Reformist Indian Budget has a Bit for all - Households to Corporates
By Arvind Padmanabhan
New Delhi, Feb 28 (IANS) India's Rs.12.58 lakh crore (Rs.12.58 trillion or $280 billion) federal budget for 2011-12 Monday sought to address the want of every constituency with tax relief to cheer households and corporates alike while also promising fair doses of reform on subsidies and foreign investment along with measures to curb inflation, check corruption and push growth.
Seemingly aware of polls due soon in five states and the overall downbeat sentiment on issues such as graft, Finance Minister Pranab Mukherjee also proposed more money toward health, infrastructure, education, farming and even defence, and outlined a strategy to bring back black money stashed abroad all this with a check on fiscal deficit.
In a 110-minute budget speech in the Lok Sabha, the lower house of parliament, Mukherjee said he proposed to enhance the income tax exemption limit to Rs.1.8 lakh (Rs.180,000 or $4,000) for the next financial year, from Rs.1.6 lakh, and said corporate tax surcharge will be lowered to 5 percent from 7.5 percent
He also proposed a "very senior" category of income tax payers, above the age of 80, for whom the tax exemption will be up to Rs.5 lakh. In addition, he lowered the qualifying age limit for senior citizens to avail of tax cuts to 60 years from 65 years.
While announcing these give-aways, Mukherjee also promised to bring down fiscal deficit to 4.6 percent of India's gross domestic product (GDP) from 5.1 percent of GDP in the revised estimates, while hiking allocation for education by 24 percent, health by 20 percent, infrastructure by 23 percent and defence by 11 percent.
Nobel Laureate Amartya Sen and other economists have been calling for an increase in social structure spending to bridge India's huge inequities.
His proposals for a new subsidy regime on farm nutrients and direct cash transfers to the users of fertilisers and kerosene addressed a long-pending reform, aimed to ensure these doles reach the needy and are not diverted illegally -- an issue that caught the national attention when an oil official was killed by kerosene mafia in Maharashtra.
At the same time, the finance minister's proposals could push up the costs of domestic and overseas air travel, dining at air-conditioned restaurants that serve liquor, stay in hotels that charge over Rs.1,000 per day and health check-ups in hospitals with air-conditioning and more than 25 beds.
"As en emerging economy, with voice on the global stage, India stands at the threshold of a decade which presents immense possibilities. We must not let the recent strains and tensions hold us back from converting these possibilities into realities," the finance minister said in his largely uninterrupted speech.
He set the tone for what was his sixth budget by stating that India had bounced back after the global financial crisis with broad-based growth even as inflation remained a matter of concern, especially food prices - even though it had dipped from over 20 percent - to around 7 percent now.
This apart, he said the foreign direct investment policy was being revamped, which may result in the entry of multinational firms in the country's $300 billion retail trade industry, apart from promising to liberalise norms for pension, insurance and banking sectors.
"We are reaching the end of a remarkable fiscal year. In a globalised world, with its share of uncertainties and rapid changes, this year brought us some opportunities and many challenges as we moved ahead with steady steps on the chosen path of fiscal consolidation and high economic growth," he said.
"Our growth in 2010-11 has been swift and broad-based. The economy is back to its pre-crisis growth trajectory. While agriculture has shown a rebound, industry is regaining its earlier momentum. Services sector continues its near double-digit run. Fiscal consolidation has been impressive," he said.
The proposals drew immediate praise from Prime Minister Manmohan Singh, who was particularly pleased with the decision to hike tax income tax limit. "The finance minister deserves congratulations for maintaining a high growth rate despite the adverse international economic climate."
Mukherjee also laid significant emphasis on the institutional framework in rural and semi-urban areas by hiking outlays for rural banks and micro-finance units, while promising 11 food parks and major initiative for cold chains.
This time around, the finance minister also, perhaps, had an eye on the stock markets as well, as he allowed all registered mutual funds to accept money from foreign investors and hiked the cap on investments in infrastructure bonds and intra-fund trading during lock-in period.
