Budget 2002: The devil is in the details

The Indian IT pro nursing his wounds from a global recession needs to run for

a more soothing balm and he better ensure the effect lasts long enough. One

cannot claim that the Indian finance minister dislikes the geek clan, but the

salaried class he has chosen to tax in his proposed budget does indeed cover

most, if not all, of the IT pros.

So what do we have here. If your taxable income is anywhere between Rs 1.5

lakh to Rs 5 lakh then the tax rebate you would get for investing under Section

88 of the Income Tax Act has been halved to 10 per cent. To add insult to

injury, the interest rate on government savings schemes like the public

provident fund has been slashed by another 0.5 per cent. Now go and think

whether you really want to invest in those infrastructure bonds and savings

certificates. If you were planning to invest in mutual funds (MFs) with foreign

parentage (at your own risk, of course) then you may stand to benefit since the

FM has allowed MFs to invest in countries which have fully convertible currency.

And if you are earning more than Rs 5 lakh per annum (taxable income) then

forget about any rebate for investing under section 88. Further, in the place of

the 2 per cent surcharge for reconstructing quake hit Gujarat, a 5 per cent

surcharge has been loaded to support troops deployment on the border and

increased military spending.

The devil is in the details. The 10 per cent dividend tax has been abolished.

If you are doing a jig, hang on. Now, the dividend is taxable at the hands of

the earner as regular taxable income.

Take heart. Our FM has not snatched all after all. If you are an NRI then you

get the benefit of full capital convertibility on fixed deposits. He has not

increased the tax rates nor has he reduced the standard deductions, if it

applies to you at all. In fact, your local travel expenditure will be less 50

paise per liter as the prices of petrol is likely to come down by that factor.

This may be a short-lived incentive as the government has moved away from

administered pricing mechanism (APM) for petroleum products and linking the

pricing mechanism to international markets. So the fluctuations in the

international market gets reflected in the local petrol pump.

If you are planning to go home and treat yourself to hot pakodas over piping

hot tea and stretch your legs reading Jonathan Livingstone Seagul and see that

your gas cylinder is missing don’t be surprised… LPG cylinders will now cost

Rs 40 higher. Go back and rework on your domestic budget.

Back at office, don’t blame your managing director if he is celebrating.

The FM has reduced the customs duty on IT components to 10 per cent. Local IT

manufacturers are tipped to gain. The FM has also postponed moving to the zero

duty regime for selected IT products and components. This is a personal victory

for Manufacturers Association of Information Technology (MAIT).

So, what the **** was the budget all about. It is a "bold budget"

if one were to quote our Prime Minister. There have been some reforms in the

agricultural sector. State governments have been provided a multitude of finance

incentives to push through the economic reforms. Grounds for Indian companies

investing overseas has been further smoothened. Infrastructure has been given

focus as usual. State Electricity Boards, which are reeling in red because of

dues from central PSUs, have been assured of assistance. Privatization of ports

have been mooted and private management of international airports have been

proposed in all metros. Greenfield airport projects, like the Bangalore

International Airport, with private participation have been given financial

incentives.

On the overseas investment front, Indian companies can now spend 50 per cent

of their market cap towards joint ventures and can spend $ 100 million towards

investments abroad through automatic route.

Okay, is India going to pull it through? Yes, says the FM. He has earmarked

Rs 65,000 crore for the defence sector and has assured of more funds if need

arises, making one starkly aware of the situation on our borders. India’s

financial deficit is pegged at 5.7 per cent for 2002-2003, same as last year.

Agriculture production is up from -.2 per cent to 5.3 per cent this year. Forex

is $ 50 billion. Allocation to Information ministry and telecom sectors has been

hiked.

As an IT pro how should you rate the budget. Well, if you think from a

personal angle you might mull a lower rating and if you see it from a wholistic

view you may appreciate many steps the FM has taken. To paraphrase FM’s own

words, "this is an exercise to consolidate and deepen the second round of

reforms unveiled by the government last year."