Everybody says its fine
The only people giving the budget a thumbs-down seem to be from the opposition parties. Almost everyone, from business leaders and the financial markets to economists, the 'aam aadmi' and the Left parties, expressed their satisfaction with P Chidambaram's fourth budget. Many gushed with praise.

The stock markets surged by the end of the day's trading. The BSE Sensex ended at an all-time high of 6,713.86, a gain of 144.14 points. The NSE Nifty also closed higher at 2,103.95, up by 43.05 points.

Most business and industry leaders seemed to have agreed with the capital markets.

Uday Kotak, executive vice chairman and managing director, Kotak Mahindra Bank, called it "one of the finest budgets I have heard." Several members of the financial sector expressed their satisfaction at being given the importance in the budget speech that they think they deserve.

CII chief mentor Tarun Das praised the stability and continuity that the budget represented: "We are on a good wicket as far as the economy is concerned, and reforms are on track. There are several positives and it is difficult to find negatives."

A similar opinion was expressed by Anand Mahindra, vice-chairman & managing director of Mahindra & Mahindra, who said "I am comfortable with the budget. We are on the right track and the finance minister has not done anything to break the momentum of growth." He singled out the Bharat Nirman infrastructure initiative as something that was bold and new, and a long time coming.

He also welcomed the emphasis given by the budget on rural development, which he hoped would increase consumption capacity in the villages.

N Srinivasan, president, Confederation of Indian Industry, said, "This is not a 'dream budget', which is a good thing. It is a pragmatic Budget that does a fine balancing act between the pressures that the finance minister was under and staying on the reforms path."

He said the finance minister had paid attention to each of the three 'i's that constituted the list of demands the CII had presented to the minister.

"The first 'i' is inclusive growth, and this budget targets rural growth, rural connectivity, education, health (though that has not been adequately addressed), and so forth. We want growth for all sections, not just a few. The second 'i' is industrial development at a faster pace. The cut in duties, especially customs, will help make Indian products much more competitive, and that is very positive, and it also aligns India with the structures in Southeast Asia. The third 'i' is infrastructure, which too has been looked into," he said.

He added: "Now we want to add a fourth 'i'. That is implementation and it is the key to all the above."

Raghupati Singhania, vice chairman and managing director, JK Tyre has welcomed the cut in excise duty on tyres from existing level of 24 per cent to the Cenvat rate of 16 per cent. He said, "The thrust on agriculture, rural employment creation and increased emphasis on education and heath care will indeed go a long way in improving the quality of the masses."

He expressed his dissent on import duty on natural rubber for tyres not been reduced.
"It is surprising that the import duty on Natural Rubber continues to be 20 per cent and not brought in line with Asian levels," he said.

He also expressed his concern on the impact on corporate profits, as the net tax payable by the companies would go up by around five per cent.

A Vellayan, director - marketing, Murugappa Corporate Board,
Fiscal prudence has been exercised in keeping the deficit levels lower at 4.3% of the GDP. The budget has identified the fortune at the bottom of the pyramid. Generation of jobs and improving the rural economy are in the right direction. Maintaining tax levels for domestic industry is appreciated. Reduction of customs duty on select capital goods and measures to improve manufacturing competitiveness through a programme augur well for the sector.

The measures to improve the Sugar sector are welcome. We expect that the rest of the Tuteja recommendations will also be implemented. The incentives announced for the tea industry are welcome.

When comparisons are made with China, it is heartening that the government has maintained its support for the fertilizer industry with a view towards food security. Controlling the oil price by reducing the import duty on crude will contain inflation.

Rahul Bajaj, chairman and managing director, Bajaj Auto, said, "Overall this is a good budget. I would rate it 8 out of 10. It takes forward reforms, does not impose additional taxes - in fact, it has some good cuts - but because of the widening tax base, revenue collection will be higher."

Sunil Mittal, chairman, Bharti TeleVentures, felt that the focus on employment was a welcome step. "Bharat Nirman is a step in the right direction," he said.

Some expressed concern about the decrease in the rate of depreciation to 15 per cent. "At 25 per cent depreciation rate, one could get the full value of capital investment every six-seven years, which is good, because that means we are buying new machinery every few years and expanding industry," said Rahul Bajaj.

