BUDGET 1999-2000
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'Revenue raising measures are non-inflationary'

This year's Budget is a surprise and aims at turning around the capital market sentiment to boost the economy. Sops to mutual fund, lower capital gains tax, attempt at lowering interest rate regime and a bail-out of UTI -- all these are symbols of the government's resolve.

The second major positive feature is the across-the-board simplification in rate structure for excise and customs. This is surprisingly non-lobbyist approach to the Budget.

If the low interest regime takes hold, controlling fiscal deficit through lower interest outgo is possible. However, the quality of numbers remains suspect. The ability of the government to stick to the revenue proposals is yet to be tested.

The Budget has made no attempt at reorienting the priorities in sight.

The Budget is FII-neutral, pro-capital market; it is pro-videshi (automatic licensing, etc), anti-NRI (capital gains tax advantage gone) and anti-swadeshi (no joy for steel, auto). So I disagree with the view that the Budget is anti-FII, pro-NRI.

I believe India is quite close to internal debt trap with interest outgo consuming 50 per cent of revenue. The solution lies in really selling off unproductive assets -- very much as in the case of a corporate -- to pay off debt. Or else the country will be in trouble.

The government is keen on downsizing. Why not if it is possible? Can Sinha do it? Doubtful. Not until disinvestment is accelerated and not by share -swap but genuine offloading in the market or to strategic investors. The size of the government has to shrink -- and not merely by four secretary-level posts!

I think the stock market boom will stay for a while. It will be sustained largely by what happens to rupee and interest rate outlook.

If you look at depreciation in rupee vs Asian currencies from January 1997, rupee remained strong by about 40 per cent. But if you take the reference point as 1990, then rupee is softer. As I said, rupee will depreciate but not a lot. Trick is to ensure soft landing which is not easy.

In April, the government's borrowing programme will start. Watch out for market reaction before that. Meanwhile, speculative trading will continue.

One of the interesting features of the Budget is the thrust on the capital market -- nothing very innovative but practical. Especially the dividend exemption for equity mutual funds, though the interest arbitrage will create some problems.

I feel investors who are not full time into tracking markets would do well to understand/do the following:

one, understand your risk tolerance -- how much of losses you can sustain;

two, decide how much you should invest in equity -- try better mutual funds, and the balance, put it in fixed deposits, before the rates soften;

and three, income mutual funds are good for liquidity but carry pricing risk -- if interest rates rise, their values will fall.

Right now the attempt is to transfer savings from bank deposits to equity markets through mutual funds. But I merely suggested fixed deposits as a part of your asset allocation, convenience, safety and liquidity.

I believe that infrastructure investment is a complex issue and Budgets don't offer a solution. The basic problem is infrastructure pricing in an economy which believes in cross subsidies. This plays havoc with pricing and therefore prevents efficient allocation of resources.

I think the bail-out of UTI does not guarantee its continued success. It provides UTI breathing space to trim its dividend and yet maintain post-tax yield. PF at 12 per cent tax-free return is the best bet. But there is no liquidity. So you got to decide on the trade-off.

The revenue raising measures are for a change non-inflationary. So the housewives should not complain. It is the poor husbands -- no offense meant!-- who are poorer because of the surcharge on income tax!

Frankly I think it is a good attempt to reduce gold import by drawing out gold from lockers. But you should tell me whether you trust Sinha with it. You may go in for conversion of jewellery into gold coins, provided the coins have Sinha's face embossed on them.

Budget proposals will push up computer costs. So parents and children planning to buy computers should wait awhile. The Pentium I will be available cheap when others will work with Pentium III.

I am inclined to award 6 out of 10 to Sinha for for creating the feel-good factor in the stock market out of nothing.

Angshuman Chowdhury is vice-president (finance), Praxair India Pvt Ltd, Bangalore

Budget 1999-2000

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