Mukherjee’s budget meets the expected

MUMBAI - Indian finance minister Pranab Mukherjee presented a please-all budget in Parliament on Monday, apparently with an eye on the forthcoming elections to five state assemblies, by giving relief to ordinary taxpayers and corporates.

Nithin Belle

Published: Tue 1 Mar 2011, 11:22 PM

Last updated: Tue 7 Apr 2015, 4:55 AM

The budget, which did not have any major big-ticket reforms announcements or offer any sops for non-resident Indians, saw Mukherjee raise the defence allocation by four per cent, slash the fiscal deficit for fiscal 2011-12 to 4.6 per cent (from 4.8 per cent for the current), and unveil a slew of concessions to ordinary tax-payers, senior citizens, “very senior citizens,” home loan borrowers and companies.

While markets cheered the budget — the Sensex on the Bombay Stock Exchange was up by 0.69 per cent, while the Nifty on the National Stock Exchange gained 0.56 per cent — business, trade and industry sectors also welcomed Mukherjee’s budget.

The opposition, however, expectedly attacked the proposals, with its leader Sushma Swaraj of the Bharatiya Janata Party dismissing it as “very, very disappointing.”

Mukherjee allocated Rs1.54 trillion for defence, as against Rs1.47 trillion in the previous budget. The capital expenditure for defence was being raised from Rs600 billion in 2010-11 to Rs691.99 billion in the next fiscal year.

Mukherjee declared that the government was determined to bring down the fiscal deficit in the medium-term and unveiled a roadmap for achieving the same. The deficit, estimated at 4.8 per cent for the fiscal ending March 31, 2011, will be brought down to 4.8 per cent in 2011-12, 4.1 per cent in 2012-13 and ultimately to 3.6 per cent in 2013-14. Last year, the fiscal deficit was at a high of 5.1 per cent of the gross domestic product.

The government’s gross tax receipts are estimated at Rs9.3 trillion, while total expenditure is placed at Rs12.57 trillion.

There was plenty of good news for the middle-classes, as Mukherjee raised the income-tax exemption limit from Rs160,000 to Rs180,000 for general category individual tax-payers. For senior citizens, the qualifying age has been reduced to 60 and the tax exemption limit increased to Rs250,000.

A new category — very senior citizens — has been created to include those above 80; they get a tax-exemption limit of Rs500,000 a year.

Mukherjee also extended the provision of an additional deduction of Rs20,000 — from taxable income — for investments in long-term infrastructure bonds, by another year.

Similarly, individuals going for home loans have got a significant concession as the description of priority sector lending has been changed to include home loans of up to Rs2.5 million (from Rs2 million at present). Likewise, the one per cent interest rate subsidy has been increased for loans up to Rs1.5 million. Mukherjee also unveiled a simpler income tax return form for small taxpayers.

For corporates, the tax surcharge has been brought down to five per cent from 7.5 per cent. The standard rate of central excise has been maintained at 10 per cent and the minister did not change the central value-added tax rates. In the case of service tax, Mukherjee decided to withdraw exemptions on various items and has also widened the net include hotel accommodation above Rs1,000 a day, air-conditioned restaurants serving liquor, select hospitals and diagnostic tests.

The service tax on air travel (for economy class) has been raised to Rs50 for domestic travel and Rs250 for international travel. For business and first class, the tax would be 10 per cent. The peak service tax rates remain at 10 per cent.

Though the budget did not see any new reforms initiative, Mukherjee promised that several pending legislations aimed at bringing changes in the financial services sector would be pushed in the fiscal. These include bills to amend the LIC, Pension Development Authority, banking, State Bank of India subsidiaries and other legislations.

The Reserve Bank of India, the country’s central bank, was also finalising the guidelines relating to issuing new bank licences to private companies, he added.

He also said the new Companies Bill would be introduced in the current session of Parliament and efforts would be made to liberalise the foreign direct investment norms.

Referring to the controversial issue of subsidies, Mukherjee reiterated that the government would move towards the regime of direct transfer of cash subsidies for kerosene, LPG and fertiliser to the poor.

As for the introduction of the goods and services tax, Mukherjee assured the lower house that a constitution amendment bill would be introduced in the current session itself. And the Direct Tax Code would also be passed by parliament in 2011-12, he added.

The finance minister maintained the disinvestment target at Rs400 billion for fiscal 2011-12. In the current fiscal, the government was able to Rs221.44 billion by selling part of its stake in many public sector units. However, the government would retain a 51 per cent share in all divested companies and also keep management control over the firms, he added.

nithin@khaleejtimes.com