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Get ready for 10: FM

If there is no bad news in finance minister P Chidambaram's budget, there isn't much good news either. An exercise that rocks no boat, Budget 2005-06 is a boom-time budget. So the taxation is light, duty concessions widespread, and new projects numerous.

india Updated: Mar 04, 2006 22:00 IST

If there is no bad news in finance minister P Chidambaram's budget, there isn't much good news either. An exercise that rocks no boat, Budget 2005-06 is a boom-time budget. So the taxation is light, duty concessions widespread, and new projects numerous.

All, as Chidambaram in his speech and the Prime Minister later to media said, geared to take the GDP growth trajectory to 10 per cent from 8.1 per cent now.

Everybody gets something in this budget. The deprived populace, the corporate sector and even the Left. It is debatable how much of the Leftist agenda is reflected in the budget, but it does appear that Chidambaram has not displeased them either.

Plenty of new programmes -- in the rural, social and education segments and the public sector -- will make them happy. At the same time, the finance minister has done nothing that will not please the corporate sector. Even a little pinprick in the shape of a marginal addition to tax on stock trading, has not rattled the mighty stock market.

The common man, too, should be happy. Very little has been taken away from him just as very little has been given to him. The tax axe doesn’t cut too deep. Income-tax and corporate tax remain where they are —- in the interest of “stability” of rates. Yet, by the end of the next fiscal, the government will mop up Rs 6,000 crore extra. Much of this will undoubtedly come from the ever-widening service tax net. So far, 81 services have been in this net. In his latest swoop, Chidambaram has not only added 16 more services, mainly in the high-end, but also raised the rate from 10 to 12 per cent.

The much maligned fringe benefit tax stays, though in a more benign form. This will surely stifle the loud protests from the corporate sector since last year’s budget which ushered in this “innovative” tax. He has refused to remove another irritant, the cash withdrawl tax, saying this is one effective way of tackling black transactions.

Another way he plans to catch big spenders who don’t pay taxes is by forcing a PAN card on them when they go shopping for goods priced in the stratospheric range.

One of the legacies of past budgets is gone: the one-by-six criteria for filing returns. This did help widen the tax base but was a big bother.

On the macro front, the minister has sought to cut back the fiscal deficit — the amount the government has to borrow to meet its expenses — to 3.8 per cent of the GDP from the current year's 4.1 per cent. Global credit rating giant Standard & Poors has hailed this and has indicated that continued fiscal discipline would help raise India's sovereign rating. It has endorsed the focus on sustained spending on education, health and infrastructure.

In his quest for 10 per cent growth, Chidambaram is not banking on the corporate sector alone. The budget appears more holistic than most will give him credit for. He promises to unleash new projects and infuse fresh funds in up-and-running programmes across the country. Of them the most important are the scheme for cheap micro credit for farmers, money incentives for the girl child to stay in school, and gigantic infrastructure projects that encompass roads, ports and power stations.

Farming has received focused attention. The idea is to consolidate the turnaround achieved in farm produce with a growth of 2.3 per cent. To this end, farmers will get loans at 7 per cent. A mind-boggling Rs 175,000 crore will be available as cheap loans to small and medium farmers.

The finance minister sums up the objective: "The assault on poverty and unemployment continues. I believe that growth is the best antidote to poverty… Growth will be our mount; equity will be our companion; and social justice will be our destination."

Hand in hand with the rural sector, the corporate sector is expected to deliver on the strength of new initiatives for it. For example, new benefits have been given to textiles, food processing and leather — all of which have a rural linkage — as also to petroleum, chemicals, petrochemicals, pharmaceuticals, biotech and automobiles. Three investment regions are to be set up to attract world class developers in petroleum and petrochemicals.

Trust Chidambaram never to fail the stock market. This time round, a key concession that allows investments abroad and in global companies should make the mutual fund industry more flexible and vibrant. At the same time, a nudge has been given to the funds to go for more equity investments. That should have a rub-off effect on the market and should be good news to the average investor.

But if you were looking for pointers to more reforms, this budget offers nothing. A day after the Economic Survey spoke of reforms, disinvestment and FDI, the budget said not a word on these points.

Which is just as well, since many of the Centre's partners are going to the polls later this year. To that extent, the Left agenda has been served.