Even though the budget has shown major concentration on agricultural and rural sectors, there is some good news for service sectors like insurance, telecom and aviation. But it is not cheerful for banking and financial services. The inclusion of more services in the purview of service tax is also a blow to the service sector. This article attempts to examine the positive and the negative impact of budget proposals in the service sector.
The budget 2004-05 raises service tax from 8 to 10%. In addition to the 58 services, which have been brought under the services tax net so far, the budget expands this list to include 13 additional services. They include business exhibition services, airport services, services provided by transport booking agents, transport of goods by air, survey and exploration services, opinion poll services, intellectual property services other than copyright, brokers of forward contracts, pandal and shamiana contractors, outdoor caterers, independent TV/radio program producers, construction services in respect of commercial or industrial constructions, and life insurance services to the extent of the risk premium.
According to Crisil, a credit-rating firm, the budget proposals will have a marginally negative impact on the banking and financial services. It suggests that the revision of norms for the repayment of rural housing loans by banks to coincide with the crop cycle will lower the reported NPA. However, earlier changes in the norms for repayment of agricultural loans and the government's intention to double agricultural credit in three years will lead to a deterioration in the risk profile of the sector. According to KR Choksey Shares and Securities, a Mumbai-based stock brokerage firm, the increase in credit exposure to agriculture can be a drag on spreads in the absence of appropriate credit and risk assessment system.
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