The budget indicator of clout

This identification process suffered a setback last year, when Sinha opted for more broad-based changes, as opposed to micro-changes. Fortunately, for those who feel budget-clout’s the real thing, micro-concessions have been revived, thou-gh these are getting less with economic reforms leaving less scope for this. An ind- icative list of the immediate beneficiaries.

Cellphone Czars: With all the concessions the government has given to cellular phone companies, including the most recent one for Koshika, it was expected the budget would also do its bit. Import duties on cellphones have be-en slashed, from 25 percent to 5 percent. Now I don’t have a problem wi-th this, considering that I’m a heavy us-er, but there is a fundamental problem here. If cars, and even soft drinks are considered luxury goods and excised at 40 percent, surely cellphones are also luxury? And, if those earning more than Rs 12,500 per month are well-off enough to be taxed at 5 percent more, surely cellphones don’t deserve to be cheaper.

Essar Group: Again, with the government anxious to help the group (as has been reported by this paper), this is par for the course. The budget allows doubling of the depreciation provision, from the existing 50 percent, if the reserve is used to buy new ships. One of the big beneficiaries will be Essar Shipping.

Bombay Dyeing: Perhaps not as high-profile as the Cola wars, the polyester wars between Nusli Wadia of Bombay Dyeing and Dhirubhai Ambani of Reliance have been as ferocious. The latest budget adds another chapter, by reducing the duties on PSF and POY which are produced by Reliance and imported by Wadia, from 35 percent to 20.

Reliance: It wo-uld be naive to expect that Dhirubhai’s clout is so depleted, that he’d allow benefits to rivals, while his own interests were neglected. For one, the minimum alternate tax, introduced by Chidambaram to ensure that big earners like Reliance didn’t escape the tax net, has been cut, from 10.5 percent to 7.5. And yes, the increase in additional customs duties, from 10 percent to 16, on capital goods for petroleum refineries, will slow down Reliance’s competitors like Essar and IOC.

ITC: While cigarette firms like ITC may be hit by the 5 percent excise hike if they aren’t able to pass it on to consumers, they’ll benefit in a big way from the full extension of Modvat to them. Again, unsurprising, considering the government has done its best to help them. In early January, the Prime Minister forced Sinha to withdraw a notification issued by him a few days earlier, which denied a 100 percent tax holiday to tobacco firms if they set up operations in the northeast.

Narayan Murthy and friends: While people like Narayan Murthy sounded virtuous by advocating taxing of software, Sinha’s proposal to begin taxing software will actually benefit the existing firms and the biggies like Infosys, Wipro and TCS. Right now, any firm registered as a Software Technology Park – almost all the biggies are registered as STPs – gets a tax holiday for a period of 10 years.

This does not change under Sinha’s proposal – ST-Ps will continue to get a tax holiday till the remaining part of their 10 years. And, if anyone, including these existing firms, register new units as STPs till March 31, they will be entitled to a tax holiday of another 10 years! So the real losers will be new firms which register themselves after March 31. Dewang Mehta of Nasscom has suggested a way to reduce this discrimination against yet-to-be software firms, but that’s in the future, and it’s still to be seen if Sinha accepts it.

Postscript: When the Prime Minister reconstituted his council on trade and industry, some well-wishers of dynamic industrialists like Rajeev Chandrashekhar of BPL asked him why he was wasting time with the government when he could be spending his time more fruitfully, making money. Well, now you know.