The B-day at FICCI: The Budget evoked mixed responses

Within minutes of finance Minister Jaswant Singh finishing his 135-minute budget speech, the CII Director-General Tarun Das had a huge grin on his face. "(The budget) is great, it has outlined new strategies for growth," he gushed. That was corporate India's first reaction to Budget '03. India Inc., as much as the Finance Minister himself, is pinning its hopes on just one thing: that the excise cuts announced across a range of consumer products (including tyres, soft drinks, cars and air-conditioners), coupled with lower income tax and cuts in small savings, will stimulate demand.

Maruti Udyog's CEO Jagdish Khattar announced within minutes of the budget that the largest carmaker in the country would announce price cuts the following day (BT went to press ahead of that). Consumer durable companies, especially makers of air-conditioners, were projecting higher sales this summer. And Anand Mahindra, Vice Chairman and Managing Director of Mahindra & Mahindra, was projecting double-digit growth for the beleaguered auto industry. As Analjit Singh, Chairman, Max India, put it, "If the consumer responds, everything will come up."

The industries that gained the most were textiles and healthcare. S.P. Oswal, Chairman and Managing Director of Vardhman Spinning, praised the Finance Minister for introducing a comprehensive package for the industry, and claimed that this would help make the industry more competitive. Indeed. The budget lowers excise duty on polyester filament yarn from 32 to 24 per cent; on all knitted cotton fabrics and garments from 12 to 8 per cent; and removes the scheme of deemed credit. More importantly, the Finance Minister proposed a mechanism for restructuring debts of healthy and potentially viable textile units.

Healthcare industry received special attention too. As the Finance Minister explained, his aim is to make healthcare affordable to the masses and make India a global health destination. The result: a large dose of sops to the sector. For starters, financial institutions that lend to private hospitals (with 100 or more beds) will be able to claim tax benefits under section 10 (23G) of the Income Tax Act. Then, the rate of depreciation on critical medical equipment has been increased from 25 per cent to 40 per cent. And Customs duty on certain life saving equipment has been lowered from 25 per cent to just 5 per cent. Besides, spectacles and some drugs should be cheaper in the market. Said Prathap C. Reddy, Chairman, Apollo Hospitals Group: "The Finance Minister has addressed all the three pertinent issues in healthcare: access, mechanism, and FDI."

There was some disappointment on the corporate tax front. For example, industry expected the surcharge on corporate tax to go, but it has been halved from 5 per cent to 2.5 cent. The increase in services tax from 5 to 8 per cent is also an issue, as is the introduction of a 12.5 per cent dividend distribution tax. Surprisingly, though, few industry captains were complaining about it. Said Rahul Bajaj, Chairman and Managing Director, Bajaj Auto: "If there are five things that benefit you and only one where you lose, you cannot really complain. By and large, nobody loses out in this budget, besides growth has received a stimulus."

If consumer spending does grow because of the cuts in excise duty and investment in infrastructure, India Inc. will likely end 2003-04 with more black on its bottomline.

-Debojyoti Chatterjee

Should Marketers Take Heart?
Marketers of branded products couldn't really have asked for a better bonanza.

Demand-side economics: The Budget puts extra money in the hands of consumers

Consumer confidence. In two words, that was what was on many a marketer's mind, as the Budget got underway. Expectations had been honed by Jaswant Singh's much bandied-about promise of "Greater spending power in the hands of all our citizens". In the interests, of course, of 'gross national contentment'-of which consumption of branded products, dare one say, is an increasing part.

Did the fm live up to the promise? Oh, yes. "In an overall global negative environment," says Nabankur Gupta, Group President, Raymond, "I guess this has been a path-breaking budget."

Simply put, with inflation no longer a worry, the rupee is going to go much farther. All the income tax measures ought to put more money into the average housewife's purse, and if you look at this in the context of his gallant excise-slashing moves, you'd be rushing to jack up your sales targets for the year. Cars, perfumes, pressure cookers, soft-drinks, air-conditioners, tyres, biscuits, garments, audio cassettes, CDs-you name it. If it's part of the emerging consumption group lifestyle (the classic target group for almost every branded product), it's getting cheaper. And if that hasn't gladdened the consumer, the housing tax-holiday is to stay very much in place, even as that old headache, capital gains, is spiked. It all adds up to greater consumer confidence.

