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The Union Budget 2004-05 is being announced today i.e.>July 8, 2004 . DebtonNet is covering the highlights live. Keep refreshing this page
Budget highlights (details published by FinMin)
Finance Minister Palaniappan Chidambaram's budget was less inflationary than
some analysts had feared but, as expected, included no major measures to tackle
a worrying fiscal deficit that is seen as a challenge to sustained high growth.
Instead, it relied largely on growth -- targeted at 7 to 8 percent for the
year to March, 2005 -- to bring the deficit down to 4.4 percent of gross
domestic product (GDP) from 4.6 percent. Announcing a raft of programmes for education, health, jobs farmers, and
housing, he said boosting investment and business was vital to achieve his
growth target and fight poverty. "The key to growth is investment," he told parliament. "Public
and private. Domestic and foreign." "It is my goal to make the environment in India attractive to
investors," he said, adding the government would form a new investment
commission. The rupee was largely steady, but the main Bombay stock index surrendered
early gains on increased investment in the power and telecoms sectors when
Chidambaram announced a new turnover tax on share trading to replace a capital
gains tax. "It appears to be a very carefully balanced act," political
analyst Mahesh Rangarajan said. "He is targeting the poor in line with the
government's... programme, while committing himself to fiscal prudence. The question
is where will the money come from for these measures." Most of the measures were largely expected, including a rise in tax on
services -- which account for 50 percent of GDP -- to 10 percent from 8 percent
and the abolition of some excises, including those on tractors and computers. COMMUNIST SUPPORT Chidambaram did not impose a service tax on road transport, which would have
stoked inflation in the vast nation, as analysts had feared. But he increased
excises on steel. The Congress-led coalition government relies on communist support and the
budget included massive social spending for the millions of poor who
unexpectedly swept it to power in May. Announcing extra spending of 100 billion rupees ($2.2 billion), Chidambaram
imposed a 2 percent tax surcharge to raise up to $1.1 billion for extra
education spending and a revival of a rural infrastructure fund with $1.9
billion. "The enhanced spending he has spoken of so far means he has to juggle
his numbers somewhere and so the markets may not take it positively," said
Raja Bandyopadhyay, of Birla Sunlife Securities in Bombay. Analysts also said the government could struggle to implement its ambitious
social programmes -- including a "new deal for rural India -- because of
the country's inadequate infrastructure and glacial bureaucracy. "He has made good proposals but these must not remain on paper
only," said Bhaskar Rao, of the Centre for Media Studies. "These proposals must sink deep in the government bureaucracy; the
challenge will be in the implementation." India's combined federal and state fiscal deficit is almost 10 percent of
GDP, one of the highest levels in the world India's new left-leaning government on Thursday unveiled its budget for the
year to March 2005. Financial markets, spooked by May's shock election result, had been waiting
to see whether the government's promises would further add to India's already large
deficit. The government vowed to foster investment to maintain strong economic growth
and cut the fiscal deficit in an expansionary budget with billions of dollars
of new spending for the poor. Announcing a raft of programmes for education, health, jobs farmers, and
housing, Finance Minister Palaniappan Chidambaram said boosting investment and
business was vital to achieve his targeted growth of 7 to 8 percent a year and
fight poverty. ---- MARKET REACTION ARUN KUMAR RAJAPPAN, MANAGER, ING FINANCIAL MARKETS, SINGAPORE: "It seems to be a very populist budget with the main focus on rural India.
The moves to boost the infrastructure sector are bullish for the equity
markets. "Going forward, we can also expect a gradual appreciation in the Indian
rupee against the U.S. dollar due to likely inflows in the telecom and
insurance sectors." "But interest rates look to have bottomed out and a sharp fall in the
benchmark 10-year bond yield looks limited." ---- ABHAY AIMA, HEAD OF PRIVATE EQUITIES, HDFC BANK, BOMBAY: "The step to allow greater foreign direct investment in telecoms and
insurance is a bold move. That apart, there is a lot of emphasis on the
agricultural sector, but it doesn't appear that the outlay has increased
hugely." ---- S. ANANTHANARAYAN, VICE PRESIDENT, KOTAK MAHINDRA CAPITAL COMPANY, BOMBAY:
"If expenditure is to go up by just 100 billion rupees from what the
previous government had planned, we are in for a mild bond rally as additional
borrowings of 100 billion rupees can be absorbed by the market. "But we are waiting too for the market borrowing for the year to be
announced. "As for the economic measures, they are not only pro-growth, but will
also ensure that the benefits of more robust growth are better distributed,
with the poor also gaining from strong growth." ---- K.P. SURESH PRABHU, VICE PRESIDENT AND CHIEF DEALER AT HDFC BANK, BOMBAY: "The spending on the social sector, such as on education, implies that
there will be a marginal increase in borrowings. "In line with the Fiscal Responsibility and Budget Management Act, the
government plans to wipe out the revenue deficit by 2008/09. But the market
would be keen to know what measures they would take in this regard." ---- RAJESH NAIR, ANALYST, UTI SECURITIES, BOMBAY: "The commitments to increased spending point to an inflationary budget,
which may not bode well." ---- RAJA BANDYOPADHYAY, ANALYST, FIXED INCOME RESEARCH, BIRLA SUNLIFE
SECURITIES, BOMBAY: "The enhanced spending he has spoken of so far means he has to juggle
his numbers somewhere and so the markets may not take it positively." ---- INDUSTRY REACTION B. V. MEHTA, EXECUTIVE DIRECTOR, SOLVENT EXTRACTORS ASSOCIATION OF INDIA, BOMBAY:
"The finance minister's announcement regarding crop diversification is a
really welcome step and is the need of the hour. This move will help reduce the
country's high dependence on edible oil imports, besides helping farmers. ---- RAJESH AGRAWAL, CHAIRMAN, SOYBEAN PROCESSORS ASSOCIATION OF INDIA, INDORE: "Increased allocation for irrigation and water management is quite encouraging
and the move will greatly help farmers. Also, announcements such as helping
farmers to diversify into oilseeds will ensure better availability of quality
seeds and other inputs and boost output." ---- ATUL CHATURVEDI, PRESIDENT, ADANI EXPORTS LTD, AHMEDABAD: "India needs massive investment to improve rural infrastructure, which
is lagging 40 to 50 years behind global standards. The investment proposals are
a welcome step. Without such an investment, the desired growth rate will not be
achieved." ---- POLITICAL ANALYSTS MAHESH RANGARAJAN, INDEPENDENT POLITICAL ANALYST "It appears to be a very carefully balanced act. He is targeting the
poor in line with the government's common minimum programme, while committing
himself to fiscal prudence. The question is where will the money come from for
these measures." ---- BHASKAR RAO, CHAIRMAN OF CENTRE FOR MEDIA STUDIES, NEW DELHI: "The focus as was widely expected is on education, health and drinking
water for the millions. He has made good proposals but these must not remain
on paper only. These proposals must sink deep in the government bureaucracy;
the challenge will be in the implementation."
Investsmart-Union Budget 04-05"The Great Indian Juggle’bandi’"
See also "The Union Budget 2003-2004"