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Comments from industry leaders

Feb 28, 2002

Ms. Kalpana Morparia - Executive Director - ICICI
"On a scale of 10, I would rate the budget as 7 for ICICI Bank and below 5 for the overall markets. A higher rating for the bank is on the back of measures announced for reducing the bank's liability, increasing provisions, resolution for bad loans and higher depreciation for new investments in expansion. All these are good developments for the bank. However, by introducing the dividend tax, the FM has given a blow to the debt mutual funds. This would impact sentiment of the capital markets." Mr. Harsh Mariwala, Managing Director, Marico Industries Ltd.
"The Union Budget 2002-03 is a movement in the right direction, but the magnitude of the steps is too small. Elimination of Special Excise Duty on some of the FMCG items is a welcome move. The agricultural reforms especially those relating to micro credit and new initiatives of employment generation will help rural demand. With expected growth of 6% in agriculture sector, we are hopeful of better demand from rural consumers. However, certain issues remain un-addressed like tax discrimination between branded and unbranded goods has not been removed. While import duty of consumer goods has been lowered, the disparity between imported and domestic goods continues in the form of MRP-based excise only for domestic goods. Customs duty on edible oils could have been rationalized."

Mr R. K. Kanga, GM Finance, Tata Power
"I am not happy with the budget. It fell short of a lot of expectations. We expected infrastructure companies, especially power, would be removed from the MAT, which has not happened. Neither has LNG been given an infrastructure status. Also, we had hoped that duties on imported naphtha, coal, LSHS and other imported fuels will be brought down. This would have helped power companies reduce their costs and thus made power cheaply available. Even this has not happened."

"On the personal taxation front, I believe that the FM was a bit harsh. However, on the positives, the decline in diesel and petrol prices is a good sign. Also, if the government honestly implements its infrastructure development plans, it will be a big positive. But past record gives us no hint of such confidence. On a scale of 10, I would give the 2002-03 budget not more than 4."

Mr Phiroz Vandrevala, Chairman NASSCOM (On the Finance Ministerís proposed reduction in the deduction from 100 per cent to 90 per cent of export profits.)

"We recognize that this provision is valid only for the coming financial year. However, such inconsistencies in the tax regime will affect the confidence of overseas investors in the Indian software industry; especially since other countries such as China, Ireland, Philippines are pulling all stops in providing incentives to attract FDI in this sector. Domestic companies will find it difficult to plan their future strategies and investments in light of the uncertainties created by inconsistent policies. Hence, we are confident that the government will withdraw this provision and abide by its commitments made to the fast growing, globally competitive software industry."

Mr. Ashwin Dani, VC & MD, Asian Paints (India) Limited
The budget is not likely to provide any stimulus to demand. The administrative reforms that the government has announced for the financial, infrastructure, and agriculture sector will be beneficial for the country, but unfortunately it will not stimulate demand.

The biggest anxiety throughout the country is there are no job-generation opportunities. And going by the budget, new jobs will continue to be an area of tremendous concern. However, investment in infrastructure could generate numerous opportunities.

Even though the interest rate was reduced by 50 basis points, the reduced interest rate will continue to be high. It will continue to be a strain on government finances as well as on corporates. A new surcharge of 5% is introduced, so there is an effective increase of 3% on account of surcharge. This translates into an effective increase of 1.05% in corporate tax. This will be a deterrent for all tax paying companies.

The custom duty reduction from 35% to 30% will benefit the paint industry considering that around 30% of raw materials are imported. However, depreciation of the rupee will reduce the benefit. The paint industry was expecting major housing sector initiatives to be announced. But as far as housing sector is concerned, only some strategic initiatives were announced.

The Finance Minister has taken a step in the reverse direction by taxing dividend in the hands of the recipient. This step would deprive Indian industries of capital formation. Coupled with the almost 5% depreciation of rupee against dollar annually, it would be difficult for Indian promoters to retain hold over Indian companies due to the onslaught of multinationals.

Prakash Bajpai, President & CEO, Hughes
While some of the Telecom sectorís expectations have been met, others remain unfulfilled. We donít yet have available the detailed budget document but our preliminary view is as follows:

Possible exemption of FII investments from the calculation of current Foreign Investment ceiling of 49% i.e. FDI at 49% + FII investments beyond that. In his speech, the Finance Minister did not specify which sectors would be allowed this exemption. We will have to wait for the budget document to know its applicability to the Telecom sector. An increase in investment ceiling will help the industry to access more capital.

While CVD (countervailing duty) of 16% has been removed. The customs duty has been increased to 10% from 5%. The net effect will be a reduction in handset costs, which benefits the customer and will help to boost subscribers.

While the Finance Minister did not mention it in his speech, the budget notifications appear to remove the anomaly in customs duties for some of the equipment imported by Basic, Cellular and Internet service providers by reducing the duty payable by Basic service operators to the 5% level (from 15% earlier) applicable to Cellular, Internet & Paging service providers. Reduction in duties will reduce network costs.

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