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June 2, 1998


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'No special policy package to revive capital market'

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Dr U Shankar

I think policies such as the increase in custom duties on steel and cold rolled steel, 25 per cent to 30 per cent on paper and paper board, are all aimed at helping industries facing recession.

The disappontment is that there is no special policy package to revive the capital market to boost exports.

I think this budget is swadeshi in the following senses: from public monoply status, the insurance sector is opened to private Indian parties, there are special incentives to attract funds from NRIs, the FM has yielded to the demand of level-playing field by giving protection to some of the industries like steel and paper by increasing the custom duties.

I think the Budget is pro-farmer and pro rural -- the allocation on agriculture, irrigation, water supply, and housing received a big boost.

It is a continuation of the previous Budget in the sense that there are no major changes in direct taxes, the rationale for this continuity is to have a long term fiscal policy.

There is likely to be an increase in the prices of manufactured items because of the ceiling on MODVAT claims to 5 per cent, general increase of 8 per cent in custom duties and excise duties on many items. But the price increase will be modest, maybe 1 or 2 per cent in the retail price index

There are only two or three announcements to revive industry -- increase in expenditure under many items particularly plan expenditure, infrastructure, investmental power and incentives for housing investment. These policies can stimulate demand for intermediate goods like steel and cement.

The boost for agriculture and rural development may also generate rural demand for many agricultural products. But the corporate sector may be disappointed because of lack of any new policies to stimulate the capital market, and the additional indirect tax burden in the form of increase in excise and custom duties.

I think the Budget is less harsh than what was expected in the context of India's nuclear tests and the subsequent sanctions imposed by countries such as the US, Japan and other developed countries.

The FM intreprets swadeshi not in the sense of isolation but in the sense of self-reliance. He might think that the sanctions are short-term and temporary in nature, and that's the reason why he wants to continue with the economic reforms, with minor changes to satisfy the BJP agenda.

Dr U Shankar, director, Madras School of Economics, was speaking on the Rediff Budget Chat

Budget '98

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