 crore). Only, for the second proposal, where the money would come from, the consumer or the Oil Pool Account, wasn't clarified. Even as finance officials hedged, the Petroleum Ministry issued a notification on June 1, charging consumers. When it blew up next day, Sinha backtracked in the public furore, and provided for the deficit from the Oil Pool Account surplus.

The one-page income tax declaration form, Saral, which means simple, is typical of the solution-led approach to the budget's tax planning. The aims of this low-hassle factor shift are tax compliance, and move towards a central vat (value added tax) with a mean rate of about 18 per cent in three years. Meanwhile, mop up. Samadhan (solution) will offer to settle at current tax rates -- no interest or prosecution -- five lakh pending cases of income tax, excise and customs disputes locking up Rs 52,000 crore.

The turn of the century wunderkind's appeal stays undiminished for the BJP in 1998. John Maynard Keynes' General Theory of Employment, Interest and Money from 1935 argues what the Government wants to replicate: a government-sponsored policy of expenditure, employment, greater demand, growth. Question: Does this Government know about his role in the creation of the IMF and the World Bank?

Raymonds: Lower duty on raw grade wool/waste, acetate/ cupramonium filament yarn.

Mahindra & Mahindra, Eicher, Punjab Tractors: Tractors not exceeding 1,800 cc levied 8% excise. Allows them to claim modvat benefits on components.

Citurgia: Import duty on citric acid up from 30% to 40%. This Nusli Wadia company has monopoly.

Reliance: Huge gains. Duty hike ensures product price increase, profit. Zero tax for refinery.

"In order to harness limitless energy of the youth, Government will formulate a scheme for creation of a National Reconstruction Corps, which will mobilise youth for community-based nation-building activities."
Swami Vivekananda meets Mao. Mao meets the RSS.
The RSS gets its scheme.

"... I have proposed service tax on some new services. These are services provided by ... slaughter houses using mechanical means for large animals."
Unlikely it's meant for your pet rhino. Buffaloes? Cows? Come, come, don't be coy.

"The number of items on which it is necessary to reduce the customs duties marginally on account of GATT binding. I do not wish to take the time of the House in going into the details."
Lolly. Liberal imports. Read this fine print of import duties: "... goods imported for subsequent trading have been left out of the purview ..." Home free.

"Government has also decided that in the generality of the cases, the government shareholding in public-sector enterprises will be brought down to 26 per cent."
Wrong English, right move. Means that most non-strategic PSUs will be privatised, management will change.

Missed Opportunity: It doesn't knock often and this was the loudest in seven years

CAPITAL MARKETS: With slumped markets for four years, who will buy fresh equity or pick up Rs 5,000 crore of public-sector equity this year? Some change in dividend tax, capital gains tax, by allowing other securities like PF and pension funds greater access to markets, could have led to a stock-market boom.

INFRASTRUCTURE: Projects may move, but what about the money? All projects are new and SEBI guidelines prevent companies from raising money in the domestic market unless they have a good dividend paying track record for three years. Moral: more than one law has to change in tandem for one to work.

FOREIGN INVESTMENT: Why FIPB, especially where 51 per cent plus equity is allowed? Simple registration through the RBI is enough. As for designated officers tracking every project above Rs 100 crore from start to final clearance, means little unless states are convinced first.

PSU DISINVESTMENT: Why leave the 26% question open-ended? By not making time-bound announcements, the Government is throwing itself open to opposition flak, unions blackmail, needless delay. If the new VRS offer is so good, why wait? Start now, roll with the punches. Those close to retirement will save and invest. Those not, can find other jobs, use the Government's self-help and self-employment schemes.

RED TAPE: Zero, besides intention. Platitudes. This is the ultimate whimper. Nuclear heroes struck down by the bureaucratic bug.

LAWS/ACTS: There is no mention of the new Companies Act. No mention of the Income Tax Bill, designed to revamp the existing, complicated Income Tax Act. No move to push the Insurance Regulatory Authority Act. Introduce and be done with it. Debate and lose, if you must -- at least it raises the pitch -- but don't talk idly and forfeit an opportunity.