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Emphasis on agriculture, social sectors

Friday 9 July 2004, by MUKHERJEE*Alok

NEW DELHI, JULY 8. In a well-crafted budget presented in Parliament today, the Finance Minister, P. Chidambaram, has managed to re-orient the Government’s policies and programmes to suit the priorities outlined in the Common Minimum Programme (CMP) of the ruling United Progressive Alliance, while simultaneously taking on board industry and the foreign investors.

Expectedly, there is emphasis on the poorer sections of society, agriculture and rural development. A section of the taxpayers have got some income tax relief. But a two per cent education cess has been levied on all taxes - income, corporation, excise and customs duties and service. The Minister said it was not possible for him to extend concessions to other sections in a year when the Government had assumed additional responsibilities. But he promised a "re-look" in the next Budget if tax compliance improved. The 2 per cent cess is expected to yield about Rs 4,000-5,000 crores in a year.

Mr. Chidambaram has not increased the exemption limit for income tax; nor has he changed any rates or slabs. The only relief is that those having a taxable income of up to Rs. 1 lakh annually will not have to pay any tax. For those with a taxable income of above Rs. 1 lakh, the existing liabilities remain, plus the two per cent cess.

However, there will be no change in the rate of interest on small savings such as the Public Provident Fund, the General Provident Fund and the Special Deposit Scheme where some money of the Employees Provident Fund and all of them will attract an eight per cent interest this year. Senior citizens will have special bonds fetching a return of nine per cent. There is change in the corporate tax rates too.

Indirect taxes

It is a mixed bag on the indirect taxes front, resulting in lower prices for some items and an increase for some others. For instance, tractors, computers, dairy machinery and hand tools such as spades, shovels, sickles etc., will be cheaper. Also cheaper will be rehabilitation aids such as talking books, Braille computer terminals, Braille writers and typewriters, assistive listening devices, cochlear implants, crutches, walking frames and artificial limbs.

Diagnostic kits for detection of all types of hepatitis, ambulances and stair lifts will also be cheaper. LPG stoves with prices up to Rs. 2,000, footwear costing up to Rs. 250 and writing instruments up to Rs. 200 in value will also be cheaper. The textile industry, which was plagued by confusion over imposition of Cenvat has been provided relief.

Interestingly, platinum imports will now attract a lower duty while the rough coloured precious gemstones have been totally exempted.

Items which will now cost more include contact lenses, vacuum flasks, scented supari, prefabricated buildings, black and white TV sets, imitation jewellery, candles and watches.

The service tax rate has been increased from 8 per cent to 10 per cent and the coverage expanded from the current 58 services to cover some more. Thus, business exhibitions, airport services, services provided by transport booking agents, transport of goods by air, survey and exploration services and opinion poll services will now be subject to tax. Also included are intellectual property services other than copyright, brokers of forward contracts, pandal and shamiana contractors, outdoor caterers, independent TV and radio programme producers, construction services in the case of commercial or industrial constructions and risk premium component of life insurance services.

Moving away from the fiscal front, the budget provides an additional Rs. 10,000 crores to implement some of the schemes and programmes of the CMP. The Planning Commission has been entrusted with this amount and once the Central Ministries and Departments reformulate their projects in line with the CMP policies, additional funds would be made available.

The promise of putting in place an Employment Guarantee Scheme has been reiterated and till such time the scheme is formalised, a food-for-work programme will be launched in 150 most backward districts. Funds for this programme would be garnered from the schemes already under implementation and some Rs. 6,000 crores is said to be available. The Universal Health Insurance Scheme for the poor is to be reworked and the premium reduced and the Government intends to provide Rs. 40 crores as subsidy.

Investment commission

While sticking close to the CMP, Mr. Chidambaram’s budget is not short on the reforms side. An investment commission has been proposed to solicit and encourage both domestic and foreign investment which would also facilitate potential investors in implementing their plans.

The foreign direct investment limits in the insurance, civil aviation and telecom sectors are to be raised and foreign institutional investors (FIIs) would have simpler procedures while operating in the stock markets here. The long-term capital gains tax on share transactions has been replaced by a turnover tax.

Mr. Chidambaram has not shied away from disinvestment of the public sector undertakings (PSUs) either, taking credit for a Rs. 4,000-crore collection this year. While the CMP stand of not privatising profit-making PSUs has been maintained, the Minister announced offloading five per cent of its equity in the National Thermal Power Corporation.

Other measures under consideration include exercising the call option in BALCO and some other PSUs. The budget also proposes a board for the reconstruction of public sector enterprises, which will advise the Government on measures to restructure the ailing units. The restructuring proposals would include disinvestment and closure or sale.

Despite the emphasis on social infrastructure, the fiscal picture of the budget is not distorted since the Minister has restructured most of the existing schemes towards the new priorities.

The additional revenue through direct taxes is estimated to be Rs. 2,000 crores this year while his indirect tax proposals would be broadly revenue neutral. The Plan expenditure for 2004-05 is expected to be Rs. 1,45,590 crores while the non-Plan expenditure would be Rs. 3,32,239 crores. Revenue receipts are estimated to be Rs. 3,09,332 crores and revenue expenditure Rs. 3,85,493 crores, leaving a deficit of Rs. 76,171 crores - equivalent to 2.5 per cent of the gross domestic product - one percentage point below the corresponding estimate of 3.5 per cent in 2003-04.

With the total expenditure expected to be Rs. 4,77,829 crores, the fiscal deficit is estimated to be Rs. 1,37,407 crores or 4.4 per cent of the GDP.

Incidentally, this is the exact percentage of fiscal deficit estimated in the interim budget presented in February this year by the then Finance Minister, Jaswant Singh, while Mr. Chidambaram’s revenue deficit is lower than the 2.9 per cent estimated then.

Alok Mukherjee

See online : The Hindu

P.S.

in The Hindu, Friday, July 09, 2004.

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