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Chidambaram dedicates Budget to India's poor

In the Union Budget, the FM boosts spending on key growth drivers, reports Ravi Srinivasan.

business Updated: Mar 01, 2007 04:04 IST
Ravi Srinivasan

Finance Minister Palaniappan Chidambaram on Wednesday used the fiscal elbow room provided by a booming economy and rising tax collections to deal with the twin challenges of political setbacks for his government in recent elections and rising pressure on prices.

In the Union Budget for 2007-08 he boosted spending on key growth drivers, while slashing taxes on key commodities to fight inflation, and unveiled a slew of measures targeted at India's rural poor.

Agriculture took up the bulk of the finance minister's speech — he justified the attention by quoting his favourite poet Thiruvalluvar – "If ploughmen keep their hands folded, even sages claiming renunciation cannot find salvation."

Stating that boosting agriculture was "imperative" for policy planners, Chidambram hiked planned outlays for the sector to almost a third of the entire budget.

Stressing the need for greater access to cheap farm credit, the minister said an additional 5 million farmers would be brought within the banking system in the next fiscal, with additional fertiliser subsidies and a targeted water subsidy scheme for "especially distressed districts".

He also announced a new scheme called 'Aam Admi Bima Yojana', which will provide death and disability insurance through LIC to landless rural households. The government will bear half the premium of Rs 200 per year per person, with the balance being funded by the states.

Social sectors also got a major boost, with spending on social welfare by nearly 22 per cent.

Chidambaram left personal and corporate income tax and most indirect taxes virtually unchanged, while announcing a 21 per cent jump in government spending.

With a booming economy expected to drive tax collections up by almost a fourth, the finance minister provided some relief to taxpayers by marginally increasing the exemption limit for income-tax by Rs 10,000. This, he said, will "reduce every taxpayer's burden by Rs 1,000."

However, this was offset by an additional one per cent education cess on all taxes, to fund a massive 34.2 per cent jump in spends on primary education, scholarships for the underprivileged, and enhancing employability of youth.
The news was not so good for the markets, which reacted negatively to a 2.5 per cent increase in dividend distribution tax and the imposition of a 'minimum alternative tax' on India's booming and hitherto untaxed IT sector. Even as the finance minister was speaking, the Sensex tanked more than 500 points, reacting in a major way also to a meltdown in global markets.

Chidambaram also brought employee stock options, pioneered by the IT sector but now used across industry, under the ambit of the fringe benefit tax.

However, he removed a major irritant by fixing the income tax Permanent Account Number (PAN) as the sole identifier for all market transactions.

While upping spends on critical infrastructure like ports, roads and power by 40 per cent to Rs 134,000 crore, Chidambaram shifted policy focus on the agriculture sector and the rural poor.

At the end of the day, the countryside was smiling, and Bharat had grabbed the lead role into the Great Indian Growth Story.