Abhishek Rungta

Today, Finance Minister P.Chidambaram presented the Union Budget for FY 2008-2009. A full copy can be downloaded by clicking here.

Some highlights of the budget are listed below with my comments:

Revenues

• New tax slabs for Income Tax: No tax for earning less than Rs. 150,000, 10% for Rs. 150,000 to Rs. 300,000, 20% for Rs. 300,000 to Rs. 500,000 and 30% above 500,000. Corporate tax remains unchanged at 30%. Income tax surcharge and education cess remains as it is. This is a clear step to win the fan following of the middle class employee segment where the majority earns below Rs. 500,000.
  
• Five year tax holiday for businesses a) setting up hospitals in tier II and tier III regions for providing healthcare in rural areas, and b) for businesses promoting cultural tourism. This clearly shows that private sector needs to play a major role in rural healthcare and promotion of tourism. Since no mention of SEZ was made in the budget, it seems that SEZ tax sops are here to stay. The much demanded extension on STPI scheme for export oriented IT & ITeS companies did not appear in the budget, which indicates that the scheme might be withdrawn from 1st April 2009.
  
• Short-term capital gains increases to 15%. The Securities Transaction Tax remains in its place and now it cannot be claimed back. In fact commodities Transaction Tax will be introduced on the lines of Securities Transaction Tax. So the quick money that people make by speculating stock market and commodities market will be taxed more! So stop speculating and start investing.
  
• Thank God! The Banking Cash Transaction Tax will be withdrawn from 1st April, 2009. I still cannot believe that this government taxed us for withdrawing money from our bank accounts!
• Cut in Customs Duty, Excise Duty & Central Sales Tax (CST) for some items to bring inflation in control. General CENVAT on all goods will be reduced from 16% to 14%. This has been done to control inflation and bring down the cost. We all look forward to some saving.

So where are they spending all this money!

• Farmers’ debt to be waived at a cost of Rs. 600 billion. A target of Rs 2800 billion for agriculture credit set for the coming year.
  Besides this the rural India gets a bag full of goodies:
  • The corpus for rural infrastructure development has been raised to Rs. 140 billion.
  • Rs 200 billion for irrigation projects under AIPB, showing an increase of Rs 90 billion over last year.
  • Rs 750 million to be given to Agriculture Ministry for providing mobile soil testing laboratories in 250 districts.
  • Rs 6.440 billion for National Agriculture Insurance Scheme, which will be continued pending evolving an alternative crop insurance scheme.
  • NREGA scheme to be rolled out in all the 596 rural districts in the country in 2008-09.
  • Jawaharlal Nehru Urban Renewal Mission to get Rs 68.65 billion this year against Rs 54.82 billion past year.
• Education has got a very special treatment. However the application of last year’s budget allocation for education leaves much to be desired.
  • Twenty per cent hike in education budget this year from Rs 286.74 billion to Rs 344 billion.
  • Sarva Shiksha Abhiyan will be provided at a cost of Rs 131 billion
  • Secondary Education Scheme at a cost of Rs 45.54 billion.
  • 410 additional Kasturba Gandhi Vidyalaya to be set up in backward blocks.
  • Rs. 1.30 billion allocated for opening Navodaya Vidyalayas in 20 districts with special focus on regions having SC/ST concentration.
  • Rs. 7.50 billion more to be given for merit scholarship to students up to 10th and 12th class.
  • Rs 850 million sanctioned for scholarships to students pursuing science education.
  • Mid day Meal scheme extended to upper primary level in 3479 schools. Mid Day Meal scheme to cost of Rs 80 billion
  • Allocation for NRHM increased to Rs 120.50 billion
  • 16 central universities to be opened in 2008-09.
  • Three IITs to be set up in Andhra Pradesh, Bihar and Rajasthan.
  • Schools of architecture and planning in Bhopal and Vijaywada. More institutes of higher education to be opened.
  • Indian Institutes of Science Education and Research to be set up at Bhopal and Thiruvananthapuram.
  • Rs 1 billion to be given to Information Technology Ministry to set up national knowledge centres.
  • Rs. 2 billion for potable water in schools.
  • SC, ST and minority students to continue to get special attention.
• Defense expenditure has been increased by 10% to a staggering Rs. 1056 billion.
• Sixth central pay commission to submit report by March 31, 2008. It is expected to announce a hefty hike in salaries of government employees. There is no proper performance management system for government employees and they take the public and tax payers for a ride in most cases.

But, what is this?

• What irks me is an attitude towards playing the political card of religion and caste by allowing special incentives / packages to minorities and specific castes. I do not see any reason for having this in a civilized, democratic society.
  • Rs. 750 million sanctioned for Rajiv Gandhi National Fellowship Programme for SC/ST students pursuing M.Phil.
  • Rs. 2.30 billion will be extended as additional equity to developmental organisations looking after the welfare of Scheduled Cast / Scheduled Tribe, socially and economically backward classes and minorities.
  • Allocation for Minority Affairs Ministry to be doubled from Rs 5 billion to Rs 10 billion.
  • Rs 5.40 billion for multi-sectoral development plan for minority concentration districts.
  • 288 public sector bank branches to be opened in districts having minority community concentration.
• Fiscal deficit is 3.1%
• Revenue deficit is 1.4%
• GDP growth slows down to 8.4 per cent during quarter ended December 31, 2007 as compared to 9.1 per cent a year ago.
• Tax to GDP ratio increased from 9.2 per cent in 2004-05 to 12.5 per cent 2007-08.

Verdict

The budget is definitely a populist budget targeting the Lok Sabha Elections in 2009. It has given a lot of impetus for inclusive growth besides buying out a large vote bank for UPA Government. They have won the heart of farmers, employees and businesses! The badly hit has been the service sector and few manufacturing industries. But at the end you cannot make everyone happy! Unfortunately I have been on the other side, being an owner of an IT service company.