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The Union Budget 2006-07 appears high on
growth prospects but short on definite action plan to take the
economy to higher growth rate of 10 %. I personally
feel that the Budget is forward looking but not a path breaking
one. It has rightly focused on infrastructure and agro
industries in order to increase growth momentum further and
help the economy to reach at par with South East Asian countries
in terms of growth. However, it is devoid of any clear
cut growth-spurring action plan.
For
the public sector, the Budget leaves much to be expected as
it has not traveled the extra mile to fulfill NCMP’s stated
objective of making PSEs strong and effective. Reaction of PSEs
to the Budget is mixed one as the desired relief to the petroleum
companies has not come, but the expected spin-off effects of
measures proposed in other sectors appear positive.
By
focusing on infrastructure and agro-industries, the Budget has
rightly sought to increase growth momentum of the economy further.
It also seeks to promote balanced sectoral growth and employment
generation in the economy by enhancing investment in the critical
growth sectors like food processing, textiles, power, gems and
Jewellary.. However, the Budget has provided only a lip service
to the focussed areas as identified in NCMP by not laying down
any concrete action plan or road map to achieve 10 % GDP growth.
Not
only this, for public sector, the Budget has not brought much
cheer as SCOPE expected some dedicated measures to strengthen
the public sector further and to enable it to play even greater
role in achieving higher economic growth has not been met. Though
higher equity support of Rs. 16,901 crore and loans of Rs 2,789
crore to CPSEs is a positive sign, there is no concrete growth
measures for PSEs. It has sought to maintain the status quo
on its stance on the public sector.
SCOPE
was expecting some positive measures along with relief for the
overburdened oil PSEs in oil marketing like IOC, BPCL and HPCL
which are reeling under high and rising international crude
prices. On the other hand, increase in petroleum cess on domestically
produced crude would adversely impact the oil producing companies
like ONGC and would hit their bottomline further.
However,
there is a silver lining in the form of positive spin-off effect
for the PSEs operating in the sectors where the Budget has put
more focus. Emphasis on infrastructure sectors like power, ports
and roads would benefit PSEs operating in these areas by providing
increased growth opportunities. Similarly, increased budget
allocation for the defence sector would benefit PSEs like BEL,
HAL, BEML and BDL. Extra allocation for power transmission and
generation through five new proposed projects of 4,000 MW each
would definitely will benefit PSEs like NTPC.
While
the infusion of Rs 1,180 crore in cash and non-cash sacrifices
of Rs 2,566 crore in last two years to restructure ten PSEs
including ITI Limited and HEC is greatly appreciated, SCOPE
was hopeful of extension of this to some more sick PSEs this
year too. No change in direct tax rates is a welcome step but
increase in MAT and service tax is expected to impinge on the
profitability of the companies in the manufacturing sector and
thus would impact future investment. However, budget measures
for the capital market including increased participation of
FIIs in government securities, corporate debts and removal of
10 % cap on overseas investment by mutual funds is expected
to improve investment in the economy.
On
the whole, the Budget has failed to generate any feel good factor
about the present growth momentum of the economy or the anticipated
growth prospects as a result of the proposed measures. Besides
not addressing some important concerns of the common man on
the street, namely, rising inflation and interest rates, it
also does not reflect spirit of NCMP with regard to the public
sector as measures like right sizing and VRS related tax benefits
have not been touched.
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