Any increase in direct taxes will reduce disposable income and consequently demand for consumer goods, which will have a cascading effect on the capital goods industry. Any cut in capital spending by the government will add to the woes of the capital goods industry. Despite recession, the budget has to boost infrastructure investment, ensure a level playing field for the domestic industry and have a tangible strategy for public sector.

Infrastructure is now being opened to the private sector due to financial stringency of the state. But despite the government's steps to attract private sector investment, the response has been lacklustre due to low returns,policy opacity, procedural bottlenecks, high transaction costs and legal hurdles. The Rakesh Mohan committee's `India Infrastructure Report' has suggested a whopping investment of Rs 4,000 to Rs 4,500 billion over 1996-97 to 2000-01, which would rise to about Rs 7,500 billion over 2001-02 to 2005-06. But the implementation of the report is hamstrung for want of resources.

In the power sector, the committee suggested an addition of 18,000 MW between 1996-97 to 1998-99. But the addition is unlikely to exceed 9,000 MW. The 1998-99 outlay for power assumed much of the investment funded though Internal & Extra Budgetary Resources (IEBR) - essentially funds raised by public sector undertaking on their own. The efficacy of raising resources of that order had always been subject to doubt owning to systemic constraints. In the roads sector, the committee estimated that between 1996-97 to 1998-99, an investment of Rs 14,985 crore is required for development alone against which only Rs 5,057 crore has been invested.The budget estimate for 1998-99 assumed receipt of Rs 790 crore through a levy of cess on petrol.

The outlay for the development of national highways was to be channelled through the National Highway Authority of India (NHAI). This fledgling institution is in need of strengthening to absorb this intensity of investment. In the ports sector, the committee envisaged an increase in traffic at the ports from over 250 million tonnes now to over 650 million tonne by 2005-06. But the Ninth Plan however sees an additional capacity of 159 million tonnes at the major ports at an estimated cost of Rs 16,000 crore. This will take the total port capacity to only 374 million tonnes by the end of the plan period. The only redeeming feature in the infrastructure is the telecom sector. The committee suggested an investment of Rs 43,000 crore against which an investment of Rs 36,010 crore has been made. A unique feature of telecom sector is that after an up front investment, the resources for growth can be mobilised throughinternal generation. The telecom sector is comparatively better off than any other facet of infrastructure. It could grow a the rate of 20 per cent for the next five years, then by the year 2001; it would rank among the world's largest telecom networks. Greater infrastructural allocation is extremely essential. The `India Market Demographics Report 1998' says, "Lack of electricity infrastructure is the single major factor explaining the rural-urban differential in penetration of consumer durable goods. In 1995-96, 42 per cent of the difference in penetration level between the two years could be explained by this factor."

The market slowdown emphasises the dire need to provide a level-playing field for the domestic industry. In capital goods industry, the growth in Index of Industrial Production has been a dismal 5.2 per cent in 1997-98. Though the first nine months of 1998-99 evoke optimism, it needs certain measures to give impetus to the industry. This sector is dogged by cheap imports and imports ofsecond hand machinery. It is essential that such imports should be discouraged. Further, levies on capital goods components should be lower than on assembled machines. Zero duty imports of capital goods should be abolished. Sops are necessary to promote investment in the industry.

In the public sector, budgetary support is required till they are privatised. Prior to privatisation, the allocation to National Renewal Fund either for voluntary retirement schemes or human resource development needs to be accorded priority. The budget this year is a test for the finance minister's ingenuity to meet conflicting demands of various sections. This is also a time when the industry is in the midst of a shakeout, when disillusionment has sunk into the psyche of the majority and when the government's credibility is suspect in the people's eyes. Will the finance minister make lofty pronouncements only to rescind later under pressure from lobbies?