New Delhi, Feb 28: Finance Minister P. Chidambaram Thursday presented a please-all budget with a 30 percent hike in plan expenditure, lower deficit and a one-time tax on the rich, while focusing on three main constituencies that can vote his government back to power in the next general elections — women, youth and poor.
You’ll have to shell out more for your smokes, the fuel-guzzling sports utility vehicles will cost more and the smart-phone will attract higher excise, but what will please the masses — read “voters” given the impending elections — is that outlays for virtually every welfare scheme, covering urban areas to the hinterland, have been vastly hiked.
What also makes all this seem like a dream is that the finance minister also promises to refrain from profligacy with a fiscal deficit target set at 4.8 percent of India’s gross domestic product, against 5.2 percent in the current fiscal, without an across-the-board hike in direct and indirect tax rates or slabs.
“All flagship programmes have been fully and adequately funded,” the finance minister said in his 105-minute speech, setting aside Rs.16.65 lakh crore (Rs.16.65 trillion or $300 billion) for the next fiscal towards plan and non-plan expenditure.
The proposals were welcomed by Prime Minister Manmohan Singh. “Given the formidable challenges facing our economy, the finance minister has done a commendable job,” the prime minister said of his cabinet colleague, once hailed for what has come to be known as a “dream budget” he presented in 1997.
“The finance minister has taken important steps to reverse pessimistic mood with regard to investment climate, with regard to the growth potential and the possibilities of our economy,” the prime minister said, even as the opposition said it was a wasted opportunity.
The small tax payer, earning between Rs.200,000 to Rs.500,000 per annum, gets a Rs.2,000 rebate, while the affluent will be imposed a super rich tax that amounts to a surcharge of 10 percent on an annual income of over Rs.10 crore.
For average taxpayers, there are other take-aways: Additional rebate on home loans for first-time buyers, two-year extension of the Rajiv Gandhi Equity Scheme for first-time investors with higher limit of Rs.1.2 million, and launch of inflation-indexed bonds.
In the case of home loan deduction scheme, the benefit could be as much as Rs.30,000 for tax payers in the upper bracket. This apart, those returning from abroad can bring goods worth Rs.50,000 duty-free in the case of men and Rs.100,000 in the case of women.
“In a constrained economy, there is little room to raise tax rates or large amounts of additional tax revenues. Equally, there is little room to give away tax revenues or the tax base. It is time for prudence, restraint and patience,” the finance minister said.
Chidambaram, who now has eight budgets to his credit, equalling the track record of his predecessor Pranab Mukherjee, now the president, also made some specific remarks in his 105-minute speech, aimed at various constituencies, both within and outside India.
For women, he promised an exclusive public sector bank to cater to them, with an initial corpus of Rs.1,000 crore ($180 million), as also a Nirbhaya Fund, named after the recent Delhi gang-rape victim, for those abused in one form or the other.
A reward of Rs.10,000 under the skill development programme for the youth whom he called “impatient and ambitious”, representing the aspirations of the people, and a promise of a pan-India roll-out of the direct cash transfer scheme by next year for the poor.
To investors, domestic and overseas, Chidambaram promised to remove any distrust on any undue regulatory or tax burden, along with an environment of quick decisions, since he held investments as the key to reviving the growth of an economy.
“Investment is an act of faith,” he said, adding: “Doing business in India must be seen as easy, friendly and mutually-beneficial.” He also said overseas borrowings and equity investments were the only options to finance the high current account deficit.
“That is why I have been at pains to state over and over again that India at the present juncture does not have the choice between welcoming and spurning foreign investment. If I may be frank, foreign investment is an imperative,” he said.
At the same time, the finance minister promised action on infrastructure development and said steps will be taken to invest the promised $1 trillion during the current Five Year Plan on roads, ports, highways, waterways, energy and industrial corridors.
These proposals were praised by industry. “The budget will revive manufacturing sector which had come under stress. The biggest take-away is the investment allowance,” said the Associated Chamber of Commerce and Industry (Assocham).
Overall, the direct and indirect tax proposals are expected to yield Rs.18,000 crore
But the markets were none-too-pleased and the sensitive index (Sensex) of the Bombay Stock Exchange (BSE) fell 1.5 percent with hikes in suscharge on corporate tax and dividend distribution tax seen as major dampeners.
The finance minister also made several promises: A pilot programme to promote micro-nutrients, a National Livestock Mission, inflation-indexed bonds, a new corporate tax avoidance tax from 2016, a direct tax code and a new bill for a pan-India goods and services tax this session.
The finance minister felt India, now faced with some serious chaqllenges, was already the world’s 10th largest economy, and had the potential to scale higher to the eighth or the seventh position by 2017. Any economist could tell that, he said.
“By 2025, we could become a $5 trillion economy, and among the top five in the world. What we will become depends on us and on the choices that we make.”
(Arvind Padmanabhan can be reached at firstname.lastname@example.org)