India’s populist budget cuts taxes, hikes social sector spendingFebruary 29th, 2008 - 6:43 pm ICT by admin
New Delhi, Feb 29 (IANS) Presenting a Rs. 750,884 crore ($185 billion) election budget with massive allocations for social sectors and a blanket loan waiver for farmers, India’s Finance Minister P. Chidambaram Friday gave significant relief to tax payers but fewer sops to industry which was expecting another “dream budget” from him. The one-time loan waiver of a whopping Rs.600 billion ($15 billion) to cover an estimated 40 million farmers was among the main highlights of the Chidambaram’s fifth straight budget - a feat which he said had equalled that of Prime Minister Manmohan Singh who as finance minister presented five reform-oriented budgets during 1991-1995.
He said even though various agencies had predicted an economic growth of 8.7 percent for the current fiscal, he was optimistic of achieving 8.8 percent, with services and manufacturing being its main drivers.
“The Indian growth story so far has been an absorbing and inspiring tale,” he said, but expressed disappointment at the pace of expansion of the farm sector, despite a fine start in agriculture at the beginning of this fiscal.
Some of the finance minister’s main proposals included a hike in the exemption limit on income tax, that should please the middle class, similar sops to women and senior citizens and a reduction in peak central value added tax (Cenvat) from 16 percent to 14 percent to benefit some sections of industry.
For the corporate sector, while he sought to keep the direct tax rate unchanged, some sops in indirect taxes in the form of lower customs and excise duties were proposed for specific industries like automobiles and pharmaceuticals.
His proposals are expected to result in some items like cigarettes, both filter and non-filter ones, becoming costlier - a boost for the strong anti-tobacco lobby - while some others like small cars, breakfast cereals, pharmaceuticals, American diamonds and sports goods will become cheaper.
“Once upon a time India, together with China, accounted for 50 percent of the world’s output. We must regain our position and it is within our capacity to do so,” the finance minister said in his 105-minute speech to the Lok Sabha, lower house of parliament.
“Our work in government is, every day and every hour, a discovery of the path to reach our goals: Full employment, abolition of poverty and elimination of inequality,” he said, outlining the budget’s priorities.
“These goals can only be achieved by a considerable increase in national income and our economic policy must therefore aim at plenty, and equitable distribution. We must produce wealth, and then divide it equitably.”
As the finance minister began to read his speech, it became clear that the focus this year would be on populist schemes - particularly in the backdrop of forthcoming polls to several states and the general election, either later this year or next year.
He said the National Rural Employment Guarantee Scheme, a flagship government welfare scheme that was launched by Manmohan Singh to guarantee 100 days of employment to one member of family in some 300 districts, would be extended to the entire country.
“Education and health are the twin pillars on which rests the edifice of social sector reforms,” he said, as he stepped up the outlays for the two areas by 20 percent and promised 6,000 high-quality model schools across the country.
He also announced three new Indian Institutes of Technology for Bihar, Andhra Pradesh and Rajasthan, 16 central universities in various states, two schools of architecture and scholarship schemes for the socially underprivileged people.
Chidambaram also spoke of challenges facing the economy, especially inflation, and said the increase in capital flows from overseas was adding to the problems that required better management of such money in the short term.
“Keeping inflation under check is one of the cornerstones of our policy,” the finance minister said, adding his government would remain vigilant and make swift adjustments to ensure growth with price stability.
He, however, said that farm credit had doubled in the past two years, proposed a finance corporation for irrigation and water resources to fund major projects in these two areas, and proposed a massive loan-waiver scheme that will benefit 40 million mainly “small and marginal” farmers.
“All agricultural loans disbursed by scheduled commercial banks, regional rural banks and cooperative credit institutions up to March 31, 2007 and overdue as on December 31, 2007 will be covered under the scheme,” he said.
This move alone is estimated to cost the system Rs.600 billion ($15 billion).
With India set to making massive orders for military hardware over the next few years, the finance minister also stepped up defence allocation by around 10 percent to Rs.1,056 billion ($26.5 billion).
“I have assured the raksha mantri (Defence Minister A.K. Antony) that any further amount needed for defence forces, especially for capital expenditure, will be provided,” he said.
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