Budget seeks to boost NRI, FDI inflows
The Union Budget for 1998-99 announced several measures to revive
the economy and encourage non-resident Indian and foreign
investment to meet the possible shortfall in resources resulting
from sanctions imposed by the United States and other industrialised
countries in the wake of five nuclear tests conducted by India
last month.
Presenting the Bharatiya Janata Party-led government's first Budget, Finance Minister Yashwant Sinha announced several schemes to boost the housing sector. He also increased the outlay for the infrastructure sector substantially.
The agriculture sector plan outlay has been increased by 58 per
cent, atomic energy plan allocation by 68 and the department of space by 62 per cent.
The insurance sector has been thrown open to private Indian companies. Statutory status will be provided to the Insurance Regulatory Authority.
Faced with a difficult situation, the finance minister announced a major disinvestment programme including selling shares of the Indian Oil Corporation, Gas Authority of India Limited, Videsh Sanchar Nigam Limited and Indian Airlines. Disinvestment up to 74 per cent will be carried out.
Foreign direct investment flow is to be doubled in two years
by reducing the hassle factor.
The finance minister said the proposals announced by him were based on key objectives underlined in the BJP-led coalition's national agenda of governance.
Several new initiatives to enhance the contribution
of NRIs to the economy were the highlights of the Budget.
The Unit Trust of India will launch the India Millennium Scheme which will
be open for subscription in dollars only by NRIs. The money collected under this scheme would be invested in the shares of Indian companies with high potential for growth and in high quality Indian debt instruments.
Sinha raised the individual investment limit of
one per cent for NRIs to five per cent and the aggregate limit
for all NRI investments in a company from five per cent to 10
per cent.
The State Bank of India will launch a new resurgent
India Bond, denominated in foreign currencies for subscription
by NRIs.
The bond will be fully repatriable, and the government will
extend tax concessions, similar to those currently available to
NRI deposits.
A scheme for issuance of Persons of Indian Origin card for those living abroad and having foreign passports has been announced.
The PIO card would, besides introducing a
visa-free regime, will also confer some special economic, educational, financial and cultural benefits.
The minister also announced that the government would review the procedures governing NRI participation in the country's share market to make it less cumbersome and onerous
to facilitate investment by NRIs.
To create an investor friendly environment, the government decided to delicense coal, lignite and petroleum products.
While emphasising the need to reverse the decline in agriculture and strengthening rural economy, the finance minister made several initiatives in the agriculture and
rural development sector.
He said that top priority will be give to development of rain-fed areas on a watershed basis and thus increase agricultural productivity in a sustainable manner.
Sinha said the Securities and Exchange Board of India has been
asked to give special attention to strengthening institutional
arrangement for protecting small investors.
The foreign institutional investor debt funds would be allowed to invest in unlisted domestic debt securities. He announced that
the government will bring forward an amendment, allowing derivative instruments to be treated as securities.
To boost the depressed capital market, the finance minister announced a number of measures to revive the market. Combined with concessions given to the NRIs, the capital market is expected to improve in the coming months.
Prime Minister Atal Bihari Vajpayee and other government leaders
have been swearing by the commitment to protect and promote the small scale sector.
In his Budget speech, the finance minister announced that far-reaching changes would be introduced in the administration of central excise. He said steps would be taken to do away with the problems of 'inspector raj'.
The working capital requirement for the SSI units had been doubled from Rs 20 million to Rs 40 million.
The finance minister announced an increase in the capital of Infrastructure Development Finance Limited from Rs 4 billion to Rs 10 billion.
Talking to the media after the Budget presentation, Vajpayee said it will give an impetus both to industry and agriculture.
He said never before did plans receive so much monetary support from the government as has been done this time. There will be
encouragement to investment, both domestic and foreign.
For NRIs, the prime minister said it will be now easier to bring
money back to the country and invest in meaningful projects.
Rajesh Shah, president of the Confederation of Indian Industry, told the Rediff Budget Chat, ''I strongly welcome the Budget which continues with all the reform programmes of the past. It also carries it a lot further. It creates conditions for capital expenditure for the infrastructure sector.''
Despite such optimism, the Sensex fell by 151 points in the post-Budget session. Asked about the drop in the Sensex, the finance minister said, "I can't explain the behaviour of the stock exchanges. I don't think anyone can. They were up in the morning, they are now down. I am not worried or anxious that the markets have gone down -- if they have... I myself have stated in my Budget speech that it is a swadeshi Budget, so no one should be surprised."
As for sanctions, he said, "The sanctions are neither here nor there. I think we are overestimating the impact of sanctions. To start worrying about sanctions at this time is not right. I don't think there is going to be any immediate crisis on the resources. You can't have a situation where you end up pleasing everyone.
"We have been reading about the $ 20 billion impact of the sanctions, but so long as America does not decide what the sanctions are going to be, how can we sit here and start calculating? The sanctions are a long pipeline. They are saying that the ongoing projects will not be hit...
