About the tax on IT industry, it appears that the ministry in its need tocast its net wide could not resist the temptation to trap this boomingindustry. The finance minister extending the benefit to other software unitsin the STP next day is a clear indication that the North Block mandarins hadnot done their home work.

Unfortunately, Sinha can ill-afford to roll back an ill-thought out scheme.The Government should bring out a white paper on its stance on exportindustries. That should consider what impact the measure would have on thepharma, leather and diamond exports and should examine what the proposalswould do to exports, future contingencies etc. And most importantly, do thetax gains offset the other disadvantage and risk the economy would be put toon the trade front?

Research and new product innovation in the pharma industry is no lessenterprising than in the software industry. If anything, it requires muchmore initiative and risk-taking. This industry will now be punished fortrying to catch up with global standards - simply because their activitycannot be isolated to be one of export processing zone. The pharma industryhas started establishing its credentials. Such research would add much tothe country's stature in terms of the nation's standing, besides providingemployment. The Indian entrepreneurs would have developed full-growncapabilities in pharma research, albeit with foreign collaboration. Thatkind of initiative needs encouragement, not road-blocks.

Pharma technology, research and export all come under one umbrella ofactivity. By imposing the export tax, the government will drive awayinitiative. In the same vein, it robs the Indian companies to cash in on thesale of their new molecules. The leather industry is operating in anever-competitive global market. And put all these together, we are not agreat exporting nation. And when the nation was pressed for foreignexchange, these industries were wooed and encouraged. Now that the ITindustry is a run-away success, the ministry seems to be in a tearing hurryto catch all export industries in their tax net. And what a greatdisappointment it must have been, to realise later that all the big fish arein the export processing zone!

The industry has been biting the bullet for the last three years. It hasbeen coping with global competition. It tightened its belt, streamlinedoperational efficiency and took the M&A to fight the survival game. In fact,it was only because of such measures that it was able to post decentoperational profit uptil now. Despite the low level of inflation, theindustry did not raise its product prices much. Competition too made thisrather difficult. Yet, the profit track it has put up has tempted thegovernment to tap it for more revenue.

Sinha would find it convenient to rationalise excise duty by upgrading mostof the goods to the 16 per cent mark. It is certainly not convenient formany companies. It is no surprise that the Britannia scrip is moving down.

It was introducing several new products in the market. The story is nodifferent for HLL. FMCG companies will be left with no choice but to raiseprices. This could put breaks to their efforts to widen their markets andproduct range. The Government would certainly stand to gain by the excisehike, but the size of the cake, I am afraid, is not going to get bigger.A number of consumer goods have been put on the free list and will attract apeak duty of 35 per cent. The local manufacturers will now have to brace upfor the competition.

The dividend tax on corporates, mutual funds and UTI has been increased from10 per cent to 20 per cent. This will result in slowing down of savings tomutual funds. This, coupled with downsizing of long positions is exertingbearish load on the markets. The software stocks are the only ones that areattracting market attention and for obvious reasons. Not shackled bydomestic considerations, these companies look at the big markets availableglobally. So, it is no surprise that there is such a stampede in thesecounters.

But as to other sectors, they would get re-rated. That would happen becausethe budget has not only nipped at their profitability, but also offersnothing for future growth. The budget is superfluous and has failed toaddress the serious issues. There are no concrete measures in containinggovernment expenditure, nor any move toward setting up an expenditurecommission. With fiscal budget ballooning every year, there is reason tofear that the industry will always be under threat of increasing taxation.

The reduction in PPF interest rate earlier and now on GPF, to be followed byfurther lowering of savings interest rates will set the alarm bells inconsumer minds. Once that happens, they will tighten their purse strings.Spending will shrink and this would restrict topline growth for corporates.In turn, government revenues will go down, or not grow as expected. In fact,the GDP may not grow as projected. It would appear that the results of stateassembly elections have toned down the government's will power to embark onharder reforms. What is saddening is that this government has four years togo in its term and has lost a golden opportunity.

It has plans to sell off good PSUs, which could have been improved to getbetter revenues. They would most likely be sold below their real value andthen be left with even less productive assets. The budget is found to be agross one, with its eye only on revenue. There is nothing to suggest thatthe present government is striving to build a stronger India. If anything,it is so scared of being robbed of its Parliamentary power that it has putits survival ahead of nation's long term health. With no long-term resolveseen in political quarters, is there any surprise why the markets havenosedived?