Union Finance Minister P Chidambaram on Thursday presented what appeared to be a holding operation Budget for the next financial year, optimistic that the economy will stage a turnaround soon to improve the ruling United Progressive Alliance’s fortunes before the general elections to the Lok Sabha in April-May next year.
A strong proponent of market economic reforms, Chidambaram curbed his instincts and offered very little by way of sops to the corporate sector, which had hoped that the budget would offer fiscal incentives to revive economic growth. The budget did bring a sigh of relief as the minister, by and large, maintained existing direct and indirect tax rates.
Presenting his eighth budget in the Lok Sabha, Chidambaram also avoided angering individual tax payers. He left income tax rates and the tax slabs untouched. In a token gesture of goodwill, the minister announced a tax relief of Rs 2,000 to individual income tax payers drawing income up to Rs 5 lakh.
But he almost neutralised the revenue loss on this account by imposing a 10 per cent surcharge on the super rich who have an annual taxable income of Rs 1 crore and above. But the surcharge, he assured, will be levied only for one year. Obviously, the minister was hoping that the economy will revive for him to withdraw the surcharge.
He announced a small succour to first-time home buyers on loans up to Rs 25 lakhs with his proposal to allow an additional tax deduction on interest up to Rs 1 lakh. This, he also hopes, would revive the realty sector.
The minister made a couple of announcements for women’s welfare. He said that the country’s first women’s bank will be set up with Rs 1,000 crore capital. Also, referring to the recent Delhi gang-rape victim, the minister announced that a women’s welfare fund - called Nirbhaya Fund - with a corpus of Rs 1,000 crore will be created.
Hope was all too evident in Chidambaram’s budget speech. He began his speech expressing confidence that the economy will get on to a high growth path of 8 per cent. The minister is expected to get an opportunity to present another budget before the next Lok Sabha elections, though it would be treated more as a vote-on-account affair.
But there wasn’t much in the Finance Ministry’s budget documents to support his hope. According to these documents, the economy grew by a disappointingly low rate of 4.5 per cent in the October-December quarter.
His dilemma was that he could not impose additional tax burden on the tax payer as it would be politically counter-productive. He could not also forego taxes as the coffer has already been stressed. “If I had increased the (tax) slab, a large number of people would have come out of the tax net,” Chidambaram said, addressing a post-budget press conference later in the day.
On the indirect tax front, Chidambaram maintained status quo on excise, customs and service tax rates, keeping these at last year’s level. This came as a relief to the anxious business community and the consumers alike.
Chidambaram hoped that the stability of tax rates would give a push to falling investment and boost investor confidence in the economy. However, if the post-budget stock market movement is anything to go by, that sentiment may be difficult to come by. Sensex shed over 290 points at the end of the day’s trading.
To bring some additional revenue to the dwindling coffer, Chidambaram proposed duty hikes on items such as cigarettes, mobile phones priced above Rs 2,000, imported luxury vehicles and air-conditioned restaurants. Excise on cigarette goes up by 18 per cent and SUVs from 27 to 30 per cent.
The minister said his tax rationalisation measures will yield an additional revenue of Rs 13,300 crore through direct taxes and another Rs 4,700 crore in indirect taxes - in all Rs 18,000 crore.
Over all, the minister’s hopes will have to come true for his budget proposals to hold. Despite the fact that the revenue collection in the current fiscal actually dropped by over Rs 60,000 crore against last budget’s estimates, Chidambaram projected a whopping revenue increase of Rs 1,84,000 crore in the next fiscal.
That appears highly unlikely if the economic growth rate does not pick up in a dramatic way. Like in the current fiscal, the casualty in such a case could be his projections of plan expenditure, including capital expenditure on defence. In the current fiscal, as per the minister’s revised budget estimates, the plan expenditure was reduced by over Rs 55,000 crore.
That the economy will have to perform as the minister seemed to have hoped in his budget was also evident from Prime Minister Manmohan Singh’s reaction to the budget. While patting Chidambaram’s back, Singh too said the economy will have to return to high growth path of 8 per cent.
Outside the strict budget purview, Chidambaram made some announcements to take care of the creaking infrastructure. He said Rs 50,000 crore will be raised through tax-free bonds in the sector. He also announced banking services through post offices and made a proposal to raise the income limit for Rajiv Gandhi Equity Saving Scheme for first-time investors from Rs 10 lakh to Rs 12 lakh to spur household savings.
And, to dissuade people from importing of gold, the budget proposed to introduce inflation-indexed bonds.
Chidambaram promised to bring the much-awaited Direct Taxes Code Bill in the Budget session of Parliament and expressed hope that the Goods and Services Tax (GST) bill will soon become a reality.
* No change in income tax slabs
* Relief of Rs 2,000 for tax payers in income bracket of Rs 2-5 lakh
* 10 pc surcharge on people with taxable income of over Rs 1 crore
* First home loan of up to Rs 25 lakh to get extra interest deduction of up to Rs 1 lakh
* Duty free limit of gold import increased to Rs 50, 000 for male passengers and Rs 1 lakh for female passengers
* India’s first women’s bank to be set up by October
* ‘Nirbhaya Fund’ of Rs 1,000 crore to empower women and provide safety
* Fiscal deficit of 2013-14 pegged at 4.8 pc of GDP and 5.2 pc in 2012-13
* Plan expenditure pegged at Rs 5,55,322 crore and non-plan at Rs 11,09,975 crore
* Defence allocation Rs 203,672 crore
* Education Rs 65,867 crore
* Rural development Rs 80,194 crore
What it means to you
* Mobile phone handsets priced above Rs 2, 000
* Sports utility vehicles
* Imported cars and high-end vehicles priced over $40,000
* Imported bikes with engine capacity of 800cc and above
* Imported yatch and motorboats
* Dining at air-conditioned restaurants
* Sales of immovable property worth over Rs 50 lakh
* Home/flats with a carpet area of 2,000 sq ft or more or of a value of Rs 1 crore or more
* Marbles for flooring
* Silk clothes produced using imported raw materials
* Set-top boxes
* Parking fees|
* Branded apparel
* Precious stones
* Imported hazel nuts and dehulled oat grain
* Sabudana (tapioca sago)
* Truck chassis