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February 27, 1999
Markets, industry welcome Budget
Noted NRI businessman and chairman of the Hinduja Group of Industries, Srichand P Hinduja, said the Budget proposals for 1999-2000 would encourage greater inflow of NRI and foreign direct investment.
Reduction in long-term capital gains, freedom from procedural hassles, tax concessions for mutual funds, removal of stamp duty on dematerialised debt transfers, the gold deposit scheme, a special agency for FDI, Foreign Investment Promotion Board approvals in 30 days, concession for business reorganisations and the Infrastructure Development Fund are bold initiatives, he said.
The gold deposit scheme, with the attendant tax incentives, can bring much needed resources into the economy, he said.
FDIs will get a boost with the formation of the Foreign Implementation Investment Authority. Measures to boost the capital market with the active involvement of NRIs are also a welcome step, he said.
But there are a few areas of concern such as misuse of programmes for the poor and lack of provision for an electoral fund. No mention has also been made about opening the insurance and telecom sectors, which would have brought in large investments, he added.
The Unit Trust of India will be a major beneficiary in the year 1998, UTI chairman P S Subramanyam exulted.
Welcoming the Budget as "positive and growth-oriented", he said Finance Minister Yashwant Sinha has taken positive steps for the next millennium.
Referring to the various concessions announced for mutual funds, in particular, the exemption from tax for UTI and UTI Mutual Fund investors, Subramanyam said, "I am the happiest person today."
The UTI chief said a lot of incentives have been given for various sectors, which will automatically boost the capital market as shares of the respective companies will be benefited.
Rathin Datta, deputy senior partner of PriceWaterhouseCoopers, said the Budget has lived up to expectations and belied fears.
The expectations realised include the rationalisation of duty structures, a boost to the capital market through income-tax exemption for UTI and equity-based mutual funds, tax neutralisation of corporate reorganisations and de-mergers, and technical clarifications regarding taxation of buyback and stock options.
The banking sector and non-banking finance companies (NBFCs) have also welcomed the Budget as it addresses the issue of non-performing assets by setting up more debt recovery tribunals.
Global Trust Bank chairman and managing director Ramesh Gelli said the industry will benefit from this move as well as tax deduction of up to 5 per cent of doubtful debts.
ING Barings chief executive officer Pradip Saxena said the implementation of the Narasimham Committee's reforms is a positive step.
The Association of Leasing and Financial Services Companies welcomed the announcement that NBFCs will be treated as a priority sector for lending, saying this will help NBFCs lend funds to small-scale industries.
Fund managers at foreign institutional investors and analysts and investors in the stock market termed the Budget excellent as the Bombay Stock Exchange Sensex spurted 165 points today.
Vasudeo Joshi, assistant director at Jardine Fleming Asset Management Company, said the concessions for the mutual fund industry will strengthen market sentiment. The abolition of special customs duty and various sops for the housing sector will also brighten sentiment.
Joshi, however, expressed concern about the fiscal deficit and said it is not clear how it will be reduced.
Nagnath, chief investment officer of DSP Merrill Lynch, said the stock market is bullish about the Budget. Refuting the claims of some brokers that small investors will be driven out by the concessions to mutual funds, he said the common man invests through mutual funds and the move will indirectly benefit the stock market. Moreover, it is better and safer for common investors to invest through mutual funds.
BSE president J C Parekh also said the Budget will boost the capital market. There are immense incentives for investors to invest in schemes of UTI and other mutual funds who put more than 50 per cent of their funds in equities.
He said reduction of long-term capital gains on shares from 20 to 10 per cent is a welcome step.
The clarifications that stock options and swat equity will be taxed as perquisites only when the options are exercised, capital gains tax will be levied only at the point of sale, and buyback will attract only capital gains tax and no dividend tax, will remove all ambiguity in the matter.
The Budget has rightly recognised the importance of knowledge-based industries for economic development, he added.
C Jayaram, managing director, Kotak Securities, said the announcements relating to long-term capital gains tax and the concessions to mutual funds will attract retail investors who had burnt their fingers in the debt and equity markets. In fact, mutual funds had already begun picking up, and after today's announcements, the recovery is bound to be swift, he said.
The only negative point for Jayaram is the 10 per cent surcharge on all taxes.
Jignesh Shah, assistant vice president (research) at Triumph Finance, welcomed the measures to restructure public-sector undertakings. But he said the 10 per cent surcharge on corporate tax was unexpected and will have an adverse impact on the market.
Ajay Srinivasan, managing director, Prudential ICICI Asset Management Company, said there is nothing to disappoint markets as they had not expected much from the Budget. There is nothing much to cheer about either. He, however, welcomed the concessions for mutual funds.
Supreme Court advocate and tax expert Dinesh Vyas said the re-introduction of a surcharge on income tax would affect the salaried class and minimise the benefits elsewhere. But the bigger danger is that future finance ministers may be tempted to increase the surcharge.
He said the Budget does not contain drastic measures as regards the direct tax structure and so little change will be seen.
On the positive side, the proposals on mergers and amalgamations will be welcomed by industry because they smoothen and hasten the process and make it less burdensome from the taxation perspective.
He said the new gold bond scheme has certain tax incentives such as exemption of interest and capital gains. But it will not have many takers in the absence of an amnesty.
Vyas said the rationalisation of rates of customs duty and excise duty would reduce litigation and bring about a fair amount of certainty.
S S Bhandare, economic adviser to the Tatas, said the budget is not overwhelmingly supportive of industrial recovery. Benefits for housing, information technology and textiles and rationalisation of taxes have been undone by the surcharge on excise and customs duties. The cost burden of industry will go up and profits will be squeezed. The corporate tax surcharge will reduce profitability, he added.
Bombay Bullion Association president M L Damani welcomed the gold deposit scheme. "We had sent our suggestion to start such a scheme five years ago and we are happy the government has agreed," he said.
Under the scheme, selected banks will be allowed to accept gold deposits and issue interest-bearing bond certificates that can on maturity be reclaimed in gold.
Bank of Baroda chairman K Kannan welcomed the Budget proposals, but said, "We will have to wait for details on the gold scheme. The scheme will help collect gold from households and increase the country's gold deposits substantially. But since it is a non-productive item, we are waiting for its features."
Indian Merchants' Chamber president Y P Trivedi said the success of the scheme would depend on the attitude of housewives. But the scheme is likely to get good response from charitable and temple trusts, he said.
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