"Kodai Ali Sengol Kudi Ombal Nangum

Udaiyanam Vendharkku Oli"

Thoughts are always immortal and this means that good governance by a ruler is marked by the ruler being known for the generosity in giving grants, expressions of compassion, rule of righteousness and provide succor to the downtrodden.

There are four major areas where this budget has made a difference.

The budget has recognition that managing knowledge growth in the society is the key to the success of Indian service industry as well growth of economy. The FY 09 will see an additional allocation of 20% to the education budget.

It has attempted to stimulate internal demand for the manufacturing industries to maintain momentum by cutting excise duties from peak rate of 16% to 14% and reducing the tax rates on health care and selective few.

The budget has rationalized the personal income tax putting money in the hands of individuals by redrawing the slabs and adjusting applicable rates.

Finance minister has delivered a big blow the banks by announcing a loan waiver scheme of Rs. 600 Billion, without outlining the details. This may be a burden that will be shared by the banks, tax payers and savers.

The new education policy measures include numerous populist as well as result oriented measure. The mid day meal scheme has been enlarged to cover all the 13.5 Crore school going children. The upper age limit to pursue doctoral studies with grant has been increased to 32 and additional monetary support is planned for scholars pursuing excellence in knowledge in all three age groups of 9 to 17, 18 to 22 and 23 to 32. New institutions of excellence (3 Indian Institute of Technology and 2 Indian Institute of Science) are planned to be established. These measures will help India integrate with the developed nations in an equal footing in the decades to come.

The budget had addressed the need to stimulate growth and has adopted duty cuts. The manufacturing sector benefits by lowering of excise duty from 16% to 14%. Selectively few sector like health care is a major beneficiary with the excise being reduced to 8% from the existing 16%. Auto industry gets the lower excise of 12% on buses, two wheelers, small cars etc. There few products such as composting machines, wireless data cards, packaged coconut water, tea and coffee mixes, puffed rice, polyester filament yarn, AIDS drug, refrigeration equipment for cold storage. As usual the paper industry gets an excise cut in the election year.

The excise duty is increased on non-filter cigarettes

The customs duty have largely been untouched except the following imports

• Steel, aluminum scrap, life saving drugs, bactofuges, set top boxes for IT, helicopter simulator, naptha used fertilizer production,  are completely exempted now
• Gem and jewellery, sports goods, convergence equipments used in IT also receive varying duty cuts.

New Taxation measures

Service tax has been widened to include asset management services provided by insurance linked saving plans, stock/ commodity exchanges, customized software, reiterating the tax payable by  money changers, persons running game of chance, tour operators using contract carriages etc 

What does this mean to the investors?

The collective reaction by the stock market has been negative. But in an hour’s trading after budget speech certain pull back has occurred. FY 07-08 has ended with revenue deficit of 1.2% of GDP and fiscal deficit of 3.1% of GDP. It is difficult to visualize such a scenario for FY 08-09 as the impact of oil bonds, loan waiver and the impending salary increase on the fiscal discipline is far greater the pleasant things the finance minister seem to have said for so many ears in this election budget. He may well have managed the manufacturing industry growth but to write off loans in a year of plenty (the agricultural production in Paddy, maize, soybean, cotton peaking in FY 07-08) where the agriculture has grown by 2.6% over the previous year will disrupt the credit delivery mechanism for ever.

Sectors like Pharmaceuticals, Fertilizers, Automobiles, Tourism (as concessions are extended) are clear winners in this market.

Not a market friendly budget, which the economic survey had indicated clearly - the P:E of the Indian market is at a undeisrable high levels choking further investments.

A please all budget meant for masses in an election year. The  finances will be  in tatters if the  revenue does not rise the way it did in FY 07-08.