India's latest budget, presented in New Delhi on Feb. 29 by Finance Minister Palaniappam Chidambaram, has already drawn plenty of
commentary on what it means for various constituencies, and for the prospects of the ruling Congress party in the next election.
Here at Corporate Dealmaker, we're particularly interested in the question of what the budget means for foreign investors. That was one of the questions addressed Friday morning in New York when the consulate general of India hosted an event to explore the budget. The good news: There's no bad news.
This assessment came in the course of a panel discussion moderated by Ambassador Neelam. The high-profile panelists included Gopa Kumar, president of ICICI Securities Inc.; Sunil Wadhwani, iGate Financial Corp.'s CEO; Prof. Arvind Panagariya of Columbia University; Richard Berner, chief economist at Morgan Stanley; and Uday Ved, COO for tax services and a partner with KPMG India. KPMG's Ved and partner Arun Kumar sum up the discussion:
The proposed Budget is measured in tone and strikes a sensible balance in its proposals. It is designed to stay the course on India's economic growth agenda. It also seeks to enhance inclusiveness -- to have larger sections of India's population benefit from the country's growth. Accordingly, significant increases are proposed in outlays for education and healthcare. In addition, disadvantaged sections of society, such as women, scheduled castes/tribes/minorities and distressed farmers receive special attention.
The finance minister has signaled that the welcome mat is very much in place for foreign investments, both institutional investors and direct investors. This signal came largely from what he did not do, such as not tinkering with the tax advantages for foreign institutional investors from favorable tax treaties like the one with Mauritius.
In the fiscal regime the budget signals stability and few surprises. It is moving in the direction of simplification and rationalization of the tax and duty structures. With excise duty reduced to 14% and service tax at 12%, one might surmise that the Minister is moving the country towards a comprehensive GST (Goods and Services Tax) regime in 2010.
Overseas investors should gain confidence from the steady hand displayed by the government of India, by its alertness to protect the growth of the Indian economy in the face of a possible global slow-down and by the deftness of its economic management.
There are some specific questions that were left ambiguous such as the extension of the tax holiday on software technology parks.
Individual tax rates were reduced for many income categories. This will result in higher disposable income, which should in turn spur an increase in consumption to provide additional stimulus to the economy.
Though it's slowing somewhat, India's economy is still growing briskly. The
AP reports that manufacturing grew 9.3% and construction gained 8.4% in the fiscal third quarter, but agriculture continued to lag behind growing only 3.2%. The government's annual Economic Survey said that the economy is expected to grow by 8.7% this fiscal year, slowing from 9.6% growth rate it achieved in the 2006-2007 fiscal year. -
Baz Hiralal
Join Corporate Dealmaker's LinkedIn forum
Juergen Lasowski
And the winners are...
