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Saturday, March 03, 2007

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Aam admi's budget from PC

Ten years after he presented the "dream budget," Finance Minister P. Chidambaram unveiled a budget that once again underlined the UPA regime's efforts to portray itself as a party for the aam admi or common man. The compulsion was even more this time, as the Government had received a lot of flak for its inability to contain the spiraling prices of essential products. Chidambaram was under pressure to bring out measures in the budget to reign in inflation, which reached a two-year peak earlier in February. He did oblige by holding back an increase in the service tax, though one could argue that a 1% additional cess for secondary education may just prove to be inflationary. Already, some car makers have jacked up prices, despite the FM's plea to India Inc that they should keep prices steady. The peak customs duty on non-agricultural products was slashed from 12.5% to 10%. There was no change in basic corporate and personal income tax.

So far so good. Then came the slew of tax proposals that didn't go down well with the industry and the markets. Dividend distribution tax was increased. Units under Section 10A/10B like IT companies and companies under EOUs brought under MAT. ESOPs to fall under FBT net. Dual excise duty structure on cement. Benefits under Section 80IA taken away from construction companies with retrospective effect from 2000-01. Service tax on rental income on commercial properties. Export duty on iron ore chromium ore. Individuals were also disappointed as the Finance Minister increased the exemption limit only by Rs10,000. The industry was expecting the corporate surcharge to go away, but that didn't materialise, though for SSIs the same was increased to Rs1.5 crores from Rs1 crores.

One major positive was the progress made on the fiscal front, with revenue deficit restricted to 2% of GDP, while the fiscal deficit is expected to be 3.7% of GDP. This is an improvement of 0.1% over the budget estimates. The finance minister has aggressively targeted the fiscal deficit at 3.3% of GDP while revenue deficit is pegged at 1.5% of GDP, bringer them closer to the FRBM targets originally envisaged. However, the pressure from non-plan expenditure is a cause for concern. Similarly, the trends in revenue and capital expenditure are not particularly healthy.

The budget assumes a nominal growth of 13% in gross revenues in 2007-08 over a high growth of 15% in 2006-07. This raises the Tax/GDP ratio from11.4% i n 2006-07 to 11.8% in 2007-08. The overall revenue receipts (net to the centre) are budgeted to grow by 16.7% in 2007-08 as against the observed growth of 28% in the previous year. The projected moderation in tax revenue growth appears quite realistic given that the base was high and the overall growth too is expected to moderate in 2007-08. Most of these targets are still well within reach unless the assumed slowdown in economic growth is worse than expected. As expected, the Finance Minister increased allocations towards education, healthcare, agriculture and infrastructure. But it remains to be seen if this is enough to address the issue of supply constraints in food, human resource and infrastructure that is plaguing the economy currently.

Passenger fares cut; freight rates rationalised

In order to keep its pro-people image in tact amid widespread resentment on spiraling prices, Railway Minister Lalu Prasad Yadav announced across the board reduction in Railway passenger fares. While presenting the Railway Budget for FY08, the RJD supremo said that passenger fares on Sleeper Class will be slashed by 4%. AC First Class fares will be reduced by 6% in lean season and by 3% in Busy Season, he added. Similarly, for AC 2-Tier, the busy season reduction is 2% and lean season 4%. The Railway Minister also lowered fares for all classes of high capacity new design reserved coaches which will be 4% for AC 3-Tier and AC Chair Car in busy season and 8% in lean season. Yadav announced that discounts for the busy season will be applicable in popular trains throughout the year.
Daily tickets for Non-suburban Second Class Ordinary trains and Non-superfast Mail/Express trains will be reduced by Re1 per passenger. Supplementary charges for Superfast Trains for Second Class will be reduced from Rs 10 to Rs 8.

Yadav announced reductions and discounts in the freight tariff on various commodities including diesel, petrol, steel, cement and further discounts for consignments of wheat and fertilizers etc. He proposed to reduce the classification for diesel and petrol of highest Class from 220 to 210, which would bring down the freight rate for diesel, petrol and ammonia etc, by about 5%. The Railway Minister announced that on the demand of mineral based industries like steel, cement etc., freight rates for transportation of all minerals including iron ore and limestone would be charged at Class 160 from Class 170, thus reducing the freight rates for these commodities by about 6%. The Railway Minister introduced a new commodity based tariff policy on an experimental basis from April 1 through an exclusive package for cement. He said the new policy is being developed to better address the needs of the customers for major commodities transported by rail and to provide a stronger base to railway’s competitive capabilities.