The Hindu Business Line : No negative surprises

Budget 2008 did not spring any negative surprise and that is a big relief. Broadly neutral, the Finance Minister has done a remarkable tightrope walking to balance growth and controlling inflationary pressure in the economy and presenting a fairly well-managed working budget. Being the last budget before the general election, the Finance Minister expectedly focused on putting resources in the hand of the middle-class population, increasing disposable income by higher tax slabs. The pro-farmer bias of the Budget gets manifested in waiving off agriculture loan to farmers.

Budget 2008 is focused on inclusive growth with higher thrust on education and healthcare. A complete debt waiver for marginal farmers and a 25 per cent rebate for small farmers, thus impacting the exchequer by Rs 60,000 crore, could be a moral hazard for the banking sector. However, with the Government making provision for the waiver, it gets the non performing assets out of bank’s books, improving cash flow and spurring new credit flow. Allocations have also been increased for the social sectors including education and healthcare, which was broadly as per anticipation.

Much against the general anticipation, the Minister has left corporate tax and surcharge untouched, while increasing the tax slab for the middleclass, thus raising disposable income in order to spur consumption growth.

Excise duty has been reduced, with specific benefits to few sectors including auto and 2-wheeler, pharmaceutical amongst others.

Status quo on FIIs

Against the general apprehension of taxing foreign investors (FIIs) routing through the Mauritius route, minister has maintained the status quo, which is a great relief to the market sentiment. Short term capital gain tax has been raised to 15 per cent while allowing Securities Transaction Tax as deductible expenses. Dividend distributed by subsidiary will be also allowed to be net off against dividend to be distributed by the parent company, which is a step in the positive direction.

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