Front Page

With elections in sight, Chidambaram cannot afford a harsh budget

With Assembly polls due in a number of states during the year-end and the general elections in 2009, it is a foregone conclusion that the Union budget for the next fiscal, to be presented by Finance Minister P. Chidambaram in three days from now, will not be a harsh one, even at worst.

For the simple reason that over the last few weeks, the people’s aspirations of deriving some benefits by way of budgetary goodies have been raised so high through statements by various functionaries of the Congress-led United Progressive Alliance (UPA) government and its coalition partners that anything not matching up to their expectations would perhaps be viewed as a great betrayal. And that’s something that the ruling regime can ill afford, especially when the government is set to unveil its policy programmes and statement of accounts, the fifth and final in its current Lok Sabha term.

In effect, the government will not only have to but also be seen as compensating the ‘aam aadmi’ for the inflationary spiral in food and other commodity prices while mitigating the hardships of the farming community and the rural poor by ushering in various programmes for “inclusive” growth and development. Alongside, while keeping a check on inflation without hurting the growth momentum, ways will have to be devised to provide relief to the labour-intensive export sectors that have been hit by the appreciating rupee against the US dollar. This apart, some incentives will have to be provided to certain lagging sectors of industry that have been pulling down the country’s GDP growth.

First, let’s take the farming community along with the rural poor and the aam aadmi who is not in the tax bracket. With nearly 80 per cent of the population connected with agriculture in some way or the other, it is certain that the Finance Minister will have a number of schemes and packages to improve their plight. Apart from specific credit schemes to wean away small and marginal farmers from the clutches of private money lenders, these programmes would also include massive allocations for the social sector such as health, education and village infrastructure. The terms of trade in agriculture have not been conducive even as it is a known that a farm sector growth of at least 4 per cent is essential to sustain the high GDP growth momentum and, therefore, schemes will have to be in place to make it a profitable activity.

As for the non-taxpayer aam aadmi, the price spiral, especially in food items and other daily necessities, hurts him the most. Keeping this in view, while the government will have to devise measures to rein in inflation to the country’s tolerance level in consultation with the Reserve Bank of India (RBI), the public distribution system (PDS) will have to be rendered more efficient with possibly more items included along with better targeting to benefit the intended beneficiaries. Since global food prices are also on the rise, this may result in a higher subsidy bill on the food front.

For the income-tax payer, there’s good news as fortunately for Mr Chidambaram, the budget targets set for revenue collections through both direct and indirect taxes are sure to be met, if not exceeded. Thus, an increase in the basic exemption limit by Rs 15,000-25,000 is almost a certainty from the current general ceiling of Rs 1.10 lakh and Rs 1.45 lakh for women and Rs 1.95 lakh for senior citizens.

At the same time, there is a likelihood of an upward revision in the taxable income slabs on which the three rates of 10, 20 and 30 per cent are to be levied since the revenue collections are also set to swell with an across-the-board increase in the salaries of Central and state government employees when the recommendations of the Sixth Pay Commission are effected. Needless to say, however, that implementation of the Commission’s recommendations on salary hike in isolation is likely to result in a huge financial burden for both the Centre and the states.

As for the service tax and education cess, more services are likely to be brought under the net along with a revamp in the rate, especially when a uniform GST (goods and services tax) is proposed to be introduced from April 1, 2010. However, in view of the massive resources required for education, the current cess is sure to stay.

The corporate sector would be happy if it is spared an upward revision in tax rates though certain sectors of industry have grievances on some aspects of the fringe benefit tax (FBT) such as tours and travels abroad. The Finance Minister is likely to look into this.

Alongside, while striving to settle the taxation issues pertaining to the special economic zones (SEZs), infrastructure status may be granted to certain sectors such as coal as the core sectors have also been experiencing a slowdown.

On the indirect tax front, the revenue proceeds through customs duty have been high, especially owing to increased imports and the high prices of crude oil in global markets. To end the pricing controversy over the high rates of petroleum products such as petrol, diesel and LPG, a switch is likely from the ad valorem rates of customs duty to specific rates to cushion the cascading effect on the consumer. In this regard, the tax burden on aviation turbine fuel (ATF) may also be looked at to benefit the low-cost airlines and their passengers.

Apart from the usual budgetary revamp of customs and excise duties in keeping with the genuine demands of various sectors of the industry, the excise slabs on certain sectors of manufacturing such as consumer durables are likely to be lowered to energise fresh and replacement demand.

In fact, the housing sector along with consumer durables has pulled down industrial growth in recent times and a course correction is deemed necessary.

© Copyright 2000 - 2009 The Hindu