InfoAnda - ANALYSIS: Playing it safe with the budget

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Yahoo! My Yahoo! Mail More Yahoo! Services Account Options New User? Sign Up Sign In Help Yahoo! Search web search Home Singapore Asia Pacific World Business Entertainment Sports Technology Weekend Edition Australia China India Indonesia Japan Malaysia Philippines Thailand Vietnam ANALYSIS: Playing it safe with the budget ANN - Monday, March 7 Send IM Story Print Kuala Lumpur (The Star/ANN) - Annual budgets of the central government of India no longer carry the same weight for the national economy. Post-liberalisation, with a gradual integration of the Indian economy in the global economic system, a finance minister is left with very little leeway to re-order its thrust and direction. In the days when the government was a major player, accounting for some 80% of the total investments in the economy, annual budgets were key financial documents. With government investment down to less than 20% of the total, the role of the Budget has shrunk considerably. This year the Finance Minister had to frame his budget under severe political constraints. The government was on the back foot due to several corruption scams. In these circumstances, no finance minister could risk a hard budget. The veteran politician that he is, Pranab Mukherjee steered clear of all controversial proposals to present what a leading economist called a "do-nothing budget." He did not tinker with the personal income tax rates. Nor did he touch the corporate tax rates. If he gave relief in direct taxes to the tune of a little over US$2.2bil, he imposed fresh levies to collect about that much amount through indirect taxes. To the pleasant surprise of corporate India, he did not restore the old slab of minimum 12% excise duty, choosing to retain it at 10% even though the economy had emerged from the slowdown following the global financial crisis on 2008-09. The excise duty was reduced as part of a stimulus following the global financial crisis. What enthused the economic pundits was his assertion to keep the revenue deficit under control. Given the rise in government expenditure, there were fears that Mukherjee may not be able to contain the deficit within reasonable limits. The Budget pegged the deficit for the current financial year at 5.1% of gross domestic product. The Finance Minister could moderate the deficit because of the windfall the government had earned from the auction of the 3G spectrum. For the next financial year, he proposed a deficit of 4.6%. Given the huge subsidies on food, fertiliser, fuel, and the nation-wide employment guarantee schemes, most economic experts believe that Mukherjee had erred on the side of excessive optimism. His strategy also depended on the economy growing at a decent 9% clip in the coming year as well, thus creating a buoyancy in tax revenues. Besides, he banked on mopping up nearly US$9bil through the sale of shares in public sector companies. Also, the budget figures appeared suspect because Mukherjee had relied on expenditure reduction rather than on revenue mobilisation when there was growing evidence of larger spends on subsidies and welfare schemes. However, like all finance ministers, Mukherjee sought to please the large middle class by marginally raising the tax exemption limit to US$3,800 from the earlier US$3,400 and reducing the minimum age for senior citizens for availing a higher tax exemption limit of US$5,200 from 65 years to 60 years. A new category of very senior citizens of 80 years or more was created who shall enjoy a tax exemption of US$10,400. Women taxpayers already enjoy a marginal concession in tax rates. The highest income tax slab for income above US$16,700, however, remained unchanged at 30.09%. The Finance Minister made some welcome promises. Among them was the commitment to introduce a direct tax code and a uniform country-wide goods and services tax with the approval of the states and Parliament. The promise not to borrow more from the market also enthused the share markets, since it would reduce pressure on liquidity. A major promise was to replace the existing subsidies on kerosene and fertilisers by cash payments. The idea was to reduce the leakages of subsidies into the wrong hands. Overall, the consensus among the economic pundits was that the sixth budget of Mukherjee -- his first was way back in 1982 as Finance Minister in the Indira Gandhi government -- was a disappointment. It was more a holding operation than an imaginative reordering of the country's balance sheet. There was no big idea, no provision for the current oil surge in the Middle East. Even on controlling the growing menace of black money, the Finance Minister had nothing new to offer. Commented the well-respected financial daily Business Standard: " ...in opting for caution, so typical of UPA-II (ruling United Progressive Alliance-II), Mukherjee has erred and missed an opportunity to find a place in the history books." 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