The Budget
Finance Minister Palaniappan Chidambaram presented the union budget for 2008/09 on Friday, the fifth and final full one of the administration before elections due by May 2009.
Following are highlights and key quotes from the budget speech.
MAIN POINTS:
Total plan spending in 2008/09 seen at 2.4 trillion rupees ($60.3 billion). Non-plan spending seen at 5.07 trillion rupees.
Government to waive debts of small farmers. The total cost of the farm debt waiver scheme will be 600 billion rupees.
Fiscal deficit1 in 2008/09 seen at 2.5 percent of GDP2 compared to 3.1 percent of GDP in the previous year.
Revenue deficit3 seen at 1 percent of GDP in 2008/09 compared to 1.4 percent of GDP the previous year.
Government confident of GDP growth of 8.8 percent in 2007/08.
Keeping inflation under check is a cornerstone of government policy. There is pressure on domestic prices from food articles.
"There is pressure on domestic prices, especially the prices of food articles. Management of the supply side of food articles will be the most crucial task in the ensuing year," he said.
There is a need to manage capital inflows more actively.
Government to use fiscal policy to stimulate industrial growth.
SPENDING PLANS
Government to increase defence spending by 10 percent in 2008/09.
2008/09 budget education spending to rise 20 percent.
2008/09 budget health spending to rise 15 percent.
2008/09 spending on National Rural Employment Guarantee Scheme seen at 160 billion rupees.
Urban infrastructure spending to rise to 68.7 billion rupees.
Rural infrastructure spending will be 140 billion rupees.
Government spending on national highways will be 130 billion rupees.
Food subsidies will cost 327 billion rupees in 2008/09.
FARM SECTOR
Farms of up to 2 hectares will have a complete waiver of loans.
Debt waiver scheme will cover 500 billion rupees of loans.
All agricultural loans disbursed by scheduled commercial banks, regional rural banks and cooperative credit institutions up to March 31, 2007, and overdue as of Dec. 31, 2007 will be covered under the scheme.
Implementation of farm debt scheme will be completed by June 30, 2008.
Government determined to be self-sufficient in food grains.
"The ministry of agriculture has estimated the total output of food grain in 2007-08 will be 219.32 million tonnes and that will be an all-time record," he said.
Farm credit target at 2.8 trillion rupees.
Government sets aside 200 billion rupees for irrigation.
Government will give special attention to coconut, cashew and pepper sectors
Government to give 400 million rupees for special purpose tea fund.
Crop insurance scheme will be introduced. Weather-based crop insurance scheme to continue.
"While these ongoing programmes will raise the level of investment in agriculture, I think we need an ambitious scheme of a much larger proportion to revive agriculture," he said.
"Having carefully weighed the pros and cons and having taken into account the resource position, I place before this house a scheme of debt waiver and debt relief for farmers."
DUTIES
Government sees no changes in peak rate of customs duty.
Government to reduce general Cenvat4 (central value-added tax) to 14 percent on all goods.
Excise duty5 on pharmaceuticals sector cut to 8 percent.
Excise duty on small and hybrid cars to be cut. Excise duty on two- and three-wheelers cut to 12 percent from 16 percent.
TAXES
Income tax threshold raised to 150,000 rupees.
Tax to GDP ratio in 2007/08 seen at 12.5.
Government proposes increasing short-term capital gains tax to 15 percent and a commodity transaction tax for futures.
Government proposes to withdraw banking transaction tax from April 2009.
No change to corporate tax rates.
Five-year tax holiday for hospitals.
POWER SECTOR
Government will introduce coal and power sector reforms.
Government to create national fund for transmission and distribution of power.
BUDGET VIEWS
Mr.P.Chidambaram presents a daring budget.
Agriculture and Infrastructure have been sectors where the budget has given more importance in the past. Even now the trend continues. With his daring budget Mr.Chidambaram has touched every section of the vote bank. Signals are clear for the forthcoming elections. Congress has done its best to please the mass but how far it is going to benefit our economy in the long run is a big question mark. By waiving a massive farmer loan he may have addressed the problem temporarily but our finance minister has completely forgotten the golden saying “It’s better to teach a man to catch a fish rather than giving him a fish”. Banks will be under great pressure because this waiver will increase their tall list of non- performing assets.
The big bonanza for the middle class people is the income tax relief and sales tax reduction on the consumer durable goods. Definitely this will help the middle class section in the short term but inflation is going to be a great concern.
Health sector is given a huge boost by giving a five year tax holiday. India needs such kind of measure to improve our health sector. Demerit goods are discouraged which is a good sign.
Corporate taxes have increased, manufacturing and IT industries have been neglected in the budget.
Tax on capital gains have increased resulting in discouragement in the savings level in the economy.
Bank transaction taxes has been removed which is great news to the common man.
In short this is a good, daring and politically motivated budget. But the big issue that the FM has to tackle in the future is the high inflation rate, caused due to the excess demand being created and neglect of the supply side of the economy, which is going to be a herculean task.