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Wednesday,
February 27, 2002, Chandigarh, India  
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BUDGET — HOPES & EXPECTATIONS-IV
Railway Budget positive for North: CII
ECONOMIC SURVEY
Industry’s concern over slowdown |
IN GRAPHIC:
RUPEE'S FALL
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FEEDBACK
PHDCCI opposes freight rate hike
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BUDGET — HOPES & EXPECTATIONS-IV THE
estimated housing shortage is around 33 million units and builders have been lobbying hard for some concessions in the Budget that would unlock the dormant demand in this sector. Besides, the prices have remained flat for quite some time and a real estate boom seems long time away. Will Budget boost demand in the housing sector? Every rupee invested in housing adds 78 paise to the GDP. Further, over 269 industries are directly or indirectly dependent on the housing sector. Any boost to the housing sector, will automatically give a boost to the other core sectors of the economy. We, therefore, anticipate the stress on the housing sector to continue in the forthcoming Budget, especially as housing is the second largest employment generator in the economy. Last year’s Budget increased the maximum amount of deduction available for interest payable on housing loans for self-occupied houses from Rs 1,00,000 to Rs 1,50,000. For persons having income from house property, the deduction of 25 per cent of annual value for repairs etc. was enhanced to 30 per cent. However, no further deductions, except for the expenditure incurred by way of interest payment on housing loans, are allowed. Therefore, expenses on account of insurance premium, land revenue, vacancy allowance, ground rent, annual charge, unrealised rent and other expenses are not allowed. The wish list
Expected measures
All these measures will provide the much-needed impetus to the housing sector which in turn will provide a boost to the entire economy. All in all, the sector would be central to the Budget. NBFC sector The wish list
The Reserve Bank of India has lowered the deposit rates ceiling for NBFCs from 14 per cent to 12.5 per cent per annum. According to the RBI, taking into account the market conditions and changes in other interest rates in the system, the maximum rate of interest that NBFCs can pay to their public deposits has been reduced, effective from November 1, 2001, to 12.5 per cent per annum. |
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Railway Budget positive for North: CII Chandigarh, February 26 The major boost to the region would come through the Railway Minister’s announcement of introduction of high-speed refrigerated wagons. “For Punjab, Haryana, UP and Rajasthan, where agriculture accounts for large share in the state’s income, better transportation facilities will be a welcome signal for this sector”, he said. The allotment of Rs 300 crore to be spent in the current year towards the completion of the project connecting Baramula and Udhampur has also been appreciated by CII . It has also welcomed the fixing of a three-year timeframe for the completion of the Udhampur-Katra and Quazigund and Baramula sections. Mr Sanjiv Goenka, President, CII, while commenting on the Railway Budget said the move towards rationalisation of passenger and air-traffic was long overdue and reduction in number of classes from 59 to 32 is also a rational step. |
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ECONOMIC SURVEY New Delhi, February 26 The survey attributed the industrial deceleration to a number of structural and cyclical factors, including lack of domestic and external demand, cyclical factors, high real interest rates, infrastructure bottlenecks, and lack of reforms in land and labour markets among others. While the government was in the process of seeking a consensus for further reforms, external factors such as the attack on the World Trade Centre and related events, hit the reforms. Shift focus to
non-cereal crops In the backdrop of a contrasting picture of low growth amid plenty, the survey for 2001-02 has warned that there was an urgent need for shift of policy focus towards non-cereal crops and called for a better role of the private sector for removing trade restrictions in agri-products for the improved food management. It was also imperative to evolve concrete strategies to make Indian agriculture competitive and enhance efficiency, the survey said. “On the one hand we should seek substantial reduciton in the support given to agriculture by developed countries, on the other hand, Indian agriculture will also require to be supported to maintain and improve competitiveness”, the survey said. Allaying fears that the import liberalisation has adversely affected Indian agriculture, the official report card of the economy said the value of agri imports in aggregate terms has come down to about $ 1.8 billion in 2000-01 from $ 2.8 billion in 1999-2000. “Countervailing duties can also be imposed to counter actionable subsidies given to agri products by exporting countries apart from having the option acting under safeguard provisions to counter surge of imports”, it said. SEBI needs more teeth It should be an on-and-off-the-field regulator and given powers for investigation. It must also have powers to attach public funds and all converted assets to prevent misappropriation. At the same time, it cannot have powers to award compensation, which is the job of the judicial forum. On the US-64 scheme, which has faced repeated problems owing to the administrative setting of entry and exit policies, the survey said further intervention by the government may be expected in the near future. Oil pool deficit likely
