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Tax India, fund Bharat
Bharat wanted more and India had little to give. Walking the tightrope between the two was FM. Highlights » | Have Your Say
Bharat wanted more and India had little to give. Walking the tightrope between the two on Thursday was Finance Minister P. Chidambaram. In the 2004-5 Union budget he presented before Parliament, the minister struck a fine balance. He fed farmers with the rhetoric of change and soothed city-dwellers with a policy of continuity. But he also signalled to the world that reforms were alive and kicking.
The government will extract an ounce of flesh from the urban tax-payer. But Chidambaram gave as well as took. The 2 per cent cess on income tax, customs and excise will slightly lighten pockets in urban India. A bigger and badder service tax will expand price tags on everything from airline tickets through insurance premia to telephone bills. But the tax burden on 14 million Indians whose taxable annual income is Rs 1 lakh or less will be reduced to zero paisa and one sheet of paper. Small-saving interest rates also remain untouched.
There was a lot more rhetoric than actual rupees when it came to the New Deal for farmers. The finance minister talked long and green. More rural credit. More crop insurance. Zero excise on tractors. Tax breaks for agro-processing and irrigation. But actual funding was limited. Thus the initial outlay for "a massive scheme" to rejuvenate all water bodies for farmers was only Rs 500 crore.
Not that everyone was happy.
The Manmohan Singh government's uneasy relationship with Dalal Street continued. An unexpectedly high securities transaction tax sent the Sensex zigzagging, at the end of the day 112 points down. The left, which wanted a Robin Hood budget, grumbled the rich hadn't been soaked enough.
Chidambaram sent signals and avoided commitments. The reasons seem clear.
The government can't throw money around because of the financial guillotine built into the Fiscal Responsibility and Budget Management Act. It can't liberalise too much because of the common minimum programme. And, finally, as the finance minister repeatedly stressed in his speech, the budget will be passed in three months, leaving barely six months more in the financial year. A three-corner tightrope.
What was impressive was that despite all this, he announced a couple of radical reforms. Walking where the NDA had feared to tread, he raised FDI levels to 74 per cent in telecommunications, and 49 per cent in insurance and civil aviation. The Indian debt market is also more open to foreign funds. Potentially, the planned Investment Commission may end up offering the greatest opportunity to the foreign investor.
Not that the budget was without the odd tip of the hat to bald politics. Tightrope walking again. The most obvious was a gratuitous Rs 3,225 crore gift to the Bihar, placing it in the same category as Kashmir and the Northeast. Message: bad governance is the fiscal equivalent of insurgency. Tamil Nadu, courtesy the DMK, received a gift-wrapped desalination plant for Chennai.
But the budget was embedded with odd flashes of foresight. At the year's end the WTO will turn the global textile trade into a feeding frenzy. Chidambaram offered an alternative to the cumbersome Cenvat system to help prepare India's textile industry for the big bang.
The government also put its money where its mouth was when it came to education. Chidambaram promised a direct transfer of cess to classrooms. This is one area where India and Bharat both pay and both benefit — if the funds are used wisely.
This was almost another interim budget. Chidambaram was in the business of indicating where his government planned to go. So, on his favourite subject of tax reforms he said, "Seven months from now there will be another budget, and there will be an occasion to visit the subject of tax reforms." When it comes to the UPA's economic policy, watch this space.
