The Hindu Business Line : Populist package

The Budget for 2008-09 can be described as good, bad and ugly with its ingredients of welcome, mediocre and detrimental features. It is good as personal income-tax slabs stand widened with rates rationalised being applicable to expanded slabs. Also, the threshold for tax has been raised to Rs 1.5 lakh. Customs and exercise duties on select goods and services have been lowered. Allocations for rural, social and farm sectors have been increased. The combined effect of such moves would be to encourage tax compliance to improve revenues, boost consumption, productivity, investment, fight inflation to maintain reasonable growth rate while creating the needed physical and social infrastructure.

The Budget is bad as it has fallen short of India Inc’s expectation of reduction in corporate tax rate and abolition of cess. It has also raised the short-term capital gains tax for equity trading gains from 10 per cent to 15 per cent.

The absence of measures such as lowering TDS on interest income of bank deposits and reducing the tenure of bank fixed deposits eligible for deduction under Section 80C from five years to three years and the failure to raise the threshold of one-lakh limit under Section 80C to boost savings of the middle class is a damper. Also, the Budget is silent on the clear road map for further financial sector reforms.

The ugly part relates to farmers’ debt relief and complete loan waiver package for small and marginal farmers costing the exchequer a whopping Rs 60,000 crore to be reimbursed to banks waiving such loans to farmers.

Also, the implementation of the Sixth Pay Commission’s recommendations will only add to the financial burden of the government. On a whole, a populist package.

Venkatesh N. Muttur e-mail