The Hindu Business Line : ... promises to keep

THE Finance Minister's second budget proposal in less than nine months has shown that, with his feet firmly on the ground, he can reach new heights in creating the right environment for the Indian economy to successfully reach a growth rate of 10 per cent in the next three years. He has, with great dexterity, been able to forge a new strategy for pushing the reform agenda. India is indeed fortunate to have, Mr P. Chidambaram as the Finance Minister at this critical stage.

While continuing with the earlier measures for promoting rural development, increasing agricultural output by bringing in more acres under irrigation and granting additional allocations for infrastructure development, the Finance Minister has also retained the humane side to reforms by making large allocations for education, health and employment schemes.

The fact, that he has given an account of the government's performance based on the promises made in last year's budget proposals indicates the ability of the UPA Government to deliver on its promises.

The excellent performance of both the manufacturing and services sectors has further enabled the Government to push through with the reform process.

Some of the measures are bold especially those on the issue of subsidies and reservation for the small-scale sector.

Despite opposition from the Left, Mr Chidambaram has given a clear indication of pushing ahead with foreign direct investment in retail trade and mining, apart from insurance and banking. The reduction in the rate of corporate tax to 33, the granting of relief in respect of the minimum alternate tax, treating derivative trading as non-speculative, reducing custom duty across the board and rationalising the excise duty structure will spur greater investment. Though reduction in the rate of depreciation from 25 per cent to 15 per cent on plant and machinery may hurt the capital goods intensive sector, it will considerably benefit the service sector, notably, banking, insurance, IT-enabled services, and the like.

Perhaps, the Finance Minister may be faulted for not coming out boldly on disinvestments of public sector units and taking credit for a substantial amount from the same proceeds. He has also made no mention of the need to population growth and the measures to be adopted in this regard.

The non-resident Indian community will breathe a sigh of relief that interest on NRE/FCNR deposits will continue to be exempt. Tax-payers in India will greatly benefit by the reduction in tax rates across the board which will give a benefit of Rs 24,000 per annum in taxes on incomes of Rs 2,50,000.

While the standard deduction, the benefit under sections 80-L and 88 have been removed, a new section 80-C has been introduced to allow deduction up to Rs 1 lakh. A new Chapter XII-H has been introduced to tax fringe benefits, which include free or concessional tickets for travel, entertainment, gifts, club facilities, use of telephone, etc. Very elaborate provisions have been made by inserting sections 115-W to 115-WL.

A new return would have to be filed by companies providing such fringe benefits, failure of which would attract penalty.

In sum and substance, the budget proposals will help every sector, agriculture, industry, and services. It will help in generating more employment, increasing production and curbing inflationary pressures. It is left to be seen whether the administrative reforms in the department of revenue are, in fact, carried out. The Finance Minister has promised to place before Parliament, a revised and simplified Bill. Therefore, the budget proposals of the Finance Bill, 2005 are certainly not the last word.

As and when the Income-tax Bill is introduced, the full picture will emerge on the broad framework of direct taxation that the Finance Minister has in mind.

(The author is an advocate for the Supreme Court of India.)

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