Economists gave the finance minister high marks for being able to balance fiscal reform with spending pressures. Says Subir Gokarn, chief economist, CRISIL, "The major delivery in this budget has been on tax reform."

He adds: "It was quite clear before the budget that Chidambaram would have to deal with a number of conflicting objectives…. When all of these limits were recognised, how much room would he actually have to manoeuvre? Obviously, not a lot. But as things turned out, the room was used with a reasonable degree of effectiveness… Overall, this is a budget that finds balance between fiscal and political compulsions."

Not surprisingly, the proposal to levy a tax on a cash withdrawals was roundly ridiculed. "As for the 0.1 per cent tax on cash withdrawal of Rs 10,000 or more per day from banks, well, I think it's a stupid thing to do. I think that this could be rolled back by the government under pressure," said Raman Madhok, joint managing director and CEO, Jindal Iron.

He felt that among the major gainers would be the infrastructure, agriculture, food processing and textile sectors. Though the mood in these industries was upbeat, some had reservations.

According to Naishad Parikh of Arvind Mills, the budget only met 70 per cent of the textile industry's demands, "The ten per cent textile subsidy is a positive step though some direction in amending labour laws would have been welcome."

Rasna MD Piraj Khambatta expressed severe disappointment: "I expected the budget to give a big boost to the food processing industry which it has not."

Even when industry leaders expressed disappointment with what their industry was offered, they did tend to agree that overall the budget was a good one.

For instance, even though some of the auto industry's major demands were not met, Maruti Udyog managing director Jagdish Khattar had no hesitation in calling the budget "a good budget and a forward looking one."

An indication of the extent of this sentiment is that it is shared by people like Dr A K Shiva Kumar, an advisor to UNICEF and a member of the National Advisory Council, the National Common Minimum Programme's interface with civil society groups, who says in a post-budget column:

"The United Progressive Alliance's Budget for 2005-06 is sensible, not sensational. It is forward-looking and realistic, not overly ambitious. It reveals a determination to steer the country towards a more inclusive and equitable process of growth recognising that eliminating poverty is a prerequisite for accelerating human progress.

"Many segments of population, not just India's corporate sector and taxpayers, have reason to smile. Women and children, the socially disadvantaged, the disabled, the poor, rural residents and others living in states and regions that have suffered from historical neglect stand to gain. In many respects, the Budget has fulfilled the political expectations from the UPA's government."

Arun Firodia, chairman, Kinetic Group
Overall, this is a positive and welcome budget and it will take the reforms process forward. Government resources are going into rural development, health and education sector, and these will result in economic development and growth.

As far as the automobile industry is concerned, especially two-wheelers, the development of the rural economy will boost demand. The prices of industrial raw materials have been increasing during the last year. The reduction in customs duty on raw material and components will help keep these prices in check.

The prime minister had estimated a requirement of Rs500,000 crore for infrastructure development. The allocated amount (Rs10,000 crore) is far from sufficient for this; it and should have been at least Rs50,000 crore. The proposal to develop Mumbai as a regional finance hub is a welcome, but this will require allocation of tens and thousands of crore.

Jai Hiremath, vice chairman and managing director, Hikal
This is a well-focused budget that is a step in the right direction. Since different ministries will be issuing notifications based on the relevant aspects pertaining to them in the finance bill, there is more
clarity.

S B Ganguly, executive chairman and chief executive officer, Exide
The proposal to reduce customs duty on imported lead from 15 per cent to 5 per cent comes as a major relief to domestic battery manufacturers in general and to us in particular. This has been the long-standing demand of domestic battery manufacturers and we are happy that the finance minister has understood the economic rationale behind it. Exide will pass on the benefit accruing from this reduction to consumers; prices of our batteries will go down from March 2005.

The thrust on the infrastructure sector, particularly roads and power, also bodes well for Exide. The efforts to simplify the tax structure, both individual and corporate, are also a welcome step. Overall, we feel it is a growth-oriented and dynamic budget, with a clear focus on the rural economy that is India's backbone.

Javed Tapia, director, Red Hat India
This fantastic, pro-growth budget proves that the dream team has not lost its touch. It's a signal to the world that reforms are here to stay in India and that the country is on track. The reduction in corporate tax is a clear indication of the confidence that the finance minister has in India Inc. Reasonable rates will definitely lead to higher resource mobilisation and compliance.