at Rs 14,500 cr India’s oil pool account, (OPA) a complex mechanism of subsidising kerosene and domestic cooking gas (LPG), is
estimated to net a deficit of around Rs 14,500 crore at the end of current fiscal, the survey has estimated. “The cumulative outstanding from the OPA were around Rs 12,600 crore as on March 31, 2001. The estimated position of the OPA as on March 31, 2002, at an average international crude price of $25 and $28 per barrel and assuming the customs and excise duties continue at existing rates, will be around Rs 14,500 crore and Rs 21,200 crore respectively,” the survey, said. FDI in hardware goes to China, Taiwan India is losing out to its neighbours like Taiwan and China in attracting foreign investment in the hardware sector mainly due to tariff and other policy deficiencies in contrast to the country’s continued dominance in the export of the software, the survey said. “Very low investment is taking place in the hardware industry and foreign investment is going to Taiwan, China, Brazil, Malaysia etc. There are problems in hardware production which may be summarised as distorted tariff structure, poor infrastructure, high cost of finance, industrial, fiscal and Exim policy, labour laws and inspector raj and low volumes of production,” survey said. Decline in
employment growth There is deceleration in growth of employment in the organised sector due to decline in the rate of growth of public sector employment, the survey said. The organised sector employment in 1999-2000 was 28.11 million i.e. about 7 per cent of the total employment of about 397 million. Over two-thirds of the total organised sector employment i.e. 19.41 million is in the public sector. Trends in the organised sector employment reveal that employment in this sector is declining, the survey said adding that this has been entirely due to the slowing down in employment in the public sector from 1.52 per cent per annum between 1983 and 1994 to a negative growth of (-) 0.03 per cent per annum during 1994-2000.
TNS, PTI |
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Industry’s concern over slowdown New Delhi, February 26 President of CII Sanjiv Goenka said in the backdrop of the declining trend in the industrial production revealed by the survey there was a need to stimulate investment for growth in the economy. A reduction in the corporate tax rate to 30 per cent from current 35 per cent, elimination of minimum alternate tax and reintroduction of the investment allowance for a limited period of five years at the old rate of 25 per cent the three steps identified by Mr Goenka that would boost the bottom lines of corporate and encourage investment and growth. The survey underscores the series of reforms which are necessary to achieve the 10th Plan objective of eight per cent growth rate, President of FICCI R.S. Lodha said . “There are two clear negative signals highlighted in the Economic Survey”, Mr Lodha said, adding that “both domestic production and imports of capital goods have declined considerably in the current year illustrating that there has been less demand for capital goods”. President of PHDCCI Arun Kapur said the survey portrayed a discouraging scenario of the economy despite an estimated GDP growth of 5.4 per cent in 2001-02. Besides, capital formation, which is considered to be a key economic and industrial growth factor, has registered a slowdown. President of Assocham K.K. Nohria, said the financial health of the states was worrying and becoming a stumbling block in actualising public investments and therefore there was need for evolving a mechanism for implementing infrastructure projects. |
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FEEDBACK WHEN Mr Yashwant Sinha rises to present his fifth Budget on February 28 a hope possessing him will be that the government makes a better job of implementing his new proposals than it did in 2001-02. His last year’s Budget was hailed as a Nadia Comanceci 10 out of 10 Budget. He hoped to launch the second generation reforms, bring flexibility in the factor markets, make the economy more competitive, downsize the government, privatise public enterprises. What was actually achieved was notably only in two sectors with disinvestment process moving ahead and the labour reforms being brought on track with the Cabinet approving on February 22 the proposal to amend the Industrial Disputes Act, 1947.
