BUDGET 1999-2000
COLUMNISTS
INTERVIEWS
ECONOMY
INDUSTRY
FINANCE
ECO SURVEY
RLY BUDGET
PROCESS
BUDGET 98-99
BUDGET 97-98
ARCHIVES

'Nothing spectacular can happen in the short term'

Devesh Kumar

In my view in this Budget positives outweigh negatives. The measures have given a sense of relief and guarded optimism to the stock markets. As far as an economic turnaround is concerned it will depend on implementation. Nothing spectacular can happen in the short term.

The main plus points are a package for the capital market, housing sector, restructuring in the manufacturing sector and target group linked programmes for societal programmes. On the negative side, fiscal issues remain partially answered and the expectations of oil price decontrol has not been fulfilled.

Last year Foreign Institutional Investors pulled out from Indian markets. I see this trend reversing this year. A move towards emerging markets has begun and the proposals in the Budget are pro-foreign investment. However, much will depend on how the proposals are implemented and how 59 pending bills are treated in Parliament.

FIIs, like any other investor, look at corporate performance and the macro situation. There is no specific measure in this Budget for FIIs. However, the package for the capital markets and other economic measures look good for the medium term, so FIIs would like to invest in India.

NRIs can invest freely in India and report the deal to the Reserve Bank of India after completion of the transaction. In addition, they have been allowed 100% equity investment in most sectors. These measures provide an opportunity to participate in the Indian capital market and make direct investments.

Compared to last year, India's weightage has increased marginally this year. However, foriegn investors are looking at India's fiscal and political situation very closely. Indian stock prices look very attractive, but foreign investors are looking for growth and sustainability of growth as cheap stocks are available in markets like Indonesia.

During FY97-98 the demand for consumer goods got support from agricultural income. For the last three years, industrial income has been declining. However, I feel there is need to start up big road projects and other labour intensive infrastructure projects in order to generate employment, re-distribute income, which in turn will generate demand for consumption goods which in turn will generate demand for investment goods.

As the FM said the surcharge on direct taxes was purely a short term revenue raising exercise. I feel if the fiscal situation does not improve in the next Budget there will be a temptation to retain it.

When Parliament gets disturbed over the Budget being read in English and not in Hindi or Tamil, when support is withdrawn on the withdrawl of subsidies, then there is little option available to the Budget makers. It has happened in the past to other FMs as well. The unfortunate part is political parties behave differently when in power and in the Opposition.

Based on the current weak political and fiscal situation India will be just an option. To become a destination of choice a better implementation of policies is required. Why blame implementation alone when 59 bills are pending before the legislature? I shall keep my fingers crossed for the next two weeks and watch the reaction in Parliament. I hope there are no rollbacks and that some pending bills like the patent and insurance bills get Parliament's approval.

Devesh Kumar is head of research, ABN AMRO Asia Equities (India) Ltd

Budget 1999-2000

Business News