The Hindu Business Line : A menu with little spice

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New Delhi Feb. 28 The stock markets crashed, the individual taxpayer remained unhappy and the corporate sector felt left out. That, in a nutshell, is the story at the end of the day that saw the Finance Minister, Mr P. Chidambaram, present the 2007-08 Budget, the fourth in a row for the UPA Government.

Despite revenues being buoyant, industrial production booming and a strong market sentiment prevailing in the pre-budget days, Mr Chidambaram gave little leg-up to these factors and instead focused on agriculture, irrigation, education, health, drinking water and sanitation, possibly paying heed to the advice that unless these sectors too were brought at par, the growth story would be short-lived.

Negatives

In keeping with tradition, the bad news first. For the individual taxpayer, the much-expected reimbursement for inflation eating into household income has come in the form of a measly Rs 1,000 per annum relief through a Rs 10,000 increase in the threshold limit of Income-Tax exemption.

Not only does this relief translate into less than Rs 100 a month, this small gain will be rendered even smaller by the increase in the education cess by one percentage point to finance secondary education.

Another marginal relief is in the form of deduction under Section 80D pertaining to medical insurance premium. That virtually sums up what the budget has for the individual taxpayer.

The corporate sector is not any better off, but for some favourable nuggets which may sink in later. The surcharge on corporate tax stays, except for those firms and companies with a taxable income of Rs 1 crore or less in a year. Besides, the minimum alternative tax (MAT) will now be applicable to all corporate incomes.

For those enamoured by the stock market, Mr Chidambaram has thrown in a wet towel in the form of an enhanced dividend distribution tax of 15 per cent, up from 12.5 per cent at present. Moreover, dividend distributed by money market mutual funds and liquid mutual funds get a bigger whack with the distribution tax being upped to 25 per cent for all investors.

Other negatives for the corporate sector are in the continuation of the Fringe Benefit Tax, except that expenditure on free samples and on displays as part of sales promotion get excluded. Also, ESOPs now get under FBT.

Positives

Sprinkled in the budget are some positive elements. For individuals, the window to save on capital gains tax will remain open; the limit for withdrawal of cash from banks without attracting tax stands hiked to Rs 25,000 and Rs 50,000 for HUFs.

For corporates, an enabling mechanism would come soon to unlock a part of their holdings in group companies through exchangeable bonds. Also permission for short selling settled by delivery and securities lending and borrowing to facilitate delivery, by institutions would be granted.

The Finance Minister finally conceded the point that some of the $180-billion forex reserves could be used for infrastructure development. There would be two subsidiaries of India Infrastructure Finance Company Ltd, one of which will borrow funds from RBI and lend to Indian companies for infrastructure development or finance their ECBs while the other would invest funds borrowed from RBI to invest in rated collateral securities and provide "credit wrap'' insurance to Indian companies.

With heavy emphasis on social sector expenditure, Mr Chidambaram made no bones about his intentions. "This budget is for the Aam Aadmi,'' he later said.