In his second budget Finance Minister Pranab Mukherjee has, for the second time running, put more money in your pocket. If you make Rs 5 lakh per annum, your monthly post-tax take-home salary will rise by Rs 1,717 or 4.6 per cent; at Rs 8 lakh per annum, you gain Rs 4,292 or 7.9 per cent.
<b1>Of the 40 million individual taxpayers in India, 60 per cent or 24 million will benefit from this change in slabs.
But that money may not buy you as much as it did. Following increases in excise duties, and the bringing of more services under the tax banner, Mukherjee’s Budget in this high-inflation year will add fuel to the fire of price rise.
With inflation ruling at 8.6 per cent and food inflation at 17.6 per cent, the increase in prices of diesel will have a cascading effect on the prices of other goods and services, compounding the 2 percentage point increase in excise duties.
Mukherjee’s message: here’s the money, now spend.
As we spend, the economy will grow; as it grows the economy will pay; as it pays, taxes will rise and a virtuous cycle of tax-GDP will turn what Mukherjee hopes will bring “into sharper focus the role of government as an enabler”.
Could he have done this without raising prices? Not really. Keeping the economic stimulus running on low duties and taxes would have meant stretching public finances through government borrowings.
Through a partial withdrawal of the economic stimulus, Mukherjee — in a financial year preceding just one election in Bihar (eight months later in October 2010) — has bitten the political-economy bullet.
As a result, the country’s fiscal deficit will fall to 5.5 per cent from 6.7 per cent last year. Even better, targets for the next two years stand at 4.8 per cent and 4.1 per cent.
The Budget brings in a wider perspective than previous finance ministers --- it is in tune with two other documents released on Thursday (the Thirteenth Finance Commission report and the Economic Survey), both of which, riding the assumption of higher growth rates, recommended a calibrated withdrawal of the stimulus, increase in disinvestment targets, move to a more efficient goods and services tax (GST) regime and bringing in a simpler new direct tax code (DTC).
“It will be my earnest endeavour to introduce GST along with the DTC in April, 2011,” Mukherjee said. And while “the government will raise about Rs 25,000 crore during the current year”, his disinvestment projections for 2010-11 stand at Rs 40,000 crore, a 60 per cent rise.
To enable spending in rural areas Mukherjee maintained massive allocations on social sector programmes, of which the UPA aam aadmi flagship, the Mahatma Gandhi National Rural Employment Guarantee Scheme has been given Rs 40,100 crore, an increase of 2.6 per cent.
Through a four-pronged strategy (increased agricultural production, reduced wastage of produce, increased farm credit, and a thrust to the food processing sector) he plans to fix the Achilles’ Heel of the Indian economy --- agriculture and food.
Mukherjee has unexpectedly moved on the policy front as well. More banking licences to private sector players are on offer, a commitment to encourage more special economic zones, and an “apex-level” Financial Stability and Development Council that will look into and address inter-regulatory issues and push for financial literacy.