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Budget taxes rich, helps poor

         New Delhi: The communist-backed government unveiled billions of rupess in spending for the poor on Thursday in an expansionary first budget that taxes the rich but did little to tackle a nagging deficit. Finance Minister P Chidambaram's cautious budget was less inflationary than some analysts had feared but, as expected, included no major measures to cut the worrying fiscal deficit, seen as a challenge to sustained high economic growth. Instead, it relied largely on growth - targeted at 7 to 8 percent for the year to March 2005 - to bring the deficit down to 4.4 percent of gross domestic product (GDP) from 4.6 percent.

          Share markets gave a thumbs down to the budget, with traders particularly upset over a move to impose a 0.15 percent tax on transactions, and the benchmark Mumbai index closed down 2.3 percent at 4,843.84.

         Announcing a raft of programmes for education, health, jobs to farmers and housing, Chidambaram said boosting investment and business was vital to achieve his growth target and to fight poverty. "Planned expenditure for 2004-2005 is as I said, estimated 1,4590 crore as against Rs 1,22,149 crore in provisional actuals for 2003-2004, while there is an increase in the planned revenue expenditure from Rs. 78,537 crore in 2003/04 to Rs. 91,843 crore. There is an even sharper and welcome increase in planned capital expenditure from Rs. 43,612 crore in 2003/04 to Rs. 53,747 crore," said Chidambaram. The rupee was largely steady, but the main Mumbai stock index surrendered early gains on increased investment in the power and telecoms sectors when Chidambaram announced a new turnover tax on share trading to replace a capital gains tax.

            Chidambaram did not tax those with an annual income of less that 1,00,000. "No one with a taxable income of 100,000 will be required to pay any income tax anymore. It was not easy to reach this decision. While the tax rates are moderate, it is the tax slabs which cause concern. However, I am unable to alter the tax slabs because I cannot afford to lose a large amount of revenue at a time when the government has assumed a larger responsibility for investment and welfare programmes," said Chidambaram. But the 2004/05 budget contains few concrete measures to boost investment. It imposes a 2 percent levy on all taxes, an additional 10 percent surcharge on people earning more than $19,230 a year and lifts corporate taxes by an extra 2.5 percent.

           Chidambaram's budget increases spending in the current fiscal year by Rs. 100 billion over the previous government's interim budget in February, largely to deliver the Congress-led coalition's promised "new deal" for rural India, which brought it to power. Most of the measures were largely expected, including a rise in tax on services - which account for 50 percent of GDP - to 10 percent from 8 percent and the abolition of some excises, including those on tractors and computers.

          Amid a nascent peace process with Pakistan, Chidambaram announced a major jump in defence spending, an almost 17 percent increase from the interim budget to 16.8 billion dollars to modernise the world's fourth largest military. "It has become neccessary to make a higher allocation this year. Accordingly, I propose to increase the allocation for defence from 65,300 crore in Budget Expenditure 2003-2004 to Rs. 77,000 crore, which includes an allocation for capital expenditure of 33,483 crore as against Rs. 20,953 crore in Budget Expenditure last year," said Chidambaram.

          But there were no major surprises or shocks. Many of the measures were largely expected, including a rise in tax on services -- which account for 50 percent of GDP - to 10 percent from 8 percent, the abolition of some excises, including those on tractors and computers, and a revival of a rural infrastructure fund with $1.7 billion. Chidambaram did not impose a service tax on road transport, which would have stoked inflation in the vast nation, as analysts had feared. But he increased excise on steel. In addition to the new taxes, some government spending will be reallocated to pay for the new measures, but Chidambaram was vague on details.

          The budget raises foreign investment caps in the telecommunications, insurance and aviation sectors, and increases - but did not specify - investment in state power and telecoms firms. It also reduces tariffs, increases farm sector credit and plans a new container port terminal in the south. Prime Minister Manmohan Singh said the fiscal deficit would remain at a reasonable level. "This budget brings about fiscal consolidation in the sense that the revenue deficit has been reduced by full one percentage point and the fiscal deficit is at a reasonable level of 4.4 percent. It is our intention to wipe out the revenue deficit over a period of next five years," Singh told reporters after the budget presentation.

Budget at a glance (Go To Top)

