The Hindu Business Line : Lacking a cogent theme

Underestimating the intelligence of the voting population, the chorus for a ‘populist’ Budget in every form of media analysis had effectively precluded the official machinery from attempting a bold and bolstering initiative that could have injected the needed dose of adrenaline for the economy to withstand the apprehended global slowdown and skirt the sluggishness that possibly confronts many of the other world economies.

Behind the allocations

The Budget is a patchwork of rhetoric and announcements, sans any cogent theme.

The allocations that were stressed with a higher octave, to earn the instant applause, hardly signify any quantum jump in GDP terms to reflect the higher needs of a fast growing economy.

In effect, in most of the cases, the allocation as a percentage of GDP remains the same or marginally different.

Farm sector

The waiver of farmer’s loans, characterised derisively, as ‘loan mela’ in the age of Indian socialism, has dimensions beyond an immediate reprieve to the affected sections of the farmers and the consequential loss to the banking system. Unlike in the past when banks were wholly owned by the Government, the accountability of the banks at present extend to a larger community of investors. Ad hoc policies that impact the commercial structure of functioning can harm the long-term interests of the very institutions that are required to support the credit delivery mechanism for agriculture. The Government is culpable of poor thinking and poorer action in not finding a more lasting solution to the problem of agriculture and rural livelihood in this country and resorting to measures that may threaten the institutional framework in the long run than sustain it.

The one redeeming part of the Budget is the recognition that the Indian consumers are burdened with a regime of very high consumption taxes. The reduction in median excise duty rate (Cenvat rate) to 14 per cent should to a marginal extent compensate the rise in prices due to the growing inflation.

Software ignored

The software sector will have more than one reason to bemoan their luck. Not only has their legitimate demand of extension of the tax holiday been left unattended, software services which were hitherto kept outside the service tax net are no longer exempt.

The changes to the Income-Tax Act, 1961 contain the traditional load of clarification and retrospective amendments which will keep the experts worried over the next few weeks till the matters and the purport of the changes are duly clarified. An anomaly in the dividend distributional tax (DDT) has been partly addressed when a subsidiary distributes to an immediate holding company.

In summary, the Budget is a picture of trivia and minutiae and not something that may be remembered beyond the first few weeks nor change the face of the country in the years to come.

(The author is a senior tax professional with Ernst & Young. The views are personal.)

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