The markets, cheered the proposals, lifting the sensitive index (Sensex) of the Bombay Stock Exchange (BSE) by over 500 points, before it settled an hour before closing bell at 17,832.12 points, with a gain of 131.21 percent, or 0.74 percent.
On the tax front, the finance minister proposed to keep the excise duty rates virtually unchanged, even as 130 items were included in for a nominal duty of 1 percent. The customs duty rates, however, were retained at existing levels.
The finance minister said concerned remained over inflation, public delivery of goods and services and inclusive growth. "To address these concerns, I do not foresee resources being a major constraint, at least not in the medium-term."
FM Promises Reforms, Growth-focus, Inflation-check
New Delhi, Feb 28 (Agencies) : Finance Minister Pranab Mukherjee reached Parliament House here Monday to present the federal budget for the ensuing fiscal and his sixth such exercise in a long political career.
With a fair dose of reforms in the form of direct kerosene and fertiliser subsidies to users, Finance Minister Pranab Mukherjee Monday presented the federal budget for 2011-12, promising to check inflation and corruption and push growth.
Stating that India had bounced back after the global financial crisis with broadbased growth, he said inflation remained a matter of concern, especially in food prices, though it had dipped from over 20 percent to around 7 percent now.
The finance minister also said more allocations were being made during this fiscal for areas such as agriculture and education, in a bid to reap the demographic dividend that is already seeing India having the largest working population in the world.
This apart, he said the foreign direct investment policy was being revamped, which may result in the entry of multinational firms in the country's $300 billion retail trade industry, apart from liberalising the norms governing pension and insurance funds.
"We are reaching an end to a remarkable year with high growth and many challenges. Our growth in 2010-11 has been swift and broad-based. Economy is back to pre-crisis growth trajectory," Mukherjee said in his opening remarks.
"In the medium term, our three priorities of maintaining high growth trajectory, making development more inclusive and improving our institutions remain relevant," the minister added.
This is the sixth such exercise for the 75-year-old politician. He tabled three budgets between 1982 and 1984. The one unveiled Monday was the third successive one for the United Progressive Alliance (UPA) government.
Expectations were high from both households and the corporate sector as this budget is being presented against the backdrop of high inflation, fluctuating industrial growth, erratic exports and a general perception that the reform process has retarded.
"I do not foresee resources being a major constraint, at least in the medium term," Mukherjee said, referring to the money needed to address the larger agenda of growth, social programmes and infrastructure development.
He said the farm sector had shown a rebound with 5.4 percent growth, industry was regaining its earlier momentum and services continued to grow at double digits. He added that fiscal consolidation too was impressive.
Following are the highlights of his speech:
* Infrastructure critical for development; 23 percent higher allocation in 2011-12.
* Rs.30,000 crore to be raised through tax-free bonds.
* Food storage capacity to be augmented - 15 more mega food parks to be set up in 2011-12; of 30 sanctioned in previous fiscal, 15 set up.
* Cold storage facilities to be recognised as infrastructure sector.
* Comprehensive policy on further developing PPP (public-private-partnership) model.
* Farmers need access to affordable credit.
* Moving to improve nutritional security.
* Necessary to accelerate production of fodder.
* Number three (third consecutive budget) may be lucky for me.
* Women's self-help development panel to be set up.
* FIIs can invest $40 billion in corporate bonds.
* Rs.100 crore equity fund for microfinance companies.
* Mortgage risk guarantee fund to be created for economically weaker sections.
* Housing loan limit for priority sector lending raised to Rs.25 lakh.
* Agriculture growth key to development: Green Revolution waiting to happen in eastern region.
* Growth at 8.75 percent to 9.25 percent in 2011-12.
* Bills on insurance, pension funds, banking to be introduced.
* Gap between wholesale and retail prices not acceptable.
