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  • OUTLOOK ARENA  >>   VIEWS ON NEWS >>  JULY 8, 2004

    Outlook or Lookout!

    The buzzword today will be what the Finance Minister is going to propose in the Union Budget 2005? Will he reduce tax rates, import duty, customs duty and do away with dividend tax, the typical demands from investors and corporates in general? Instead of waiting for the FM to give an outlook, it is pertinent that investors should 'lookout' for investment opportunities.

    As we had mentioned in our pre-budget market view, if one believes that the UPA government is going to stick to the implementation of measures underlined by the Common Minimum Programme (CMP), then what is one waiting for? The railway budget, which was announced recently, was also broadly in line with the CMP (though the railway budget itself is a non-event every year).

    Before building any 'expectations' from the Union Budget today, investors would be better off if some key aspects are borne in mind

    1. The Finance Minister is a part of the United Progressive Alliance (UPA) that has agreed to priorities issues that are outlined in the CMP. Can the FM reduce the subsidy, hike petrol prices, and lower the minimum support prices, when the alliance parties are against the same? If the government has clearly mentioned its stand on the issue of disinvestment, it is unrealistic to expect any decisions on this front. May be a re-iteration is on the anvil!

    2. There is a need to match economic issues with public issues and the FM has to walk a right rope. Stock markets look for what is important to them i.e. higher corporate earnings. Political parties will look for those measures that will please the populace. The economist will be happy if the FM takes 'hard measures'. Who is the priority? Realistic expectations and that too, from a long-term perspective, are the need for the hour. Current FM is likely to mix and match, like every other FM before him.

    3. The Union Budget, though presented every year, is not just about how the economy is likely to perform in the next one year. There are policy decisions that are proposed with a five to ten year view and these decisions are supposed to provide some resilience to downturns by concentrating on fundamental issues like education, poverty and healthcare. Expect for on these lines.

    Some of the key 'Issues and Priorities' as highlighted by the Economic Survey, which was released yesterday are as follows:

    1. Sustaining the growth momentum and achieving an annual growth rate of 7% to 8% over the next five years

    2. Containing the annual inflation rate to medium single-digit levels

    3. Boosting agricultural growth through diversification and development of agro-processing

    4. Expanding industry fast, atleast by 10% per year to integrate not only the surplus labour in agriculture but also the unprecedented number of women and teenagers joining the labour force every year.

    5. Effecting fiscal consolidation and eliminating the revenue deficit

    The budget presentation of the FM is likely to be covering these broader aspects. While tinkering of customs duty, excise duty and so on are regular affairs, if one were to consider the trend over the last decade, the direction on these has been very clear.

    On the budget day, it has been historically observed that there is volatility on the markets. Before you, the retail investor, take any investment decision, it is pertinent to take a step back and understand budget implications clearly. Stock markets may take a knee jerk reaction without understanding implications on a proper basis.

    In these times, it could be sensible to lookout for opportunities rather than waiting for an outlook from the FM and the Budget 2005. Remember, India is a growing economy, but pick and choose with a long term perspective.

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