What is all Din about?

I find it hard to digest the goings-on in the last  few days of run up

to the Union Budget 2001—02 presented by finance minister Yashwant Sinha on

February 28 and its aftermath. Multiple crores of rupees would have been spent

by all sections of the media–industry associations (CII, Assocham, Ficci and

PHDCCI), TV channels, newspapers, and magazines on the Budget review.

‘Shotgun Sinha fires round 2 reforms’, screamed The Economic Times.

‘Sinha delivers a bundle of joy’, exulted The Hindu Business Line.

‘Sinha deftly walks the reforms tightrope’, announced The Financial

Express.

On February 28, the day the budget was to be presented, The Times of India

had its own budget, titled ‘Apna Budget’, occupying almost the whole of the

front page.

I know of no other country–developed, underdeveloped or least developed–where

there is so much of din and noise on the annual ritual of the country’s Budget

being presented.

It happens only in Indya! But why? After all, what is a Budget? It is a

cluster of assumptions with a bunch of numbers. In effect, it is a comparative

statement of what actually happened with what was planned to happen in the year

that’s passed with some more plans and numbers for the year yet to start! In

simple words, it’s a Bean Counter’s accounting job. Why all this hype and

hoopla? Let’s examine this.

First and foremost, no political party in power is genuinely interested in

the long-term economic well-being of the country. Otherwise why do they spend

more money (euphemistically called non-plan expenditure) than the government

earns? For instance, the revised estimates of interest payment for Year 2000—01

is Rs 101,000 crore, 69% of the revenues. So they keep borrowing more and more–Rs

111,000 crore in the financial year 2000—01!!

Of these borrowings of Rs 111,000 crore, Rs 77,000 crore was spent on

unproductive revenue expenditure resulting in fiscal deficit, which the finance

minister claims he has been able to contain at 5.1% of the gross domestic

product. But, if you add the profligacy of the state governments to that of the

Center, we are talking of a fiscal deficit of 10% of GDP! And if this trend

continues, both the central and the state governments will go bankrupt (some

state governments already are bankrupt). It appears our politicians first create

a mess, then try to unscramble it through the budgetary exercise.

Some years ago, the Fifth Pay Commission recommended an increase in

compensation of government employees by over 100%, subject to downsizing the

number of employees. While the wage increases were implemented, the downsizing

did not happen. We still have many government departments that have no business

to exist.

Now, the finance minister has grandly announced that he will get rid of three

secretaries and two joint secretaries and 44 people at the level of directors

and other ranks below them in his own ministry. And further downsizing has been

planned in six ministries and departments by July 2001. These numbers are

miniscule compared to the flab that exists in government.

So, no political party is serious about cutting manpower in the government

nor is it interested in bringing in any degree of fiscal discipline.

I guess the high-decibel theatricals of the media are presumably in the

expectation of some magic–how the finance minister uses his magical wand to

balance his books! I see a parallel here between the average three-hour

Bollywood tearjerker with the annual budget. The climax happens in our films in

the last three minutes as it happens in Parliament, in the two hours every year

that the finance minister takes to read out the Budget speech on the last day of

February! It’s pure entertainment all the way!

Now coming to the Budgetary recommendations (which have to be formally passed

by Parliament before they become law) relating to the IT and telecom sectors.

Import duties will come down all round, the peak rate of duty being 35% of

the CIF value of the goods imported. All surcharges have been withdrawn. What’s

left are other levies such as additional duty counter-vailing duty and is the same as excise duty, if the goods were produced

in India, and the special additional duty of 4 per cent.>

The finance minister has been generous to the IT and telecom sectors by

pegging the basic duty at 15%. So, for these that earlier had, say 25% duty, the

net effective reduction will be 12.1%. The zero-import-duty regime for software

continues.

But the biggest news in my opinion, is the mandate from the government to

many of its departments to computerize by 2002. Some of these are: GPF, passport

offices, customs and excise. In addition, as already mandated by the central

vigilance commission, all public sector banks have to computerize about 70% of

their transactions by March 31, 2001.

Education is another area where the finance minister has focussed. An

integrated National Education Program has been launched for universalizing

elementary education and will cover all districts by March 2002. Here is a

brilliant opportunity for the IT industry to install a large number of PCs and

for the telecom industry to provide connectivity.

In addition, a new centrally-sponsored scheme for computer literacy and

studies in schools is being launched and other initiatives planned to encourage

IT education from school to college levels, making for some more sales and

marketing



opportunities.

And not to forget the software industry, the finance minister has proposed

that profits derived by units located in STPs from the export of

"on-site" services be eligible for deduction like their other export

income. Units located outside these zones will also get the exemption on such

export.

The five-year tax holiday and 30% deduction was available to the telecom

sector till 31 March 2000. Sinha has proposed to reintroduce this concession

retrospectively for units commencing operations on or before March 2003. These

concessions will be extended to ISPs and broadband networks also.

All in all, I believe that the economy will grow much faster and will present

great business opportunities to the IT and telecom sectors.

Shashi Ullal is president and MD of Hughes Escorts Communications Ltd. The

views expressed here are his own and not those of HECL