Budget Talk

The abstract of an Interview, with Mr. L R Katrat, MD & CEO Katlax Enterprises Pvt. Ltd., Gandhi Nagar, Gujarat; as a part of post budget analysis, in which the views of the leaders of the industries were incorporated.

1. What were your expectations for the budget 2008-2009?

Since this is last budget of UPA Government before going in for General Election,   Mr. Chidambaram seems to be more concerned about vote bank politics and did nothing for Agony faced by Exporters due to sharp appreciation of Rupee making Indian Exports  non viable against China and many more Asian Countries. Collapse of Stock Market was big concerned and added to that is increase of Short Term Capital Gain Tax from 10% to 15%. While Tax Payers created buoyancy especially Corporate, there is no much Tax Incentive or Tax Holidays like STPI, EOU and backward Area Incentives for example Bhuj in Gujarat, Himahal Pradesh,Uttranchal & JK. Budget has offered benefits to Individual Tax Payers by reducing Taxes which was expected and Govt. did not disappoint large Tax Payers base.

2. How far is the budget beneficial to the engineering industries?

There is no direct benefits to Engineering industry in specific but due to extension of TUF, Textile Machinery manufacturers will have marginal benefits as stimulation in demand. Million Dollar Question remains unanswered as how Indian Textile will meet challenge from Bangladesh, Sri Lanka, Pakistan, and China as Dollars volatility. There is no clear Road Map for GST and budget does not mention any Labour Reforms.  One Good thing is that FM has not tampered with Peak Custom Duty and Reduce Cenvat by 2% giving impression that Service Tax & Cenvat are moving towards rationalization of GST by 2010. There is no much Boost to Infrastructure Industry by budgetary impact thereby stimulating demand for capital Goods. No specific initiative on Privatization of PSUs and Energy sector Reforms which provide ample opportunities to all Industries including Engineering.

3. Specify the positive aspects of the budget.

Positive aspects are increase in Taxable Income Limits for Individual which may create Good Liquidity as Buying Power will enhance and good amount of cash will come into circulation thereby expanding market for Goods & Services. Good amount of allocation is made towards Social Infrastructure/cause and thrust is given to Rural Economy including Agro based Economy. Lot of Tax policies are consistent clearly giving Industry or individual impression that Tax Regime is for positive change. CENVAT Concessions for 2 Wheelers & Hybrid Vehicles is positive move giving Bumper opportunities to this Sector which is next to IT. Auto Component Industry will become world class. Over all, Budget is excellent when UPA is running Govt. with Leftists Support.

4. According to you, which parts of the budget would impact the growth of engineering industries, in a negative way?

Due to Rupee becoming stronger against all international currencies, Indian Industry will face challenges on both fronts i.e. cheaper Export and Cheaper Import making survival for SME Sector big Threat. No directives on Banking Sector Reforms as increase in Interest Rates from 8 - 9% to 13% + make SME operation difficult as no access to Funds unlike Corporate. Parliament has passed Bill for protecting MSMES from timely payments by corporate however nothing has happened on implementation front and Budget is one Documents which pursues Govt. Policies on Fiscal, Economical, Industrial and Social issues. SMEs have no sop in this Budget and left to its own destiny although this sector creates maximum jobs for low capital employed. 

5. What is your opinion on the agricultural loan write off? Please substantiate your opinion with relevant facts, if any?

If one has to go by FM’s statistics, he mentioned that 3 crore Marginal Farmers and 1 crore Small Farmers will benefit by this waiver but if you see post budget reactions ,farmers from worst effected Areas such as  Vidarbha Region who are Cotton Growers or AP, Karnataka where maximum suicide deaths took place  there seems to be no joy. Is this for privileged farmers from selective politicians’ constituencies like Agricultural   Minister Mr. Sharad Pawar? The death figure reported by various media is in the order of 26000 as against astonishing figure of beneficiaries projected by FM. I do not think the suicidal deaths of farmers are due to Bank pressure. This has to be investigated as the Lender were Banks or Private Army of Money Lenders who are mushrooming as law and enforcement agencies are not handling this issue for last 55 years. Secondly even if it is genuine waiver it leaves with bad incident that borrow few years before General election and expect waiver on eve of election. Is this a good sign for healthy banking or mockery of Vote bank Politics?

6. How would you see the income tax benefits declared in the budget?

They are in line with Globalization of Indian Economy. Partly this will correct the falling value of Rs. With respect to WPI of 1981. The Urban Middle Class is definitely needing these small relief as privatization and removal of subsidies on essential products and services has  made their lives miserable, just to mention Telephone Rates controlled by TRAI, Cooking Gas by PNG Regulator and so on. This increase will not improve their lives drastically but some hope. The salaries & Wages between New Economies and Old Economies are widening and to remain one on the same platform either increase his income or reduce his burden of taxes. This is good move and subsequent budgets should carry on this exercise. Corporate Taxes are reasonably stabilizing and by adding more and more services in Service Tax Network lot of Taxation will eliminate Black money and also add to Tax collection Kitty. Since Services exceed 50% of GDP and we are moving towards GST Regime every Service has to be brought into Service net. Farm income should come under tax net. With Rs.150000 IT exempted income, farmer can account their farm income and excess should be taxed. Marginal & Small Farmers will have no reason to feel hit. Probably non existing farmers are benefited by this flaw. Since Food Processing Industry has been recognized, Farmers are free to sell their produce in open market for market driven pricing.

7. Comment on the excise duty cuts and exemptions in this budget?

Reducing Cenvat from 16 to 14% it systematic move towards rationalization. Reduction on Cenvat on 2 Wheeler and Hybrid Vehicle will create demand in this sector and large stake holders will benefit. There is no change in custom duty which may give partly relief against appreciating Rupee. Reduction on Iron scrap will provide cheaper inputs for Rolling mills keeping Steel prices unaffected. There is no specific benefit for   IT, Electronics, Automation Industries which are leading for time being.

8. What are the implications of the rise in tax rates on short term gains?

There will be marginal impact as the stock market is passing through Roller Costar Ride and US Economy not doing well does not give any clue how rest of World Economies will perform.  Stock market is full of speculation and market sensitive, hence I do not think this will have any major impact on Indian Economy and Indian masses.

9. Can you specify the things that you would have included in the budget, if given a chance. Kindly specify, why?

It is Hypothetical Question. It is like asking umpire declaring player out decision.

10. Over all in general how would your rate the budget in the scale of 10?

I feel the Budget is extremely balanced giving FM full benefits for his wisdom keeping in mind issues such as Coalition Politics, Last Budget before going in for General Election, Slow down in US Economy, Rising Rupee, Sharp rise in Petroleum products, continue with financial liberalization, Control Fiscal deficit. On scale of 10 I will give 8 marks to this budget. Lot of things would have happened but we should not forget that in democracy Govt. come to power by Voters Vote and not by shear sentiments and knowledge of situation. 

This budget was viewed pragmatically by Mr. L R Katrat who expressed that the budget was more or less in line with the industry expectation that points out the constrains in one hand and commitment in the other hand, but has also pointed out the areas of concern that could have been addressed in a better way.