This has been a balanced Budget

The key challenges facing the policy makers for this Budget has been to

a) Sustain the growth rates seen in the recent past against the backdrop of global uncertainties and slowdown

b) Ensure that the growth is an inclusive one

and

c) Keep inflation within control, especially in view of the spiraling prices of crude oil and other agricultural commodities.

Also, with several state elections round the corner and General Elections scheduled for 2009, it was widely expected that there would be continued focus on social sector initiatives, thus maintaining fiscal discipline and FRBM targets would also be a challenging task.

One of the prerequisites of maintaining the high GDP growth is clearly increased investments in infrastructure (both physical and social) and remove the supply side bottlenecks for agricultural commodities, as well as step up investments in areas like public health and education.

Against this backdrop, the Finance Minister has presented a balanced Budget, with significant increase in outlays on social sector like health, education and agriculture as well as physical infrastructure like power, roads and energy sector.

While the outlay on the health sector has been increased by 15 pc, that on education sector has been increased by 20 pc. There has also been substantial increase in outlays on Accelerated Irrigation Development Programme, Rajiv Gandhi Grameen Vidyutikaran Yojana, APDRP, and NHDP.

The creation of a national funds for T&D reforms, as well as the stated policy of speeding up bidding for another 5 Ultra Mega Power Projects (UMPP) also augurs well for the power sector. The appointment of a Coal Regulator will also be of importance given the issues involved in arranging fuel supply for supporting the ambitious capacity addition programme in the power sector.

The reduction of customs duty on project imports from 7.5 pc to 5 pc would also be beneficial for the large projects being set-up in the infrastructure sector. Increased allocation to National Housing Bank would also provide a fillip to the Housing Sector.

The loan waiver for small and marginal farmers, which is expected to the system Rs. 60,000 crore has obviously been the most populist scheme, though it was somewhat expected with elections round the corner.

Other obvious disappointment for the corporate sector was the fact that there has been no change in corporate tax rates, which was widely expected given the buoyancy in tax revenues. For the common investor, increase in Short Term Capital Gains Tax from 10 pc to 15 pc was also a negative move.

At the same time, the Budget has done its bit to promote industrial growth with a wide ranging cut in excise duty in a variety of industries like small cars, 2-wheelers, 3-wheelers, paper, drugs, refrigeration equipment and so on.

Reduction in CENVAT from 16 pc to 14 pc and CST rates from 3 pc to 2 pc is also a positive move. Leaving the peak customs duty unchanged could be seen as inflationary – however, this would provide the much-required relief to some of the sectors particularly susceptible to cheaper imports due to rupee appreciation.

There are also policy announcements with regard to development of corporate bond market, creation of a market for exchange traded currency and interest Rate Futures and rationalization of Stamp Duty. The other measure which will also provide cheer to the industry is avoidance of double taxation on dividend distribution. The tourism and healthcare sector also stand to benefit from the 5 year tax holidays under Section 80IB.

On a sectoral basis, the clear beneficiaries are auto, pharma, hospitality, agriculture-based companies and infrastructure sectors. The worst-affected would be the PSU banks. For most other sectors, it seems to be largely neutral.