Sucheta Dalal :The Budget Has a Lot of Positives
Sucheta Dalal

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The Budget Has a Lot of Positives  

July 9, 2009

This budget was expected to be a bold economic statement from a govt which has been formed with a comfortable majority and which would have attracted the attention of foreign investors, both FDI (foreign direct investment) and FII (foreign institutional investment). But it seems that the FM chose to play politically safe (perhaps under the pressure of leftists within Congress and UPA) and gave a rather bland speech which was packaged just like a 1980s budget speech, as Samir Arora put it.
If you analyze carefully, there are lots of positives in the budget, e..g.
1. Continuation of the fiscal stimulus. i.e. low excise and custom duties (as a result, fiscal deficit remains high, but had he reversed the stimulus, we would have complained that since developed economies are presently not bothered about deficit, why should we?).
2. Abolition of FBT and CTT.
3. Direct tax relief for individuals earning 10 lakh plus.
4. Not touching the currently well-functioning STT and Capital Gains regime (though he could have made STT a TDS rather than an expense).
5. Not touching Dividend Distribution Tax and making it taxable in the hands of the receiver. (In fact, any changes in these two provisions, STT and DDT, (as indicated in the Eco Survey) would have been considered highly unfriendly to the market and should not be done in future as well).
6. Probable retrospective tax relief to Reliance, though I am not very clear yet.
7. Some positive clarification for plantation companies as regards their tax treatment of depreciation and WDV.
8. Increase in threshold limit for payment of advance tax and wealth tax.
Apart from the above positive provisions, the big positive picture is missing and that is the negative about the budget, the packaging part of it.. In fact, the budget is negative, not for what it says but for what it does not say in the policy statement.
1. Bold announcements for disinvestments were missing. Some innovative ideas could have been thought of for disinvestment. A good idea by Ramesh Damani on TV was to allot 25 or 50 shares of BHEL, NTPC etc at a 25% discount to all the owners of mobile phones in India, thereby inviting them to participate in capital market, asking them to open demat a/cs etc. An innovative ad campaign could have been launched for this.
2. No announcement about FDI in insurance, retail or aviation (it is badly needed in aviation), apart from the usual leftist proclamation that the character of PSU banks and insurance cos will not be changed. Not bold enough.
3. No announecement on decontrol of oil pricing. Decision was left to an expert committee and oil minister.
4. Increase in MAT rates from 10 to 15%.
Probably all these things will be done stealthily in due course but had they been announced in the budget, it would have welcomed as a big bang budget. Hence my conclusion that the FM has chosen to be politically very cautious, perhaps needlessly so. The mandate this time was for a bold, visionary and creative budget which would have attracted foriegn investment and boosted domestic confidence, but it has turned out to be pedestrian due to lack of political boldness and courage.
* One issue which has hurt me personally and many other investors is related to the CBDT circular giving discretionary powers to the ITOs for deciding whether the income from selling shares is capital gains (STCG/LTCG) or business income. This has led to lot of corruption and unreasonable blackmailing from the tax officials. I have treated my income as capital gains for more than 25 years consistently and suddenly one commissioner challenges it and then calculates the difference in tax and asks for a cut. This circular needs to be withdrawn immediately. A better way would be to give the option to the assessee to decide how he wants this income to be treated, with a condition that whatever he decides has to be followed by him for next 5 or 8 years consistently. This will end the disputes and also the corruption resulting from the discretionary powers to ITOs.


-- Sucheta Dalal