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March 6, 1999

BUDGET 1999-2000
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Good for banking, tough on automotive sector

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Surinder Singh Kohli

Given the economic and political compulsions of the day, it is a good Budget. The finance minister has tried to give the much- needed kickstart to the economy by stimulating growth of the core sectors.

He has done this indirectly through his proposals on housing. Construction activity will indirectly boost investment in the infrastructure sector. It will have a trickle down effect on the economy.

The imminent investment in roads, etc, will encourage the infrastructure industry.

Rationalisation of excise duties, which was expected, will hopefully give the much-needed impetus to the industry.

The FM has provided sops on dividend tax exemption for mutual funds and the equalisation of long-term capital gains tax for Resident Indians and Non-Resident Indians. He has also addressed the key banking industry issue of non performing assets.

The bottomline of the banking sector will improve with the new provision of deducting the bad and doubtful debts before calculating taxable income. This may lead to some banks even posting more bad and doubtful debts. But that will be part of the system.

The setting up of more debt recovery tribunals is a step which recognises the need to speed up the recovery procedure. The Indian Banking Association has also been instructed to float a scheme along the lines of the Kar Samadhan Scheme, to facilitate early settlement of debts.

The drawbacks in the Budget are that investment in infrastructure has happened indirectly and could have been much more. The concessions expected for some particular industries like steel, cement, etc, did not come through. The rationalisation of excise duties has in fact raised the duty incidence in automobiles, which is not a good thing. The raise in the price of high speed diesel may have an inflationary impact.

S S Kohli is chairman and managing director, Punjab & Sind Bank.

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