          New Delhi: Finance Minister P Chidambaram presented this year's general Budget in Lok Sabha today. Following are some of the major highlights: * No excise on handlooms and power looms * Withdrawal of CENVAT on textile, industry to have new tax regime * Full excise exemption on computers * No excise duty on dairy machinery, tractors and hand tools * Peak rate for customs duties to be retained at 20% * Excise duty on steel raised to 12%, will also hit auto-industry * Debt oriented mutual funds to be taxed * Customs duties on various health-related items reduced or removed * Customs duties to be reduced in a structured manner, taxes to be aligned with ASEAN countries * Gifts from unrelated persons above Rs 25,000 to be taxed * Tonnage tax option for shipping companies * No taxes on profits in all new agro-processing industries * No income tax on family pension of widows of defence personnel * Service tax net to be expanded * Tax exemption limit raised to Rs 1 lakh per annum, no change in tax slabs * Fiscal deficit estimated as 4.4% of estimated GDP * Total expenditure estimated at Rs 4,77,829 crore, include non- plan expenditure of Rs 3,32,239 crore * Government to increase defence allocation from 65,300 crore to 77,000 crore * Government to set up Backward States Grant Fund with a corpus of Rs 25,000 crore to be provided over 5 years * Senior citizens to get 9% interest rate on small saving schemes * Loans to states to carry reduced interest rate of 9% * Special economic package for Bihar, J&K and Northeastern states * Bihar to get a package of Rs 3,225 crore * Report on subsidies to be tabled in Parliament * No change in existing interest rates on small savings * Interest rates to be aligned to the market * Subsidy assistance for SSIs to be raised from 12% to 15% * 85 items to be taken out of small-scale reserved list * New bill on regulation of special economic zones * Government to divest stake in state firms to fund social schemes * More credit to be made available to small scale and cottage industries * FDI limit in insurance sector raised from 26% to 49% * FDI limit in civil aviation hiked from 40% to 49% * FDI limit in telecom sector hiked from 49% to 74% * Government to establish Investment Commission to attract foreign capital Port infrastructure to be developed * Rs 2,610 crore to be provided for rural drinking water * Rs 40,000 crore to be made available to banks for lending to infrastructural projects * Government committed to give insurance to farmers * Better price support and superior seeds for oilseed farmers Agricultural cooperatives to be encouraged * Government to launch national horticulture mission on the lines of the Anand model * Rs 30,000 crore to be spent per year on water-related projects * New project to repair, renovate and restore all water bodies under special package for rural irrigation * Upgrading of 500 ITIs across the country Government to enhance investment in industry to create more jobs * Government to provide more housing for the poor * FM announces food subsidy of Rs 25,800 crore * FM allocates an additional Rs 10,000 crore for expenditure Doubling of agriculture credit in three years * Cess of 2% for education and midday meal * Government to ensure that children remain in school for at least eight years * Government to guarantee 100 days of work per year to one person of every family every year * Chidambaram calls for focus on rural infrastructure * Planning Commission to reorient approach to planned development * Government`s aim is to provide growth, stability and equity * Government aims to eliminate revenue deficit by 2008-09 * Focus on agriculture and fiscal consolidation * Chidambaram calls for 7-8% GDP growth * Government to follow a five-year roadmap to achieve common minimum programme * Government to raise plan expenditure to Rs 1,45,540 crore

Budget highlights  (Go To Top)

* Tax exemptions on home loans to stay
* Cars may cost more, excise on steel up four percent
* Computers, fabrics to cost less
* Gifts above Rs 25,000 from unrelated persons taxed
* Custom duties to be brought down
* 0.15 percent tax on stock deals
* No tax on income upto 1 lakh
* No change in Income-Tax slabs
* Fiscal deficit at 4.4 percent of GDP
* Rs 77,000 cr allocated for defence
* Bihar to get Rs 3,220 crore assistance
* No change in interest on small savings
* Govt to invest in core sector PSUs
* FDI in telecom, aviation and insurance increased
* Two percent cess for mid-day meals and education
* 100 days of work guaranteed for jobless
* Revenue deficit to be eliminated by 2008
* Wheat, rice prices may increase.

Budget in tune with CMP, says Ficci (Go To Top)

          New Delhi: Leaders of industry cheered the expansionary first budget by the leftist-backed government as it vowed to foster investment to maintain a strong economic growth, cut fiscal deficit and doled out billions of dollars of new spending for the poor. Finance Minister P. Chidambaram's budget was less inflationary than some analysts had feared but, as expected, included no major measures to tackle a worrying fiscal deficit that is seen as a challenge to sustained high growth. Instead, it relied largely on growth - targeted at 7 to 8 percent for the year to March, 2005 - to bring the deficit down to 4.4 percent of gross domestic product (GDP) from 4.6 percent.

          Federation of Indian Chambers of Commerce and Industry (FICCI) said the budget conformed to the basic objectives of the ruling coalition's agenda for governance. "I would describe it as a budget consistent to the common minimum programme, a budget that has brought into Indian consciousness the agricultural sector, the purchasing power in agricultural sector, which then stimulates industiral growth. In terms of rationalisation of taxes, Chidambaram has done a little bit but in the next budget you will see large scale rationalisation," Amit Mitra, general secretary of FICCI told reporters in New Delhi.

         The rupee was largely steady, but the main Mumbai stock index surrendered early gains on increased investment in the power and telecoms sectors when Chidambaram announced a new turnover tax on share trading to replace a capital gains tax. Most of the measures were largely expected, including a rise in tax on services -- which account for 50 percent of GDP -- to 10 percent from 8 percent and the abolition of some excises, including those on tractors and computers. Chidambaram did not impose a service tax on road transport, which would have stoked inflation in the vast nation, as analysts had feared. But he increased excises on steel. The Congress-led coalition government relies on communist support and the budget included massive social spending for the millions of poor who unexpectedly swept it to power in May.

          Announcing extra spending of 100 billion rupees, Chidambaram imposed a 2 percent tax surcharge to raise up to 1.1 billion dollars for extra education spending and a revival of a rural infrastructure fund with 1.9 billion dollars. Analysts also said the government could struggle to implement its ambitious social programmes -- including a "new deal for rural India -- because of the country's inadequate infrastructure and glacial bureaucracy. India's combined federal and state fiscal deficit is almost 10 percent of GDP, one of the highest levels in the world.

Budget not upto expectations: Vajpayee (Go To Top)

           New Delhi: Former Prime Minister Atal Bihari Vajpayee today said that the Budget presented by Finance minister P. Chidambaram were not upto the expectations and the government doesn't have enough resources to fulfil its promises."It is a mixed Budget and inflation would only increase. I don't think the nation's economy would improve." Referring to the projects started by his government, Vajpayee said, "The Manmohan Singh government is absolutely silent on the golden quadrilateral and the East-West and North-South Highways."

CPI opposes increase in FDI (Go To Top)

          New Delhi: The Communist Party of India (CPI) has strongly opposed the Budget proposal to increase the FDI cap in three key sectors of telecommunication, insurance and aviation and threatened to take to the streets on this issue. "We are opposed to it. The Trade Union leaders are meeting on Monday. We shall first speak in Parliament on this and then take the issue to the streets," said CPI MP Gurdas Dasgupta.