Finance minister Pranab Mukherjee is likely to give tax concessions to the salaried class and offer incentives to farmers in his Budget 2011-12 on Monday to give relief from high prices and keeping an eye on elections in five states.
It is widely expected that the Budget will raise the income tax exemption limit to Rs. 1.80 lakh from the current Rs. 1.60 lakh per annum.
The finance ministry is already committed to raising the exemption limit to Rs. 2 lakh per annum in the Direct Taxes Code (DTC) which is to be implemented from April 2012.
Mukherjee may also consider raising the limit for investment in tax-free infrastructure bonds to give a boost to the fund-starved sector. Investments up to Rs. 20,000 in infrastructure bonds enjoy tax exemption now.
Experts said with fiscal deficit projected to come down sharply to 4.8%, the finance minister would have some leeway to provide these tax concessions.
The Economic Survey 2010-11 presented in Parliament projected fiscal deficit at 4.8%, down from the budget estimate of 5.5% for the current fiscal.
With five states -- Assam, Tamil Nadu, Puducherry, Kerala and West Bengal-- heading for polls, it is unlikely that Mukherjee would completely roll back the stimulus and come out with harsh measures to increase government revenues and bring down fiscal deficit, experts said.
Mukherjee's third consecutive budget is also expected to increase the credit flow to the farm sector.
On tax rationalisation, Mukherjee had said, "The sustained growth has been possible due to rationalisation of tax structure, improvement in tax administration and persistent efforts of the employees of Income Tax department."
Inflation has remained above the comfort level for most part of the current fiscal and will be another focus area for Mukherjee.
The overall inflation at 8.23% is higher than the comfort level of the Reserve Bank at 5-6%. Food inflation had also touched at a high of 18.23% in December, but moderated to 11.49% in mid-February.
Industry fears that Mukherjee may roll back some of the stimulus to fight inflation. Moreover, the Survey had also projected the economy is recovering fast and is expected to return to the pre-crisis growth rate of 9% in 2011-12.
Stimulus package provided by the government at the time financial meltdown helped India grew by 6.8% in 200809, and by 8% in 2009-10.
The economy grew by 8.9% in the first half of 2010-11.
But the tax incentives and higher public expenditure also pushed up the fiscal deficit to 6.3% in 2009-10. In the Budget 2010-11, Mukherjee had estimated fiscal deficit to be Rs. 3,81,408 crore.
Even as there could be some decline in government revenue due to higher exemption limits, Mukherjee would pin hopes on increased economic activity with a high growth rate of 9% to bring in money to Centre's kitty.