The human face of the budget focuses on providing amenities, education and infrastructure to rural India. The focus on PURA and the specific outlay of the Sarva Shiksha Abhiyan shows clear direction by the government in creating equal opportunities for all sections of our society.

Yashovardhan Birla, chairman, Yash Birla Group
Keeping in mind political compulsions, the finance minister has balanced the budget very well. However, labour law reforms have been ignored, surprisingly I must say.

The dream of turning Mumbai into a regional financial hub is taking shape, as also plans to make the Indian Institute of Science, Bangalore, comparable to leading international institutes. The 'special purpose vehicle' (SPV) for the development of infrastructure and the cess on petroleum products exclusively for the development of highways is a positive step.

Gaurang Shah, managing director, Kotak Mahindra Old Mutual Life Insurance
The portent for this budget was evident in the Economic Survey. In an environment of strong economic growth and prospects, the finance minister has delivered a budget that should boost consumer and business confidence further, while maintaining continuity.

The proposals on the individual and corporate tax structure are in line with the reforms direction of reducing tax rates while simultaneously reducing exemptions. This can be seen across the broad spectrum of direct and indirect taxation.

The thrust on infrastructure and agriculture should help generate more employment and is in line with the 'reform with the human face' theory espoused by Manmohan Singh. Within the overall constraints of fiscal deficit and public investments, the finance minister has done a good balancing act. This should sustain India's economic growth momentum.

The consolidated provision of tax deduction up to Rs1 lakh for various savings instruments is a good simplification. But artificially administered interest rates on certain government instruments, as well as maturity and tenure mismatches may lead to disadvantaging life insurance premiums as a long-term savings instruments.

Anil Jhala , chief financial officer, Sun Life Insurance Company
This budget reaffirms the government's resolve to accelerate the reforms process while emphasising rural and infrastructure development. We welcome the move to promote long-term savings, and the rationalisation of corporate tax.

Vikram Mehmi, chief executive officer, Idea Cellular
This is a growth-oriented budget and it strikes a positive tone for the development of rural India, which is expected to trigger a demand for communication. The industry is already looking forward to going into its next phase of expansion into rural areas. The removal of entry barriers for potential mobile customers will improve tele density and penetration.

Similarly, the provision of Rs1,200 crore for the USO fund will increase demand for telephony in rural areas. With this, the target of 250 million phones can be achieved much earlier than expected. Clarifications on application of sales tax vis-à-vis service tax will remove the ambiguity in this area.

The reduction in corporate tax and the support to the services sector is indeed welcome. I see this as a fiscally judicious budget that is all encompassing and as per our expectations.

Sanjeev Sharma, managing director, Nokia India
The budget clearly shows the government's commitment to the reform process and its long-term vision for the telecom sector. We appreciate the consistent policy direction shown by this government and are confident that this reasonable tariff structure will help us keep the grey market under check and increase handset sales through legal channels.

The decision to remove mobile phones from the 'one-in-six criteria' for filing income-tax returns and increasing the government's contribution to the USO fund are also welcome developments that will give a boost to mobile as well as rural telephony. But for this budget to have its desired impact the government will have to ensure that its guidelines are executed and enforced.

H M Bharuka, managing director, Goodlass Nerolac Paints
The impact of this budget on the paint industry is neutral. The reduction of 5 per cent in customs duty is not sufficient to take care of the inflationary cost of crude oil. The expectations were of a sharper reduction than the one announced. However, the thrust on the development of infrastructure and the agriculture sector will improve the economy and benefit all.

Sam Ghosh, chief executive officer of Bajaj Allianz Life Insurance Company
The move to dump Section 88 of the Income Tax Act and club all tax exemptions available for individuals under a single head (Section 80C) will affect life insurers, who will have to redraw their marketing strategies after April 1, 2005.

Sales of single-premium policies will get a boost, but there will not be much of an impact on unit-inked life insurance policies. With the single-emption ceiling of Rs1 lakh, sales of traditional policies may show an upward trend as investors go for other savings instruments.

I welcome the move to allow sales of policies by non-governmental organisations and self-help groups; this will help bring insurance to the underprivileged and broaden the market.

