Post-budget comments from Booz & Company

Hi,

Please find enclosed the post-budget comments on behalf of Mr. Suvojoy Sengupta, Managing Director, Booz & Company India.

The Union Budget for 2009: On the whole the Finance Minister seems to have chosen short to medium term continuity and stability over any rapid or radical changes to taxation or policies. The expectations of the Budget from all stakeholders were high, in the aftermath of the euphoria over the election results. Much of the expectations would be difficult to meet, mainly because the fiscal situation was already tight and the economic stimulus packages were necessary in the wake of the global economic crisis. In the event, the 6.8% fiscal deficit is at or above the upper end of expectations.

The Government has placed special emphasis on social and rural development schemes and infrastructure development. These are positive moves. On the taxation side moves to abolish Fringe Benefit Tax and Commodity Transaction Tax are positive steps. Several changes in excise duty in specific commodities also indicate that the Government will withdraw some of the short term stimuli necessitated by last year's economic downturn. PSU disinvestment plans are quite modest, which contributed to the stock market's negative reaction to the Budget.

Related to energy policy, several positive steps are to be welcomed. Firstly the clarification of the 7 year tax holiday on natural gas - there was some ambiguity on this issue which worried foreign investors into natural gas, which has now been removed. Likewise the envisaged National Gas Grid is an essential aspect as the role of natural gas grows within India's energy portfolio. In addition, the Government indicated that a National Energy Policy will be developed for ensuring security of supply and market stability. This too is a welcome step as the energy complex of India will be undergoing significant change over the next few years. We would have liked to see further emphasis on two fronts: firstly, further steps towards deregulation of fuel prices; secondly, encouraging investment on low carbon technologies and alternative energy (beyond the announcements on National Action Plan on Climate Change);

Finally, the initial allocation of Rs 120 cr for the Unique Identification Authority of India appears low, and the target of rolling out the first set of IDs in 12-18 months looks aspirational. We expect that with someone of Mr Nilekani’s experience and stature at the helm of UIDAI, this ambitious and important programme will be well thought through, realistically scoped and budgeted, and effectively executed.

Warm Regards,

Madhavi Kochar

20:20 MEDIA

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