The Hindu Business Line : Chidambaram plays the popular tune — Tax breaks for farm sector and lower middle class

IF Mr P. Chidambaram's 1997-98 Union Budget was a `dream Budget', the one that he presented today can probably be called a `political budget', targeted primarily at the lower middle class, farmers and the Left.

The Finance Minister has exempted individuals with annual taxable income of up to Rs 1 lakh from paying any tax, by allowing them to claim automatic rebate on their entire tax liability while filing returns. This will benefit 1.4 crore out of the country's 2.7 crore tax-paying assesses, a move that may cost the exchequer around Rs 1,700 crore.

At existing slabs, a lower middle class person with taxable income of Rs 1 lakh, who would otherwise pay Rs 9,000, will be relieved of any tax burden. But this facility cannot be availed of the moment an individual's income crosses Rs 1 lakh even by a rupee. In this case, he will not only continue to pay the Rs 9,000 tax, but would also have to cough up an additional 2 per cent education cess that Mr Chidambaram has imposed on all direct and indirect taxes.

The 2 per cent cess would yield Rs 4,000-5,000 crore in a full year and the whole amount raised will be earmarked for primary education and providing a `nutritiously cooked' mid-day meal, which promises "a new dawn for the poor children of India". The effort at political correctness has also been extended to giving a `new deal' to rural India and withdrawing the mandatory Cenvat duty on powerlooms and handlooms imposed in the 2003-04 Budget.

For farmers, there are no hikes in fertiliser prices nor any attempt at reviewing the present open-ended system of foodgrain procurement. Moreover, tractors, sickles, spades and other handtools - which attract 16 per cent excise now - have been made fully duty-exempt. A similar excise reduction from 16 per cent to nil has been made for dairy machinery and milking machines, while those on branded animal meat products have been halved to 8 per cent.

Other farm-friendly announcements include provision of 100 per cent deduction of profits for five years in the case of new rural hospitals and fruits & vegetable processing ventures, besides enhancement of the Indian Council of Agricultural Research's (ICAR) Plan outlay by Rs 250 crore.

Further, Mr Chidambaram has proposed restructuring of the Accelerated Irrigation Benefit Scheme (AIBS), with `truly last mile' projects that can be completed by March 2005 to be given first charge on the Rs 2,800 crore allocated for 2004-05.

To placate the Left, Mr Chidambaram's Budget has refrained from making even a mention of labour reforms, while doing a U-turn on big-bang privatisation. Receipts from disinvestment have been pegged at just Rs 4,000 crore, from the Rs 14,500 crore realised in 2003-04. This year's sell-off exercise will be limited mainly to divesting 5 per cent of Governmental equity in NTPC.

Despite the massive shortfall in disinvestment revenues, the Finance Minister expects to restrict the Centre's fiscal deficit to 4.4 per cent per cent of Gross Domestic Product (GDP), from the revised figure of 4.8 per cent in 2003-04. The 62,810 crore increase in tax revenues seems to basically bet on sustained industrial and services sector buoyancy. Mr Chidambaram has, however, resorted to some additional revenue-raising measures such as increasing the service tax rate from 8 per cent to 10 per cent and extending its coverage to 13 new services apart from the existing 58. The Finance Minister has also proposed a 0.15 per cent tax on the value of all security transactions in stock exchanges, which will help mobilise an estimated Rs 7,000 crore during a full year. Simultaneously, he has abolished tax on long-term capital gains, while halving the rate of short-term capital gains to 10 per cent.

Alongside, there are some pro-reform measures in the Budget, prominent among which is the move to hike the existing foreign direct investment limit from 49 per cent to 74 per cent in telecom, 40 to 49 per cent in civil aviation and 26 per cent to 49 per cent in the case of insurance.