A Feel Of The Budget From Generation Next

Management whiz kids at IIM-Ahmedabad debate Jaswant’s Budget

When finance minister Jaswant Singh stood up in Parliament to present his maiden Union budget, six live wires from one of India’s best business school sat down in front of a television with their director to check out and reflect.

The institution: Indian Institute of Management, Ahmedabad.

The director: Bakul Dholakia. A gold medallist from Baroda University and a doctorate in economics with 28 years experience in teaching the country’s best and the brightest. Dapper, suave and soft-spoken.

His interlocutors: 20-somethings. Quick-witted and brilliant with a big B. For that’s what it takes to edge out thousands of aspirants to bag a seat at the IIM-A - rated among Asia’s top B-schools.

* Mansi Singhal, a live wire from Delhi. A final year MBA student, Mansi graduated from Sriram College of Commerce and is maintaining her all-round academic brilliance here as well. Not surprisingly, she’s sitting snug already with a to-die-for job offer from the London-based Lehman Brothers in her pocket among others and the world at her pretty feet.

* Amar Makhija, interestingly, passed out from the same school in Delhi as Mansi. A Manav Sthali School student, Amar’s a BTech from IIT, Delhi, from where he’s homed in to IIM-A to hone his management skills.

* Akhil Mago, another IITian at IIM-A. Already a topper at IIM-A, this electronics engineer has authored award-winning papers at international forums and wishes to pursue a career in general management in the areas of strategy formulation and industrial policy.

* Gaurav Pant, an engineering student from Delhi College of Engineering. A Kumaoni is a winner of the Aditya Vikram Birla Scholarship 2001 for management students and is already mulling over a mouth-watering job offer from Goldman Sachs, London, in their fixed income, currencies and commodities division.

* Madhurima Agarwal, battling for her own space in the sun. Hailing from obscure Ranchi, where she did her schooling and college, Madhurima has now shrunk the world to a global village for herself with a fall semester at the Copenhagen Business School already affixed on her impressive CV.

* Ramnath Balasubrama nian, a bachelor of commerce from the Mumbai University and an all-India gold medallist in the diploma in business finance from the Institute of Chartered Financial Analysts in India in 2000, Ramnath is an avid quizzer as well.

Together, they’re an explosive mixture. Not surprisingly, when they got together for a snap panel discussion on the Annual Budget 2003-04 specially conducted for The Financial Express, with Prof Dholakia deftly steering them through, the result was an electrifying, radical, never-before analysis of the budget. Perhaps by tomorrow’s policy makers. FE’s Jyotsna Bhatnagar in Ahmedabad brings you some excerpts of the discussion.

Prof Dholakia: Let us start talking about how we have felt about the Budget. We all have listened to the Finance Minister’s budget speech together. Let us figure out what our broad impressions on the proposals presented by the Finance Minister in the Budget are. We can discuss on several items but the most important part is that how will this Budget impact the capital market, common man, industry, and what will it do to the fiscal restructuring, the growth of the economy and so on.

Mansi, what do you think is going to happen as a result of this Budget for the common man?

Mansi: I think that the common man will be going back happy home which is kind of expected with elections --state elections and general elections next year. The finance minister has given a lot of sops in education, health, housing up to Rs 12, 000 per child per annum, and in health also packages like insurance scheme for the poor have been introduced. The most important is the tax reduction in excise. He has rationalised the whole structure and made the common household items like utensils, pressure cookers, biscuits cheaper. Automobiles have become cheaper.

Though I have to say that there is a bit of disappointment in direct tax’s front because it was expected that the Kelkar Committee recommendations would be implemented in this area. The only thing which has been done is to raise the standard deductions will benefit tax fare across the board.

And he has also removed the five per cent surcharge which was initiated last year. I think that the common man has obviously taken a hit because of reduction in interest in small savings, PPF. But the minister has insulated the most affected elderly pensioners by guaranteeing them assured return of nine per cent, and I think that is a very good measure, because I think that cut-in small savings was necessary and was most expected.

Prof Dholakia: Ramnath, what do you think would be the impact of the Budget on the capital market?

Ramnath: The capital market has been expecting two things from the Budget. First, the abolishment of long term capital gains. Second, the abolishment of dividend tax. If these factors are already discounted, both these have been achieved.

Akhil: Just two points to add. On the agriculture front, I think the finance minister has taken some bold steps in reducing the fertiliser - urea subsidy - this would have some impact on agriculture prices. I think the increase in diesel price will lead to increase in transportation cost. I think both these factors will to some extent lead to an increase in inflationary expectations.

Akhil: I think if we look into the demand-supply balancing economy, this, to a large extent, is again determined by monsoon and other factors irrespective of the expectations. Increase in productivity, just by a greater use of fertilizer will have to be looked probably by the monsoon itself.

Prof Dholakia: Let me also pursue this little further. Did the finance minister have any choice really with respect to the urea and DAP prices?

Akhil: Exactly, in terms of choices they are really limited in increasing prices of Naphtha.

Prof Dholakia: Would you like to say something about the impact of the Budget on the industrial sector?

Gaurav: Yeh, sure, I feel that the small scale industries on certain aspects have been rationalised and so has the excise duty structure and on the top of that, the maximum limit on customs duty both agriculture and industry. For all sectors, the increase depends on acquisitions given the fact that the finance minister has given a lot of sops towards companies to merge because of losses. Very specifically, the banking sector should benefit from the kind of initiatives shown by the finance minister in terms of allowing FDI up to 74 per cent and giving sops to their balancesheets by removing NBS and by giving buying back option. I think this is going to give a flip to the industry. And another industry, which I think would be benefited a lot is pharma because the finance minister has introduced a scheme which on the one hand will increase spending in health care sector and on the other hand he has also given a lot of sops to the capital equipment use for manufacturing drugs in terms of R&D expenditure in pharma industries. Therefore, I think these two are primary for pharma sector. So their future is very bright. But I feel that the industry seems little disappointed in terms of a distribution tax of 12.5 per cent levied. And even in terms of corporate tax, rationalisation most people in the industry expected surcharge to completely go. And given the kind of exemptions in sops the finance minister has given he is probably looking towards the service tax to bring in more to his revenue.

Prof Dholakia: Among these industries which may experience a fillip as a result of this Budget. Which would really experience a higher growth as a direct consequence of the proposals?

Akhil: I would say auto industry, banking, pharmaceuticals, and tourism because lot of sops have been given to tourism in terms of giving them benefits of amalgamation and giving them certain tax sops under section 10. I think these are essential.

Ramnath: Actually, I would like to continue with that point. The government is trying to deduct some incentives towards those industries identified for export. He has actually announced a package of incentives for textiles. Now, common export of textile has been the major component of exports. But over the period of time we have been becoming less and less competitive in the world markets. This incentive will actually push up textiles because they have been crying for this incentive.

I think there has been a conscious push from the point of view of the government. Second area is IT. The software exports are driving overall exports for the last three years.

And Kelkar recommends the scrapping up of exemptions for 10 years, which I think was disputed by many IT companies because they have already made their investments on the basis of these exemptions. By retaining it I think he has given a strong signal to IT industry saying that we do identify you as a source of growth. The third one is tourism. As Gaurav mentioned, by giving incentive to tourism you can drive your exports in this area too. I think it has been an export-oriented Budget.