The Hindu Business Line : Budget-making

In framing the Budget, the Finance Minister, Mr P. Chidambaram, had to don the roles of a hero and a villain simultaneously, a populist of 2004 and a reformist of the early 1990s. Shackled as he is by the Common Minimum Programme and the alarming ground realities of the economy that gives little room for manoeuvring, he could do very little.

The Budget is a mixed bag devoid of firm financial plan for the future. The path as reflected in the CMP with its relegation of divestment of PSUs to the backburner, its selective welcome of foreign direct investment in a few sectors and its disinclination to usher labour reforms cannot but choke the much needed flow of FDI.

Having promised the poor and rural folk at the election time, there was the compelling need to step up the welfare measures and invest at least partially in agricultural sector. Having denied themselves of potential divestment proceeds, the money for anti-poverty schemes, agriculture, education, health and employment has to come from the 2 per cent education cess on all taxes, extension and increase in rate of service tax, a 0.15 per cent tax on the value of all security transactions in stock exchanges and the anticipated increased collection of taxes. To placate the market somewhat he has abolished tax on long-term capital gains and halved the rate of short-term capital gains to 10 per cent.

The IT industry has a reason to be pleased as they have been left out of any new taxing measure. While the salaried class at the lower level should be happy about the higher exemption limit in income tax, the senior citizens feel gratified about 9 per cent bonds with no reduction in interest rate of small savings schemes.

K. Parthasarathi

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