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Reaction of Mr H M Nerurkar, Managing Director, Tata Steel

February 26, 2010

I rate the Union Budget for FY11 as a good budget which lays out the targets and roadmap of the Government to maintain growth momentum in the country while ensuring greater fiscal prudence in the near term. The budget has remained focused on ‘simplification’ of procedures, a hallmark of the FM.

A significant aspect of this budget is that most of the surprises have been on the positive side. Lower fiscal deficit is perhaps the most important aspect of the budget. FM has succeeded in his attempts to keep the deficit within acceptable limit while maintaining growth focus. The FM has provided visibility of the fiscal deficit targets for the next 3 years, which gives one the confidence that fiscal prudence will continue to get his attention. FM has also undertaken an ambitious target for disinvestment. This will require him to maintain the ‘business confidence’ at a high level, something that I believe he would be able to do without difficulty. His assurance to rollout GST (Goods & Services Tax) and Direct Taxes Code by April 2011 will enhance the confidence in the plans of this Government. By bringing more services under the ambit of service tax without rolling back the rates to 12%, FM has paved the way for GST. The increased allocation towards building rural and urban infrastructure and support to low cost housing will help sustain domestic growth rates. Significant support for social and development sectors is in line with the Government’s on going efforts of making growth inclusive.

The increased allocation towards rural development and employment generation programmes like the National Rural Employment Guarantee Scheme (NREGA) and Indira Awas Yojna (IAY) are moves in the right direction and I believe that such emphasis on the rural economy is mandatory. The FM also made specific mention of enhancing the governance and monitoring structures of existing social development programmes which should improve their reach and efficacy.

On corporate front, reduction in company surcharge and greater deductions for in-house R&D activities are welcome although they will be partially diluted by an increase in MAT for companies on a growth path. An extension of interest subvention on pre shipment export credit will be beneficial for the economy. The reduction in personal income tax levels is significant and across board. This will serve to sustain demand levels by boosting disposable incomes of the domestic consumer. Increase in petro-fuel and energy costs, however, may have an inflationary impact on consumers or margin squeeze for suppliers. Similarly, roll back of ED to 10% will partially negate the impetus given to infrastructure and construction due to rise in cost of steel, cement and power.

Personally, I would have liked to see the announcement of some measures to control food price inflation in the short term and strong measures to promote higher education. With the projected growth rates, the country is going to need a very large number of trained professionals. For us to become a strong economy in the long run, we will need to have educational institutions of global size and stature. The clean energy cess on domestic and imported coal will also have an impact on the user industries. I was also expecting the Government to encourage capital spending in large projects by extending investment linked incentives to more sectors like steel.

This budget is largely neutral for the steel industry and Tata Steel but does contain other growth measures which may have an indirect effect on the steel demand.
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