'There is no growth impetus for industry'

Bhavesh Parekh, Head of Research, Brescon Research

The Union Budget 2002-2003 has failed to enthuse the capital market. The major dampener has been the removal of dividend tax exemption in the hands of the recipients. Dividend tax on mutual funds, which also was exempt, has been reinstated. Mutual funds which mopped up huge inflows last year may not be able to repeat this because they may not be an attractive avenue for investors after the reinstatement of the dividend tax.

What is also disappointing, is that there are no measures to provide impetus for growth to industry. Even in the past, cut in interest rates had failed to revive the industry mainly because the problem for the industry is from the demand side and not supply side. The demand side problem is the crux of the current economic slowdown.

I think the budget is quite disappointing for the corporate sector. On the one hand customs duty has been cut while there is a 5% income tax surcharge that has been imposed.

On the positive side, there are some major policy initiatives that the finance minister has taken like moving towards capital account convertibility by way of allowing full convertibility on NRI deposits. There are also some of the measures he has taken in the financial sector moving to market linked interest rates on small saving schemes and setting up of the Asset Reconstruction Company (ARC).

As far as interest rate cut on small savings is concerned, what is important is that he has linked the rates to 1-year government paper which is a measure of moving towards market driven economy. The bad part of it is that tax payers will have a problem as far as tax planning is concerned .

The setting up ARCs was very much expected. However, what is import is the size of the ARC that should be quite big. Also there should be a parallel mechanism where ARC be given the power to dispose off assets.

What the budget has also done is that it has taken steps to meet WTO commitments like dismantling of the administered price mechanism in the oil sector and reduction of import duties.

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