"I could not have prepared this Budget imagining what others would do. If there is a need, it won't be a second Budget... we have a system where we come with revised estimates."
''I think the Budget is less harsh than what was expected in the context of the sanctions,'' Dr U Shankar, director, Madras School of Economics told the Rediff Budget Chat.
Asked about investments, the finance minister said, "I promised that I will ensure a hassle-free regime for investors. We plan to clear FDI proposals in 90 days. A monitoring officer will be asked to ensure this happens."
Finance Secretary Montek Singh Ahluwalia said the Budget was "pro-investment, with an accent on agriculture".
According to Y V Reddy, deputy governor of the RBI, "Under the given conditions, the Budget must boost investor confidence. I think there is an adequate package to ensure capital flows... It is for the foreign investor to make his own decision. We consider it extremely balanced, addressing not only immediate policy concerns but fundamental policies as well."
Some measures will be taken up in the companies bill, and not the Budget, said Shankar Acharya, chief economic advisor to the government. According to him, the Budget will be instrumental in regenerating growth in the economy. He said the Budget will ensure a growth of rate 6.5 to 7 per cent growth.
K K Modi, president of Federation of Indian Chamber of Commerce and Industry, said, ''It has been a bold and courageous
Budget. A path-breaking Budget, it has spread
the base of the tax payer. By not raising the corporate and individual tax, the finance minister has induced confidence in
the tax payer.''
He said, ''By increasing the defence budget by 14 per cent and
focusing more on growth, he has proved that this is not a nuclear
Budget.''
''The Budget has taken many bold steps -- opening up of insurance,
privatisation of public sector units including Indian Airlines, increasing of NRI investments, using of provident fund for private industry,'' Vijay Kirloskar, vice-president of the Confederation of Indian Industry told the Rediff Budget Chat.
J C Parekh, president of the BSE, said, "The curtailment of the inspector raj is a very good thing.''
Vijay Kapur, advisor, Usha India
Limited, said, ''By and large, it has looked after
agriculture which is a good sign, and
we hope that the accent on SSI will
increase the industrial base. Overall,
sticking to 5.5 per cent financial deficit is
definitely something good for us. It was unexpected, but we hope that it would be maintained.
However, not many shared the government's optimism. Brooke Unger, editor, The Economist, said, ''The BJP promised to liberalise their labour, but it looks like rhetoric. I would like to ask the finance minister what he plans to do with loss-making enterprises and what about foreign participation.''
''I think policies such as the increase in the custom duties would help
the industries which are facing recession,'' said Dr U Shankar. ''The disappontment is that there is no special policy package to
revive the capital market to boost exports."
''There are only two or three anouncements to
rev up the industry -- increase in plan expenditure and infrastructure investment besides incentives for the housing sector. These policies can stimulate demand for raw materials like steel and cement.''
''This disappointing Budget is
bureaucratic, goes into many details
and shows little change in direction
and completely ignores the totally
changed economic environment of
India after the May 11 nuclear
explosions,'' Dr Arjun Sengupta, the wellknown economist and member of the Planning Commission, told the Rediff Budget Chat.
''In any case, the current Budget, to my mind, makes a
major mistake of raising import duties
giving a wrong signal to investors both
in India and abroad,'' he added. ''We all support
strong development of indigenous
industries. But one thing we have
learnt is that indigenous development
does not depend on protectionism.
''A disappointing Budget which really does not promise to 'kick-start' the economy or for that matter infuse investor confidence as is evidenced by the drop in the stock market,'' Kiran Majumdar-Shaw, chairman and managing director, Biocon, told the Rediff Budget Chat. ''It is a very inflationary Budget which will not encourage consumer spending. Merely reducing capital gains cannot infuse investor confidence and I would have liked to have seen some good tax incentives on R&D spending and patent-related spending as
well.''
Dr Ajay Shah, assistant professor, Indira Gandhi
Institute of Development Research, told the Rediff Budget Chat, ''I saw a lot of spending in the Budget. Apparently, projections are based on a 14 per cent nominal growth in the GDP. That's going to be hard to obtain in the best of times -- we would need to get numbers like 6.5 per cent inflation and 7.5 per cent GDP growth. In this case, the estimates of the gross fiscal deficit that Sinha read out might be biased on the downward direction.''
K Mahesh, managing director, Sundaram Brake
Linings said, ''Though the Budget gave approximately 40 per cent for the energy and the communications sectors, the
figure indicated for the national highways is a paltry Rs 5 billion which is going to impede growth of the
automobile sector.
''What is surprising is that the excise
duty for multi-utility vehicles, which
are ideal for Indian roads, has been
increased by 5 per cent, whereas the
industry was expecting an across the
board reduction in excise duty on all
vehicles.
''It is unfortunate that the government
had to increase the import duty by 8
per cent across the board. And I hope
that it is a one-time measure. ''
Additional reportage: UNI
Hear Yashwant Sinha's Budget '98 Speech on Real Audio
Budget '98
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