The 2003-04 Budget: Commentary

In listening to the budget live, as one special group after another received specially tailored exemptions, I was gradually transported back a decade and a half in time, when budgets used about giving and withdrawing concessions. My fear that the budget would be shaped and driven by the forthcoming elections was moderated by the Finance minister’s inherent conservatism. Even when he gave income tax concessions to government servants, retirees, pensioners, the sick, these were far from extravagant. The sectoral give-aways though equally modest were more clearly ART (against the reform trend) as they represented a return to industry specific customs duty exemptions, that every body had agreed were bad for the economy. As expected only the administrative reform recommendations of the Kelkar committees were accepted while the reform elements were junked after a bow. Even the forecast removal of the surcharge was partial, the dividend tax was replaced by the old dividend distribution tax and the long-term capital gains tax on shares eliminated for a year.
Within this overall picture of lack of clear economic direction there are a few nuggets that are positive. As expected the ‘peak’ customs duty was reduced to 25% (from 30%). To my surprise the administered interest rate on Government Provident fund and related schemes was reduced by 1% point. SSI reservation was also eliminated on 75 more items, and the expenditure tax eliminated. These steps could have a modest positive effect on investment expectations if followed up by other reform steps in the EXIM and Credit policies in the next two months.