Targets Rs 75,000 crore from disinvestment, spectrum sale
Finance Minister Pranab Mukherjee today presented a please-all Budget, that broadly focused on fiscal stabilisation.
The salaried class received some generous relief, with the upper limit for the lowest income tax slab of 10 per cent raised to Rs 5 lakh from Rs 3 lakh earlier.
The corporate sector, however, was slapped with a higher minimum alternate tax (MAT) at 18 per cent, compared to 15 per cent earlier, but the reduction in surcharge by 2.5 percentage points to 7.5 per cent will offset much of the higher MAT impact.
The roll-back of the fiscal stimulus, introduced 15 months ago, began with a two percentage point increase in the Cenvat rate, a move that did not perturb industry leaders who had feared a bigger cutback.
Proponents of fiscal rectitude, too, were kept reasonably satisfied with the reduction in the fiscal deficit to 5.5 per cent of gross domestic product (GDP) for next year, down from 6.7 per cent in 2009-10.
The stock market responded positively to Mukherjee’s announcements (see report alongside). That should augur well for the finance minister, whose fiscal deficit reduction plan hinges greatly on the economy maintaining its current growth momentum.
The Budget numbers have assumed a nominal growth of 12.5 per cent for next year. Equally critical for the deficit reduction plan are the extra revenue earnings of over Rs 75,000 crore from telecom licence auctions (Rs 35,000 crore) and sale of government equity in public sector undertakings (Rs 40,000 crore).
The additional revenues helped Mukherjee give away Rs 26,000 crore of direct taxes. With the increase in indirect taxes (as part of his stimulus roll-back plan) and expansion in the coverage of service tax helping him mop up an additional Rs 46,500 crore, his net additional tax revenue earning for next year will be only Rs 20,500 crore.
On the reforms front, Mukherjee displayed a cautious approach. He accepted the 13th Finance Commission’s recommendations on the suggested tax-sharing formula with states but decided to wait for a status paper to study the implications of the Commission’s proposal on capping the government’s combined debt at 68 per cent of GDP.
Similarly, he deferred announcing the roadmap for the introduction of a goods and services tax (GST) to April 2011, as also implementation of the Direct Taxes Code.
On the crucial question of implementing oil pricing reforms, as suggested by the Kirit Parikh Committee report, Mukherjee put the ball in his colleague Murli Deora’s court, saying the petroleum minister would take an appropriate decision in due course.
In two sectors, however, Mukherjee initiated significant moves. He proposed that there would now be a competitive bidding process for coal blocks allotted for development by the private sector, putting an end to corruption-causing discretionary practices.
In the financial sector, the finance minister proposed that private players would be considered for some additional licences for banks and non-banking finance companies, subject to the fulfilment of the Reserve Bank of India’s eligibility criteria. The finance minister also allocated over Rs 16,500 crore to ensure that public sector banks are able to attain a minimum eight per cent Tier-I capital by March 2011
On the expenditure side, the finance minister provided generous allocations for the rural development and social sectors. Total plan expenditure is slated to go up 18 per cent to Rs 3.73 lakh crore, while the Centre’s budgetary support would go up by a higher margin of 22 per cent to Rs 2.8 lakh crore. Agriculture, too, received special attention with a four-pronged strategy that focussed on agricultural production, reduction in wastage, credit support to farmers and a thrust on the food processing sector.
And, for his colleague in the railway ministry, Mukherjee had a special surprise. He withdrew the exemption for service taxes on goods transportation by the railways.
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