Nitin Palany, managing director, Sundaram Home Finance
The imposition of a 10.2 per cent service tax on residential complexes having 12 and above apartments will affect housing companies, builders and financiers. I wish the finance minister had announced a real estate mutual fund just as he had the introduction of gold units. But the move to enable trading in securitised debt, including mortgage-backed ones, is welcome.

S Radhakrishnan, chairman, Tamilnad Mercantile Bank
The removal of lower and upper limits on the statutory liquidity ratio (SLR) will provide the Reserve Bank of India (RBI) flexibility in prescribing prudential norms. Together with the removal of limits on the cash reserve ratio, it shows the government's confidence in the banking system.

The proposal to levy tax on cash withdrawals above Rs10,000 on a single day will increase the number of transactions for banks. Perhaps this proposal is tied to the RBI's 'know your customer' norms for banks.

T T Ashok, chairman, Confederation of Indian Industry, Tamil Nadu
The delivery mechanism for tsunami relief is a cause to worry. Also, there is no mention of desalination plants for Tamil Nadu [the finance minister in his last budget speech proposed setting up of a desalination plant off the Coromandel coast at an outlay of Rs1,000 crore].

K Sridharan, executive director, Ashok Leyland
The finance minister is silent on how the increased outlays are to be funded. Perhaps he expects economic growth to result in increased tax revenues.

Hemant Kanoria, vice chairman and managing director,Srei Infrastructure Finance Ltd
The budget announcements for infrastructure has not been very enthusiastic though the finance minister has given due importance to rural infrastructure development which is praiseworthy. There has been no direction on the implementation of infrastructure projects. Road development and electrification programmes have been consecutively announced in all budgets and also been touched upon this year, but the resource availability or implementation to public-private partnership has also not been addressed in general.

Rajiv Shastri, CEO, Sahara Mutual Fund
From the MF industry's perspective, the fact that dividend tax regime hasn't been changed, is a positive. Continuity has its advantages and I am sure that as an industry we will benefit from it.

The announcements regarding a gold-based fund is positive, as it opens up another large market segment for the industry. However, my feeling is that the ETF format may prove to be too restrictive, given the potential size of the market.

Milind Barve, MD, HDFC Mutual Fund
The budget strikes a balance between economic growth and social objectives laid down by NCMP. With a target to achieve growth of 7-8 per cent in GDP, the use of foreign exchange in infrastructure investment, emphasis on agriculture and rural infrastructure and efforts to create a more enabling environment for the banking sector is very progressive. Also, the introduction of gold traded exchange funds is a positive step in introducing new investment products for the retail investors. Overall, the budget has maintained continuity of policy in key areas, has tried to simplify tax laws and attempts to provide an enabling environment for achieving a higher growth rate.

Deep Kapuria, president, Automotive Component Manufacturers Association of India (ACMA)
The FM missed a good opportunity to recognise the importance of the automotive component industry as a sector that can be a major driver for the domestic market as well for exports. A lot more in terms of policy formulation was needed in order to manage the global automotive supply chains.

The customs duty on raw materials could have been brought down further, specially in view of the raw material duties of 0-5 per cent in the ASEAN countries. The ASEAN countries apply a rate of 20 per cent -30 per cent on components and even higher on vehicles. We cannot benchmark the average rate of ASEAN duties as our 'peak' rates. We need to recognise the Import Tariffs in ASEAN as they are applied to specific sectors like the Automotive Sector.

Instituting an "automatic mechanism" for reducing the raw material duties to zero for items included in FTAs should be taken up in the forthcoming Foreign Trade Policy.

The continuation of 150 per cent weighted deduction under IT Act for R & D expenditure for two more years was also a positive step.The raising of exemption based on turnover from the level of Rs. 3 crores per year to Rs. 4 crores per year was encouraging for Small Scale units, although the Finance Minister could have gone much further to liberalise and strengthen the SME sector.

Frank Koster, managing director and CEO, ING Vysya Life
While we applaud the progressive taxation of savings, the budget speech is silent on the issue of increase of FDI cap in insurance to 49 per cent - a measure that was announced in the previous budget. The fledgling life insurance industry in India requires capital to grow rapidly and become a strong pillar of the economy. We are disappointed that while other services sectors like banking, mutual funds, airlines and retail have higher FDI allowances, insurance does not go to 49 per cent. We will however keep the faith in the Indian government's commitment to the reform process and look forward to progress on this front in the coming months."