Loan waiver faces flak

Experts had mixed reactions of the Farm loan waiver of Rs 60,000 crore in the Union Budget 2008-09, with some fearing that it could lead to higher rates of inflation while others maintained that it was a good step.

Almost everyone, however, agreed that the measure was a short term one that would not spell into longer-run benefits for the agriculture sector.

Abhirup Sirkar, economist and professor at the Indian Statistical Institute (ISI) said at the PricewaterhouseCoopers seminar on this year's Union Budget that while this measure undoubtedly fell short of addressing the fundamental roadblocks in Indian agriculture like irrigation infrastructure, it could lead to higher rates of inflation.

If the government repaid the money to the banks to write off these debts, it would imply excess liquidity for the banks.

This apart, the discipline of the banks would suffer as well, Sirkar added.

Amitav Kothari, senior tax consultant and director, Life Insurance Corporation of India (LIC), however had a different take on the issue.

It was likely that the money would be repaid to the bank in the form of a mix of cash and bonds, said Kothari.

The Finance Minister (FM) has also raised the tax exemption limit considerably to allow more money to be pumped into the system, he added.

This move would see around 10 million assesees going out of the tax net while an estimated Rs 40,000 crore would be there in the hands of the people as every individual could save significant sums of money on account of tax exemption.

This and excise duty cuts gave impetus to the manufacturing sector. Both agreed that it was a populist budget on the eve of the elections. The industry representatives and experts were both keen to see whether loan waver would get votes for the United Progressive Alliance (UPA).

Waiving farm loans was a welcome step, said S Radhakrishnan, managing director of the public sector unit Dishergarh Power, and president of the Bengal Chamber of Commerce & Industry (BCCI), said at the PwC meet.

Radhakrishnan appreciated the reduction of the CENVAT from 16 percent to 14 percent.

"This seems to be a precursor to the future GST rate. In fact, FM has mentioned about the proposed strategy of going in for GST introduction within the stipulated time frame of 2010. Accordingly, he has also reduced the CST rate from 3 per cent to 2 per cent from next year", he added.

BCCI expressed its concern over the short term capital gains tax that has been hiked up to 15 per cent and concluded that this would definitely impact the capital markets.

Also, the expected extension of STPI from 2009 was not in the budget and this would cause major problems for the infotech sector, he warned.