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February 26, 1999


Budget unlikely to be harsh

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Gurdip Singh in New Delhi

The Union Budget 1999-2000, to be presented by Finance Minister Yashwant Sinha tomorrow, is unlikely to be harsh either to the common man or to the industry.

In view of the continuing industrial slowdown, the thrust of the Budget will be aimed at reviving the industry and all possible incentives could be given to put industrial growth back on the rails.

Also in the context of the coming election to the four state assemblies in November and the possibility of early Lok Sabha poll, the Budget is unlikely to increase the burden on the common man.

The thrust of the Budget is likely to be generation of employment and there is widespread speculation that this will be done through massive investment in housing and construction activity as well as removing constraints in the way of private builders in this sector. There is also talk of a bold policy allowing unaccounted money to be invested in the government-approved housing schemes.

The concessions in the housing sector may include a relook at land acquisition and rent control laws and reducing the fiscal burden on property transactions. This will provide a fillip to related industries such as cement and steel.

In view of the slump in industrial activity, industry has been demanding reduction in corporate tax from 35 per cent to 30 per cent. This is unlikely to be conceded on grounds of revenue considerations.

However, there is a strong possibility of the finance minister bringing down interest rates to reduce the cost of capital which has been a serious problem for the industry.

The realities which confront Sinha as he presents his second Budget are much harder from the ones when he unveiled his first Budget eight months ago.

Domestic industry has been faced with cheap imports and dumping of goods. The Budget, therefore, may continue with five per cent special import duty and four per cent special additional duty.

Sinha could even announce measures to strengthen the anti-dumping mechanism.

The anomaly in import duty structure, wherever it exists, is likely to be rectified so that raw materials attract lower duty, inputs and components are charged a higher duty and finished goods are in the category of highest duty.

While there is a persistent demand for abolition and reduction of subsidies, both direct and implicit, in view of the present political scenario this may be difficult except in some areas such as higher education.

The Budget is also likely to give an indication about reforms in the public sector enterprises, particularly hiving off loss-making PSUs, so as to reduce the burden on the exchequer.

To revive the capital market which has been depressed for the last three years, the government may permit investment of a certain percentage of provident and pension funds in the primary market. There is a talk in the stock exchanges that, to push up investment from retail investors, the amount invested in primary market may be exempt from income tax.

There has been some decline in the savings rate. To step up savings, the Budget may provide some incentives to individual investors such as removal of present ceiling on public provident fund.

The Budget may also provide incentives for individuals in banks and mutual funds. In this connection the suggestion that is doing the rounds is scrapping of tax deducted at source on bank deposits.

Industry has been demanding abolition of minimum alternative tax on companies and reintroduction of investment allowance so that companies are encouraged and motivated to make fresh investments. In view of the need for industrial revival, industry sources feel that the finance minister may consider this sympathetically.


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