Ask marketers. "I can already feel positive consumer vibes," says Utpal Sengupta, CEO, Agro Tech Foods, "so this budget has achieved what it could, the rest depends on how marketers take on from here." Sometimes, all it takes is a little bit of the 'feel good' factor for marketers to grab and build on-with their own reinforcement strategies. "Positive sentiment alone is reassurance enough for feel-good categories such as apparel," says Prakash Nedungadi, President, Madura Garments.

The point, as emphasised by Rajeev Karwal, Managing Director, Electrolux Kelvinator India, is that people will finally start opening their wallets. "We have reason to feel upbeat," he says, "because money will now move from banks to the shopkeeper." A lower interest-rate environment, as spurred by the cut in small-savings rate, ought to help consumer finance-driven sales of durables. But then, there's a flip side to this, as Harsh Mariwala, Chairman, Marico Industries, points out: "Lower interest will mean lower earnings for the consumer and that may spoil the party."

That brings us to the final question. Will the Budget stimulate demand on the whole? "No," says a categorical Sullaja Firodia Motwani, Joint Managing Director, Kinetic Engineering. "Extra money in the consumer's pocket is not substantial enough to spur higher sales across categories," she reasons. Well, maybe larger factors need to work for that to happen. The economy is a complex animal, you see, with all sorts of knock-on effects that come to bear in a variety of inscrutable ways. So maybe marketers would be a tad cautious in jumping for joy. Also, the excise cuts in some cases-such as soft drinks-will do little other than make the current pricing structure more sustainable (can a five-rupee Coke realistically get any cheaper?). But on the whole, consumer markets are looking up. That's why there's more ecstacy than agony out there.

-Shailesh Dobhal & Dipayan Baishya

10 FOR THE ROAD AHEAD
The most important strands in Budget '03.

''Paanch Priorities'': The leitmotif shows that the government is aware of the major challenges India faces as a developing country. Ergo, poverty and infrastructure will continue to be areas of focus.

Middle Class Economy: The generous cuts in excise-on everything from soft drinks to air-conditioners to cars-and lower income tax rates should rev up the economy's engine: the middle class.

Global Alignment: The reduction in peak Customs duty from 30 per cent to 25 per cent shows India's commitment to meeting WTO obligations, and to making industry globally competitive.

Inevitable Reforms: The increase in urea prices, introduction of vat and further rationalisation of the Excise structure indicate that structural reforms will continue, even if cautiously and one step at a time.

Indigenous Push: The sops to R&D in pharma and biotechnology, and new benefits to the IT industry point to a continued thrust in knowledge industries. This is likely to keep the services sector clipping.

"De-bureaucratisation": "Beyond deregulation, it is more de-bureaucratisation that is needed," so said the Finance Minister Jaswant Singh. The one-page form for it return augurs well.

No Free Lunches: The increase in service tax from 5 per cent to 8 per cent, and the inclusion of 10 new services under the tax net are an important indicator of the tax regime to come.

Fiscal Discipline: The plan to introduce a cash management system is indicative of the government's desire to better manage its expenses. The Centre-state debt swapping scheme should also help.

Brand India: The setting up of a Rs 200-crore India Development Initiative to promote India abroad is an acknowledgment of the need to position the country as an investment destination.

Political-Economy: All said and done, what also comes through Budget '03 is the fact that economy-as far as policy-making is concerned-will always play second fiddle to political compulsions.

Restless In Mumbai
The First Budget of a new FM would surely be an occasion to remember-which explains Mumbai's many Budget get-togethers.

CII, Mumbai: Some cheer, but sobriety prevailed

Let's be clear. Budget-watching in Mumbai is not the same as budget-watching in Delhi. Or anywhere else, for that matter. Why? Simple. This is a city that adrenalises itself on stock prices, with interest in such sarkari words as 'yojna' well nigh negligible (unless of course this 'yojna' gets listed). It follows that the best place to watch the Budget would be amidst the stock-crazy. In Mumbai, that includes industrialists (the people who actually own most of those blue-chips). Ideal folk to watch watching the Budget.

