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Interim Budget 2004: In a nutshell - Views on News from Equitymaster
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  • Feb 3, 2004

    Interim Budget 2004: In a nutshell

    The Finance Minister did not have much scope for changing tax structures or other policy measures radically considering that this budget was more or less a 'vote on account'. Still the following are the key measures that he announced that need to be highlighted.

    1. The existing tax structure is set to continue. The minister merely announced that 50% of DA would be allowed to be clubbed with basic salary.

    2. The minister announced 6 AIIMs to be set up in states of Uttaranchal, Orrisa, Bihar, Chattisgarh, Rajasthan and Madhya Pradesh. He also announced setting up of 1 medical college each in the states of Andhra Pradesh, J&K, Jharkhand, UP, Tamil Nadu and West Bengal.

    3. In an apparent bid to continue on the reform path for the Farm sector credit, the minister announced that from here on the banks will not ask for a blanket collateral of land holdings from farmers against loans. Instead it will be dependent on the credit worthiness of individual farmers. He also announced that 100 districts would now come under the crop insurance scheme (up from 20 earlier).

    4. Easier access of credit to small/medium scale enterprises and the self employed. The credit limit has now been hiked from Rs 200,000 to Rs 1000,000.

    5. He also announced support for ensuring potable water to metros like Bangalore, Delhi, Hyderabad and Chennai.

    6. The high stamp duty issue has also been addressed by the ministry, with Mr. Jaswant Singh reducing stamp duties on whatever is within central purview by 50%.

    7. The minister seems to have acceded to the Tea industry's request for a package to revitalise the industry. The Indian Banking Assosication has been asked to prepare a revival package for the tea industry. Meanwhile, he announced that tea units can have access to Rs 200,000 fresh working capital credit limit at 9% with a one-year moratarium.

    8. The minister also indicated that the ailing Sugar industry's loans will be restructured.

    9. For the banking sector, the minister announced that the co-operative banks will be supported by Rs 150 bn worth of funds. The minister also announced that IDBI will become the leading development financial bank with support from IFCI and SBI. Regarding IFCI, the minister stated that its NPAs will be transferred to an asset reconstruction board post which, it will be bought over by a leading public sector bank.

    10. The power sector continued to be in the ministry's good books with Mr. Singh announcing that the tax benefits on power projects have been extended till 2012 from 2006 earlier.

    11. Shipping industry too, saw the budget finally meeting its expectations with the finance minister proposing a tonnage tax (net registered tonnage) method to assessing taxes for shipping companies.

    12. In a bid to stave off challenges to the BPO industry, the minister announced that foreign companies that outsource from India will not have to pay tax from here on.

    13. Free baggage allowance is being raised from Rs12,000 to Rs 25,000. Customs duty on such baggage is also being reduced from 50% to 40%, effective today.

    Apart from the above, the minister announced sops on DA of government employees posted in islands of Nicobar, Port Blair and Lakshadweep. All in all, the interim budget was largely in continuation of the government's reformist strategy. However, populist measures like supporting co-operative banks and the ailing sugar industry were a negative in the sense that the government continues to provide a lifeline to inefficiencies, which do not set a right precedent. The budget was favourable for tea, shipping, power, BPO, entrepreneurs and the farm sector. Overall, the interim budget reflected the fact that elections and politics will take center stage over the next few months and economics will take a backseat.



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