Market reacts to the Budget's packaging, not substance

Nifty BSE | NSE 29/05/12 Are Mutual Funds betting on Nifty?

 

The Budget factors in disinvestment proceeds of Rs 1,120 cr from sale of equity in Rites, Cochin Shipyard, Telecommunications Consultants India Ltd , Manganese Core , RINL and Satluj Jal Vidyut Nigam. It does not mention National Hydro Power Corporation and Oil India for which all regulatory approvals have been obtained. In fact, the railway ministry under Lalu Yadav had written to the Disinvestment Department that it was not in favour of disvesting Rites.  If Rites can be divested, why will Engineers India not be? If TCIL can be, why not BSNL. If Manganese Core can be offloaded, why not Coal India? Pranab Mukherjee has told Lok Sabha TV that he could not set a target. But, he said, he has laid down the philosophy, which is disinvestment in state enterprises up to 49 percent.

 

I am happy about the commitment to introduce Goods and Services Tax from April 2010. There is a lot of preparatory work needed, but as the PM said, it is better to set a stretch target than to be daunted by the difficulties. The new direct tax code should be implemented from April next year. There could be movement on reduction in fertiliser subsidies and de-regulation of oil prices. The Finance Minister has said that the tax structure would be simplified. He has abolished Fringe Benefit Tax, but that does not mean perquisites, including Esops, will escape the tax net. They will now be taxed in the hands of employees as perquisites. Surcharge on income tax has been abolished; corporate surcharge will be the next to go. Many of the items that were subject to 4 percent excise have now been moved into the 8 percent slab.

 

The immediate worry for industry was the slump in demand. That has been addressed by the substantial stimulus that has been given. Government spending has increased by 1.15 percent of GDP from the interim budget. It is two percent of GDP more than last year. Those worrying about the fiscal balance should take heart from the FRBM statement which says that the fiscal deficit will be cut to 5.5 percent of GDP in 2010-11 and to 4 percent in 2011-12.

 

Finance Minister Pranab Mukherjee could have highlighted these items that are buried in the fine print. He could have talked up the market by making reform announcements. The Budget was good. The packaging was not.