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Strategies & Market Trends : India Coffee House -- Ignore unavailable to you. Want to Upgrade?

To: Worswick who wrote (1257)	6/2/1998 12:06:00 PM
From: Mohan Marette	Read Replies (2) \| Respond to of 12475

Budget- view from Financial Times London. Bit of Keynes peppered with 'Swadeshi'. Worswick: Here is an analysis by the 'experts' at Financial times,London. Delhi unveils big rise in capital spending By Mark Nicholson in New Delhi India yesterday announced a high-spending and protectionist budget - the second step in what it said was an Indian renaissance triggered by the decision to carry out nuclear tests three weeks ago. "A new India is rising," proclaimed Yashwant Sinha, finance minister, laying out the Hindu nationalist Bharatiya Janata party's first budget. The measures are designed to revive growth through big rises in government capital expenditure, while meeting domestic industry pressure with the imposition of a broad eight percentage point rise in import duties. However, markets gave Mr Sinha's budget a thumbs-down. India's benchmark BSE 30 index fell sharply in late trading to close down 95 points at 3642 - a loss of 2.5 per cent on the day. Mr Sinha's budget raised defence spending by 14 per cent and increased by 68 per cent the funds available to the Department of Atomic Energy, to further "excellence in frontier areas of scientific research". On defence, the finance minister said he would "consider further increases. . . during the course of the year". He added: "There can be no compromise in our defence preparedness." The state-monopoly insurance sector would be opened up to the private sector, but apparently only to Indian companies, he said, disappointing foreign investors. The budget contained few direct incentives for foreign investors, although it promised "hassle-free" procedures for them and Mr Sinha said India aimed to double this year's $3.1bn (œ1.9bn) of direct investment by 2000. He promised to accelerate privatisation, including a majority sale within three years of Indian Airlines, the state-owned domestic carrier. More sweepingly, he said that the government would cut holdings in public companies to 26 per cent, while closing down some lossmakers. This would exclude unspecified "strategic" public enterprises. Mr Sinha said the government would proceed with equity sales in four major public enterprises, IOC, GAIL, VSNL and CONCOR, which had been approved by the previous United Front government. He aimed to raise Rs50bn (œ736m) through disinvestment. Industry groups which had urged a 5-10 percentage-point rise in import tariffs were rewarded by a broad eight point rise, which makes Indian tariffs the highest in Asia. "This duty should not be viewed as a protectionist measure, but only as a response to a legitimate demand for a level playing field," Mr Sinha said. The minister promised an 18.8 per cent rise in total government capital spending, the second biggest proportionate rise in a decade - notably on agriculture, infrastructure (up 35 per cent) welfare and education. Mr Sinha also set a lower target for India's high fiscal deficit at 5.6 per cent of gross domestic product compared to last year's 6.1 per cent, counting on growth of up to 6.5 per cent and revenues from disinvestment, better tax compliance and a revenue bounty from a slew of excise duty increases and the 8 per cent rise in import tariffs. But Mr Sinha said he aimed to raise by 50 per cent the number of taxpayers, currently only 1.25 per cent of India's 960m population. "People were asking for a kick start - he has given a hard kick," said Sree Kamal Sen, economist at DSP Merrill Lynch. He said Mr Sinha had increased planned investment by Rs110bn and total spending on energy, power and telecoms by Rs150bn. But higher infrastructure spending would only be effective if accompanied by legislative reforms, including better regulation. Investors are nervous about plans to fund spending through increases in indirect taxes - which will only pay off if growth rises.