Budget Preview

Budget Preview

Union Budget Live Video 2009

July 3 or 8 likely dates for Budget

The UPA government is all set to showcase its reforms programme in the 2009-10 Budget early July, it is learnt.

The forthcoming Budget will be the first instrument for the UPA government to initiate the economic reforms it wants to, it is learnt. "Without the Left pressure, this government can announce bold reform measures, and some of that could be seen in the Budget," a government official pointed out.

While the new government's effort will be to present the Budget on July 1, the process may take a little longer, according to sources. The two possible dates that are being talked about for the Budget are July 3 and July 8. Strictly speaking, the validity of the interim Budget, presented earlier this year, is only till June 30.
Interestingly, this will be the seventh continuous Budget (including the interim) by the UPA government.

The Department of Revenue in the finance ministry has started the Budget exercise already, including interactions with the industry. However, the policy areas of the Budget will have to be specified by the new government.

Even as Pranab Mukherjee was holding the dual charge of external affairs and finance ministry at the time of the Interim Budget, now the new government wants to appoint a full-time FM. Deputy chairman of the Planning Commission Montek Singh Ahluwalia's name is doing the rounds for the post of the FM, but Mukherjee is also a likely candidate for the portfolio.

After the swearing-in of the government on June 21 or 22, it will take the new regime over a month to put in place the full-fledged Budget document. Recently, every ministry was asked by the PMO to identify areas of significance as well as pending issues. Some of the inputs, from across ministries, may also be included in the Budget.

Also, a 100-day action plan is being drawn by the government, to focus on pushing up the growth rate back to 9% after last year's decline, a government official indicated. It is likely to include targets on productivity, disinvestment and financial sector reforms.

Infrastructure would be a priority area for the new regime, covering sectors such as power, railways, roads and aviation (including airport development). A higher resource allocation for the UPA's dream scheme, Bharat Nirman, is also not being ruled out.
In a series of meetings with finance ministry officials, industrialists have demanded reduction of the highest personal income tax rate by 5% to 25% in the Budget to boost consumer spending and revive the industry. Business chambers including Ficci have also sought fiscal reform measures to push investment-led growth.

The UPA government had tabled the interim budget in February.

via DNA

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The speech Chidambaram will not make

Ten years ago I promised to reduce Indian tax rates to Asean levels, and thus become part of the Asian economic miracle. I am happy to announce that I am cutting the peak import duty to 8%, the targeted Asean level. Some people are inconveniently reminding me that I had also indicated 10 years ago that I would reduce direct taxes to the Asean level, which is now around 25%.

I cannot do this overnight for revenue reasons, but will target this rate over the next five years. For starters, I considered reducing the peak income and corporate tax rate to 30% inclusive of surcharge. But the latest Times of India poll suggests that citizens hate taxes but like cesses. So I propose to abolish income and corporate tax, and instead impose a social services cess of 30% in lieu thereof. I hope this will help us win the Uttar Pradesh election.

Our effective corporate tax rate is only 17% because of a myriad exemptions. The most unwarranted exemption is for software companies, which are not infant industries but prize athletes. I propose to levy a Minimum Alternative Cess (replacing the Minimum Alternative Tax) of 15% on all companies other than those covered by the law on Special Economic Zones. The new Minimum Alternative Cess will also apply to units in SEZs unless they export at least 85% of their output.

Our policies have yielded record GDP growth of 9.2%. I hope you agree that the entire credit for this goes to Sonia Gandhi. The economic boom has boosted tax receipts, and I am happy to announce that I have met the FRBM target of reducing the fiscal deficit to 3% two years ahead of schedule. Having said that, let me confess what serious economists have long know — that, rather like Enron, we have been hiding part of the debt in off-budget items (oil bonds, debts of the FCI).

Borrowings of the Food Corporation for political purposes like the public distribution system are logically part of the government’s own deficit, and so are subsidies to oil consumers financed by forcing oil companies to run at a loss.

Inclusive of these items, the fiscal deficit is higher by more than 1% of GDP. In the interests of transparency and accountability I propose henceforth to include these off-budget items in the official fiscal deficit, and get this consolidated figure down to 3% by 2009.

The Fringe Benefit Tax has attracted criticism because of its complexity. I know this is a bad tax, but I hate admitting that I am wrong. So I propose to give companies the choice of paying an additional 2% corporate tax in lieu of the fringe benefit Tax. Some of my Marxist colleagues want me to re-impose capital gains tax on shares.

This would be a bad idea, since prudence requires that people should churn their portfolios (constantly selling some assets and buying fresh ones), and a capital gains tax will tax such prudence. It will also place Indians at a tax disadvantage compared with foreign institutional investors.

A better way of promoting egalitarianism without affecting growth is to levy estate duty at 5% on all properties of deceased persons in excess of Rs 20 lakh. This will encourage people to save and invest in their lifetime, while ensuring that they pay their dues to society (rather than undeserving heirs) after entering the next world. It also helps that dead people do not vote.

The biggest tax anomaly is that services account for 55% of GDP but only a small fraction of taxes. I am widening the service tax net to include several categories including lawyers, so nobody can accuse me of trying to keep myself out of the service tax net.

I am also raising the level of service tax to 16%, and moving most excise duties to 16%. I hope this will lay the foundation for moving in the next four years to an all-India Goods and Services Tax levied mainly at 16%. As part of that transformation, I propose to abolish the Central Sales Tax in one go, and compensate states in full for this loss.

We spend vast sums on unproductive subsidies, of which two-thirds non-merit subsidies benefiting mainly well-off people. The fertiliser subsidy has induced farmers to use nitrogen rather than phosphorus and potassium, thus ruining the soil. Free power encourages overpumping and the drying up of drinking-water wells and shallow tubewells of small farmers. I cannot control power subsidies given by state governments. But I propose to abolish subsidies on food, fertilisers and employment programmes, and instead give a cash grant of Rs 5,000 to every family with a BPL card or Job card. That will be a more rational subsidy regime, and will also reach those most in need.

Little is known of the outcome of vast sums spent on various programmes, and I cannot trust any ministry to honestly assess its own shortcomings. So I propose to hire independent evaluators to track the actual outcome of programmes. This will give us an accurate picture of which programmes deserve to be overhauled or abandoned, and which expanded.