IIM-A students evaluate Budget 2009

After the budget is tabled, it takes the finest mind to read between the lines. In a conversation with eight PGPX students from IIM-A, DNA took a 360 degree view of the budget and its impact on the public. The expert panel comprised Vinod Gupta   expert in Petrochemicals, Oil & Gas, Vinod Ramachandran — expert in Telecom, Yogesh Soman   expert in Infrastructure, Rishi Dhariwal, Rachna Salgia and Viplove Chaturvedi expert in Banking, Anirudha Gupta — expert in information technology

On an overall, how do you feel about Budget 09?
Vinod Gupta: Background (Petrochemicals, Oil & Gas)
It is a well balanced document with good intent. The budget has the potential of being excellent provided it is put into action. The finance minister had a tough job of balancing various aspects in these challenging economic circumstances. Industry, market and public in general had high hopes from the budget.

After attaining a fine balance, the finance minister has even bigger responsibility. He has set the ball rolling and next few months will be crucial. If government is able to follow up the budget with more policy initiatives, corrective action as per emerging economic scenario and efficient execution of schemes, we can return to the high growth path much earlier than rest of the world.

Vinod Ramachandran (Telecom)
Overall, I feel that much more could have been done for the telecom industry.

Yogesh Soman (Infrastructure)
-Due to reduction in income tax surcharge and increase in the taxable income limit, there will be a little more money playing in the hands of the population and that could give boost to the economy in the current downturn. Although it has been argued that the relief isn't much when compared to the rate of inflation, I will still maintain that whatever little extra that everyone will have will add up to a big chunk given the large population that we have.

Rishi Dhariwal (Banking)
The union budget is no longer an instrument for the government to articulate its policy. This has been observed for the last 3-4 years. In any case, with global economic scenario changing rapidly, the government cannot take a year long view of things and stick to it. If the monsoons fail, can we expect the government to follow only the fiscal measures outlined in the budget? What happens if oil prices see another spike? The point is, governments too need to articulate their short term and long term policies. Budgets meant for a year do not fit the bill either ways. So, if you were disappointed with the budget, don't be!

Viplove Chaturvedi (Banking)
Given the fact that this budget is the first from a government that has the people's mandate to rule for next five years, it was expected that the budget would outline broad framework of policies that the government propose to follow during its tenure. More so, since the ruling party is now free from the constraint of managing ideology conflict within the ruling coalition that it faced during previous tenure, it was expected that some of the long pending policy reforms in the area of divestment of PSU, labour reforms etc. would be initiated. The budget has been uninspiring as far as that is concerned.

Anirudh Gupta (IT)
This is a confused budget. Many matters are undertaken for 'appeasement' of certain quarters. Earlier, in the initial 2-3 years of a new regime government had the flexibility to announce tough measures. So it's a lost opportunity of sorts.

Has the budget taken care of core sectors like infrastructure, energy, banking, information technology? 
Vinod Gupta: Focus of the budget has been infrastructure and energy sector. Initiatives like inclusion of gas in petroleum products, clarity in NELP (New Exploration Licensing Policy) tax rebate clause and allowing depreciation on investment in gas/petroleum pipeline will give boost to economy. India needs to spend heavily on this sector and these initiatives will attract more players in this sector.

Another important aspect is extension of tax holiday for refineries up to 2012. Unfortunately, our reserves are not adequate to meet our fuel requirement. Policy initiatives like this will help in having higher value addition within the country rather than outside the country. This will ease some burden on our Forex. However, in order to attract more private players in this sector and to allow existing players to take part in retail segment, price control mechanism need to be phased out.

Vinod Ramachandran: From the telecommunications sector's perspective, the budget has been slightly disappointing. Apart from the continuing exemption of 4% countervailing duty, which can boost mobile handset manufacturing in India, there was very little mention of other initiatives.

Yogesh Soman: National Highway Authority of India has been given a 23% increase in its budget over the last year. This will boost the highway development work which has been almost stalled after the completion of the Golden Quadrilateral in 2005. India needs much better transport infrastructure within the country for efficient transport of goods.

There is no mention of outlay for development of ports in the budget. This is a disappointment as ports are in major need of modernisation and expansion. Our exports depend critically on development and efficiency of ports and that sector should also have been covered adequately

Rishi Dhariwal: The crucial highlight of the budget for spurring growth of the economy are the increase in allocation for NHDP (up by 23%) and the loan take out by IIFCL for infrastructural loans. 'De-bottlenecking' projects are especially valuable to leverage economic activity. If the same holds true for India also, the incremental job creation as well as the spur in consumption caused by the same is a good way to stimulate the economy and a much better measure than giving subsidies which do not have a similar multiplier effect.

Viplove Chaturvedi: Picking up discussion threads from where Yogesh left......
In the backdrop of stated objective of achieving 9% investment in infrastructure, while provision of take-out financing from IIFCL for projects financed by banks under PPP is welcome, the combined fiscal deficit of central government, state government, food/oil/fertiliser subsidy at 12% has potential of pushing out other participants from markets and making funding scarce.

Mayank Kumar: Government has decided to implement GST with effect from 01.04.2010. Currently we have Central VAT and state Value Added Tax (VAT). GST will unify both these taxes. Credit of central VAT will be available to wholesalers and dealers who pay state VAT. Currently this CENVAT credit is not available to them.

This also means that state governments will lose lot of revenue because dealers will only be paying tax after adjusting amount of CENVAT credit available to them. They will be required to revise tax rate. Current rate of 8 % or 12 % of state vat needs to be increased. GST rate at state level should be pegged be around 16-18%.

Fixation of rate and calculation of revenue loss or gain will be very crucial. This should be done at priority if we want to implement GST with effect from 1.4.10. Rate should be fixed so that state revenues are not affected much. Next crucial step will be change in legislation required and to redesign all forms, returns to take care of new system of taxation. Central and state governments need to move very fast and quick to ensure that GST is a reality by April 2010.

Anirudh Gupta : The finance minister has extended tax sops for IT exporters by one year under Sections 10A and 10B of the IT Act.

This is a temporary stop gap measure at the best as it does not encourage new companies to set shop given the 1-yr extension. This will benefit only the existing companies to face the global downturn. So lacks a strategic vision.

Government's steps on Unique ID project, Biometric smart card for BPL Families are appreciable. The measure to relieve employers from paying fringe benefit
tax — however, this entire burden is being borne now by the employees and thus dampens the Income Tax benefits by the removal of 10% surcharge.

Rachna Salgia: The budget has reflected its concern to improve the status of women in the society. Some welcomed changes in the budget include the comparatively reduced tax for women employees which will encourage women to join the productive workforce and will help them to come forwards in various walks of life. Another one is the budget proposals for national literacy mission for girls' education is welcome. Personally, I have welcomed the full excise exemption on branded jewellery.