A few minutes past 1100 hours, and FICCI members were to be found in rapt attention at the BSE Convention Centre-the erstwhile trading ring. A few kilometres away, the Chambers atop the Taj was hosting a bunch of FII fund managers, while the hotel's Crystal Central had a CII gathering (among them, Jamshyd N. Godrej, Suketu Shah and Naina Lal Kidwai). Murmurs, sighs, claps... even groans. As the budget dragged on, the restlessness was evident.

For more wholehearted festivity, you'd have to hit the 3rd floor of Makers Chamber-IV. Yes, the Reliance boardroom. This is where the Brothers Ambani and their crew sat watching the Budget, accompanied by Gujarati munchies of the gathia-khakra sort. The peak customs duty cut and polyester-related clips saw an eruption of cheers-but the spirit was dampened by overall economy nags.

By noon, the Sensex had gone limp-and the feeling spread. The axing of the long-term capital gains tax got people to their feet in delight, but the mood towards the end was palpably more sombre. As Esselworld's Ashok Goel put it, "People expected fireworks", but got something of a "non-event". Maybe forex trader Jamal Mecklai did the smart thing by giving up on his champagne-and-vadapav Budget parties, in the interests of a sober appraisal of a sober book-balancing exercise.

-Dipayan Baishya

Tax Primer
Everything you want to know about what the Budget has done to corporate and personal tax.

If you are a taxpayer-try it, it will hurt less post-Budget 2003-you should say a quick thank you to the finance minister. Most of the fears that people had concerning a possible withdrawal of housing loan interest benefits (Rs 1.5 lakh now) and the rebate for investments under Section 88 (Rs 1 lakh now) have proved to be unfounded. The tax structure too-another major worry-hasn't been tinkered around with. What's more, there are several positives in Jaswant Singh's budgetary package that could lead to you actually paying less tax. These include:

• The salaried class will benefit immensely because there is an increase in standard deduction. The new standard deduction formula is 40 per cent or Rs 30,000 whichever is less. So if your salary income is Rs 5 lakh, the standard deduction will go up from Rs 20,000 to Rs 30,000. Another positive of the budget is that the standard deduction is allowed even to the employees who earn more than Rs 5 lakh. They will get a benefit of Rs 20,000.

• Surcharge of 5 per cent has been done away with for individuals whose income is below Rs 8.50 lakh. But if you are above this limit, the surcharge has gone up to 10 per cent.

• Long-term capital gains tax (from securities only) has been abolished. But this is applicable only to the new purchases you make from March 1. But this may be reviewed in the next budget.

• Now you are also exempt from paying tax on the dividend you get from companies and mutual funds. But the companies and mutual funds have to pay a dividend distribution tax of 12.50 per cent on your behalf. The equity oriented schemes (with more than 50 per cent equity holding) will be exempt from this distribution tax for one year.

• Contrary to expectations, the Section 80L benefit (for interest, etc) has increased, from Rs 9,000 to Rs 12,000. Along with this, you will get an additional Rs 3,000 for interest income from government securities, so your total benefit under this section can be as high as Rs 15,000.

• From April 1 onwards, the money you spend on your child's education (maximum two children) will be treated as an investment under section 88. The limit fixed here is Rs 12,000 per child. Not bad.

• The royalty income received by authors is exempt to the tune of Rs 3 lakh.

• The tax rebate benefit for senior citizens has also gone up to Rs 20,000. They don't have to pay tax if their total income is below Rs 153,000. In case the senior citizen is on pension, he can also claim the standard deduction. So the tax free limit goes up to Rs 183,000.

There are several changes proposed on the procedural front too. With this, scrutiny of tax returns based on discretion will go. Instead, it will be based on ''intelligent'' random selection of 2 per cent. Taxpayers can expect the refund also through ECS.

Another facility offered is the extension of voice response system to more cities, software for preparation of returns, electronic filing of returns, abolition of tax clearance certificate currently needed for foreign travel, etc. From next year onwards, the Finance Minister has promised to give the facility of one page return filing for all the individual taxpayers.

Corporate Tax: The Finance Minister has also not made any major change in corporate tax rate and it will remain at its present level of 35 per cent. A small mercy: The surcharge will come down from 5 per cent to 2.5 per cent. In effect, the overall tax rate will fall marginally from 36.75 per cent to 35.88 per cent. But most of the companies are not paying tax at this rate because of several exemptions that are available. And the budget has retained all these benefits (like export earnings, etc). Sorry, Mr Kelkar.

-Narendra Nathan