Chidambaram presents a 'politically correct budget' for 2007-08

Indian Finance Minister P. Chidambaram has presented the Annual Budget 2007-2008 uninterrupted, despite high chances of furor during budget presentation. Amid scores of several issues pertaining to the Indian economy, the primary focus of the newly presented budget was laid on the farm sector. The Finance Minister said that agriculture had grown by 2.3 percent on average in the last three years against a target of 4 percent. The budget has envisaged rising spending on health and education and focused on accelerating the deteriorating agricultural economy in an effort to ensure growth for a majority of population.

chidambaram budget 25

The Finance Minister presented his fourth budget since repossessing the ministry three years back. This time he was not the same minister who a decade back had presented the dream budget. Chidambaram presented his budget amid mounting pressure to step up spending while curbing prices to assure voters that this government can work in their favor. In addition to it, the budget was unveiled just ahead of more state assembly elections.

While eyeing on state elections this year and on national elections due in 2009, the budget raised spending on education by 34.2 percent in the coming financial year. At the same time, health and family welfare spending rose by 21.9 percent with an assurance to expand rural job guarantee scheme. The minister also promised to take measures to control inflation, which is hovering slightly below its highest level in more than two years. He also announced increased water and fertiliser subsidies for farmers.

Government spending on infrastructure including ports, power generation and roads will be lifted by 40 percent to 1.34 trillion rupees ($30.2 billion) in the next fiscal year, Chidambaram told parliament. Better infrastructure may see more companies follow Nissan Motor Co. and Renault SA, which are investing in setting up factories in India.

Moreover, India's $854 billion economy decelerated to the slowest pace in a year last quarter, the Central Statistical Organisation said in a statement. The government is expecting a 9.2 percent expansion in the year to March 31, the fastest pace since 1989.

The Finance Minister appeared to be slightly unfriendly with the IT and BPO in this budget as it has proposed to tax 11.22 percent of the adjusted book profits as Minimum Alternative Tax (MAT). The latest proposal can knock off 1.5 percent of Infosys' profitability.

On the tax front, the budget is a mix bag for individuals, corporates and those investing in the markets. Marginal relief has been provided to individuals by raising the exemption limit by Rs 10,000, while the corporate income tax has not been changed. The securities transaction tax has been left unchanged; however, the dividend distribution tax has been lifted by 2.5 percent. For the professionals, the payout in form of Fringe Benefit Tax is inevitable to be higher in case he or she is receiver of stock options.

Indian industry has expressed deep discontent and disappointment over the Budget for 2007-08. The industry raised the concern on lack of measures to increase productivity and for losing an opportunity to provide relief to the corporate sector. CII president, R Sesashayee, has pointed out that since revenues from peak customs and excise were increasing, this could have been a time to reduce excise duty to 20 per cent, if not 15 per cent overall, which would have been in line with Kelkar Committee Report.

FICCI President Habil Khorakiwala, too seemed to be greatly dissatisfied as he said, a wrong signal has gone to the corporate world as the government has increased cess and dividend distribution tax. He further reacted sharply saying,

One does not understand how the multiple taxes should be charged. I think the feeling of the chamber is that the Finance Minister has lost an opportunity of providing relief to the corporate world.