Yashwant Sinha's Union budget for 1999 has sent the bourses into ecstasy with the BSE Sensex vaulting over 15 per cent in the post-budget week. This is in sharp contrast to the reaction to the budgets of the past which the pundits often applauded but the mobs rejected.

And as Shakespeare cautions Brutus, the reasons the masses have for their opinion is only for the chronicler, the opinion itself is what finally matters for posterity. (Any amount of explanations did not change the fact that onion prices went up in Delhi and out went the government; that is another story). However, except for the immediate optimism of the likes of Rahul Bajaj, the euphoria of the investing community has not been shared by the industry. It would appear that a ``lobby-free budget'' as the CEO of Crisil-- the country's leading credit agency put it -- does not lend itself to the commendation of lobbies like FICCI and Assocham who have somehow positioned themselves as agencies for extracting concessions from North Block. It is my contention that the corporate sector will gain substantially from the budget rather than getting lost in the detail. And I am not talking about the direct benefits like 100 per cent Modvat pass through, removal of nil duty and the likes.

It is important to first analyse some of the more important measures and then gauge their impact on corporates. The biggest of them all from the attention grabbing point of view not in terms of revenue impact, are surely the removal of tax on dividend paid by mutual funds and the reduction of capital gains tax for Indians to the levels enjoyed by foreigners. The impact of this is expected to be a large accretion of funds for investment in equities companies. The fact that this tax exemption is weighed in favour of equity funds and not debt fundsshows that it is clearly the intention of Sinha that maximum funds should go into equity funds. While the immediate beneficiaries have been the investors who are the ultimate beneficiaries?

The biggest gainers of the sops given to mutual funds in the medium terms will be manufacturing companies. The reason is simple. The real problem facing domestic companies in the last few years has been the paucity of equity. The reasons are several. Firstly the global recession and the opening up of the economy have meant lower profits and free cash flows. So there is just no money to update plant and expand capacity. Further debt equity ratios are coming down making the need for capital even more critical. So when mutual funds get more money to invest they will obviously turn towards domestic companies which have good potential and are undervalued. So, in six months to a year, I see the primary market picking up and domestic companies again entering the capital market. Equally importantly, promoters will find that thewealth loss that has taken place will gradually be compensated. I have known groups which have borrowed heavily against their portfolio of shares finding themselves in dire straits as share prices crashed forcing them to liquidate their holding with the attendant risk of loss of control. Any sops given for making capital markets buoyant will ultimately benefit the issuers of capital, namely Indian firms.

There is also the perception that nothing has been done to stimulate demand. What the corporate sector expected was perhaps some dramatic announcement regarding reduction of excise duty on trucks or cement and some more grandiose plans for infrastructure spending. In my view neither of these would have been good in the long term. Both would have acted like steroids, no doubt, but would have led to a larger fiscal deficit. And as any elementary book on economics will prove, the increase in fiscal deficit will lead to increase in interest rates and inflation thereby negating any good effects that such sopsmay have had. So the other strategies being tried are more likely to work on a long term basis. The first is to make investment in housing very attractive indeed. Lots of incentives have been provided to increase housing activity and this coupled with the repeal of Urban Land Ceiling Act (Ulca) will definitely benefit the recession ridden steel, cement and construction companies apart from serving the larger cause of reducing the housing shortage and providing jobs.

The biggest long-term impact on domestic companies is however the emphasis on agriculture and rural development. While a lot more money is proposed to be spent on these sectors, more importantly the delivery systems for rural development are being totally overhauled. Rajiv Gandhi's famous remark about only 14 paise out a rupee reaching the poor is being hopefully corrected. And as the chairman of Hindustan Lever keeps pointing out to us, it is rural demand that is going to give that big volume growth that recession ridden domestic industry sobadly needs. We achieved a GDP growth of 5.8 per cent in spite of the rest of world growing at two per cent and most of Asia contracting because of the 5.3 per cent growth we showed in agriculture. And that should get translated into demand for manufacture products with a time lag. And if Sinha's strategy of pumping more money into rural development works, Indian industry should see the road to recover much before the start of the next millennium.