The government’s task is clearly laid out. The government must ensure that its policies spur growth, generate employment, uplift agriculture, reduce subsidies, lower population growth, educate more Indians, upgrade infrastructure, downsize government, disinvest in PSUs, make economy more productive and competitive, reform financial sector and render factor markets more flexible. Clearly, the task is daunting. But implementation is the key. Where can Mr Sinha marshal his resources from? Revenues: He cannot raise excise duties or customs duties or direct tax rates. To augment revenues, thus, he must tax services, which have become at 50 per cent the post important part of the economy. And he must tax that component of agriculture which can afford to pay. Disinvestment: The government has progressed admirably in raising resources from this option even though this year’s target may not met. Every year for next five years funds to the tune of Rs 15,000 to Rs 18,000 crore can be generated from disinvestment. FDI: However, the above two options will not suffice our need. The biggest contributor to growth can be FDI, as has happened in China. Last year, we received $ 3 billion, which is what an MNC, Motorola, alone invested in China last year. China, in comparison, received $ 48 billion. However, we will receive FDI only if we make ourselves an attractive destination for parking investible funds. The list of measures needed to be implemented is: Agriculture: With 70 per cent population depending on it, agriculture growth has a strong multiplier effect. A modest 3 per cent growth in agriculture will lead to an additional 2.6 per cent growth in manufacturing and 1.7 per cent overall growth in GDP. Value-added agriculture is clearly the answer to the dependence on rice-wheat cycle. We process only 2 per cent of our food. Brazil processes 70 per cent of its agricultural produce. To achieve this, the industry must approach the rural sector. Contract farming should be made easy. Technology must be brought to the village to make agriculture productive and competitive. Outdated laws like the Essential Commodities Act and the Prevention of Food Adulteration Act should be scrapped and free movement of agri-products across states should be ensured. Rural industry, food processing, cold chains, silos etc must get fiscal incentives. Infrastructure: The government should immediately implement for which it has the resources and for which the only resource needed is the will. An amount of Rs 5,000 crore was provided for rural roads in the last year’s Budget, but that was not used. This year, at least, should herald a change when this amount was utilised. Distribution reforms ought to be finalised in the power sector. The real estate sector should witness rationalisation of property tax, stamp duty rates, simplification of procedures of registering documents and offering more attractive shelters for exemption of income tax on capital gain. The Urban Land Ceiling Act should be scrapped and the Rent Control Act be reformed. Downsizing of government: A year ago disinvestment also appeared a hopeless task. All it took was a Shourie and his team to lay all demons to rest. Now an Antony is showing the way in Kerala as to how the imperative of downsizing the government and making it accountable can be achieved. Education and population control programmes should get 15 per cent more funds this year. Income Tax and Finance Acts should be amended to facilitate mergers and acquisitions. Capital markets need to be revived. Introducing investment allowance on long term equity investments should be brought in. Industry should be given the incentive to invest by reintroduction of investment allowance and abolition of MAT. All tax laws should be simplified so that they no longer remain the Byzantine nightmare and become more compliable as well as enforceable. Exports should be encouraged by stopping the withdrawal of benefit under Section 80 HHC, which at present allows 30 per cent of export profits for computation of taxable income. Labour laws reforms should be brought to its logical conclusion. The government would release through this reform a cycle of most durable industrial growth. By amending the Industrial Disputes Act and giving power to a section of the industry, particularly, the SMEs, to lay off workers, scarce resources now bottled in unlivable industries would be released and more people-intensive industries, which is our need, would be established. |
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PHDCCI opposes freight rate hike Chandigarh, February 26 In view of the steady decline in the growth rate of freight traffic in recent years, the Railway Budget has failed to focus adequately on rebuilding Railways as a reliable and efficient mode of transport. He said measures like hike in freight rates will continue to discourage movement of goods by rail and therefore, it need to be corrected in view of the existing overemphasis of movement of goods by road. On the other hand, to appease rail passengers, there is a hidden cross subsidy, he said. A thorough review of remunerative and non-remunerative rail routes was expected in the Budget. On this basis, subsidy limit should have been fixed and decision taken to do away with passenger trains on highly loss making routes, he said. The chamber welcomed the announcement of decentralisation of procurement and autonomy to the Railway General Managers. |
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