* Setting up independent debt management office; public debt management bill to be introduced in parliament.
* Seek Lord Indra's blessings for good monsoon.
* Introduction of goods and services tax will improve compliance.
* Bill on goods and services tax in current session.
* Expenditure has to be oriented towards production of goods and services.
* Government committed to retaining 51 percent stake in public sector enterprises.
* FDI policy being liberalised.
* Current account deficit at 2009-10 levels.
* Corruption a problem we have to fight collectively.
* Development needs to be more inclusive.
* Stronger fiscal consolidation needed.
* Setting tone for newer, vibrant economy.
* Economy has shown remarkable resilience to external and internal shocks.
* Economy back to pre-crisis trajectory.
* Set pace for double digit growth.
* Total food inflation declined to less than 9 percent in January.
* Could have performed better.
Air Travel to be More Expensive
Travelling by air is set to become costlier with Finance Minister Pranab Mukherjee increasing service tax on air travel in the union budget for 2011-12 presented in parliament Monday.
"I propose to raise the service tax on air travel by Rs.50 in the case of domestic air travel and Rs.250 on international journeys by economy class," Mukherjee said.
The minister also increased the service tax by 10 percent on business and first class travel only on domestic routes to bring the fares at par with international journeys in similar categories.
In July last year, the ministry had put a cap on service tax in case of domestic flights at 10 percent of the total value of the ticket, or Rs.100 per travel, whichever is less, and 10 percent of the gross value of the ticket, or Rs.500 on international travel by economy class.
Budget Leaves IT Sector Unimpressed
The information technology (IT) sector is disappointed at Finance Minister Pranab Mukherjee's union budget for 2011-12 for not extending tax incentives and hiking the Minimum Alternate Tax (MAT).
The IT sector in Hyderabad, a key IT hub in the country, feels the finance minister failed to meet its expectations, especially on the demand to continue tax incentives to small and medium enterprises under the Software Technology Parks of India (STPI) scheme.
B.V. Mohan Reddy, head of IT sector committee of the Confederation of Indian Industry (CII), Andhra Pradesh chapter, told reporters that medium and small businesses were put at a disadvantage by Mukherjee's silence on extending tax benefits.
"We had given a number of representations to the finance minister but we feel that he has not met our expectations. We wanted Sections 10A and 10B to be extended one more year, at least for small and medium businesses," he said.
Reddy, who is also the chairman and managing director of Infotech Enterprises, said after the direct tax code (DTC) comes into effect April 1, 2012, the direct benefits will automatically disappear.
"The finance minister was silent about it, which made us believe this particular tax incentive 10A and 10B will no longer be applicable and this has put small and medium businesses into a disadvantageous position," he said.
The IT and IT-enabled services (ITeS) sectors also criticised the hike in MAT from 18 to 18.5 percent. Reddy said that since the MAT was also applicable to all special economic zone (SEZ) units, the hike was a disadvantage for them.
The sector had already put forward its argument before the finance minister that globally the MAT was not more than one-third of the corporate taxation.
"Even assuming that corporation tax is at 34 percent or 34.5 percent, we believe that MAT should not have been more than 10 or 11 percent," Reddy said.
The sector had also sought some clarity on agreements with various countries for avoidance of double taxation, and feels these expectations have not been met.
Finance Minister Has Done a Good Job: PM
Prime Minister Manmohan Singh Monday said Finance Minister Pranab Mukherjee has "done a good job" by presenting a growth-oriented and inclusive budget.
"The finance minister deserves congratulations for maintaining a high growth rate despite the adverse international economic climate," Manmohan Singh said in an interview to the national broadcaster Doordarshan.
He did not agree to the observation that there was not much for the corporate sector in the budget.
Asked why there was no amnesty scheme to unearth black money, the prime minister said such schemes had not succeeded in the past.
The issue has to be dealt with in a "permanent and holistic manner", Manmohan Singh added.