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Ramesh Sharma

All set for B-day: The Finance Minister, Mr Pranab Mukherjee, with the Minister of State, Mr Namo Narain Meena (sitting left); the Finance Secretary, Mr Ashok Chawla (standing right); and the CBEC Chairman, Mr P.C. Jha, perusing the Union Budget papers in the Capital on Sunday.

T.C.A. Srinivasa-Raghavan

New Delhi, July 5

The dominant context of the forthcoming 2009-10 Budget is the overwhelming need not to choke off the nascent economic revival now seemingly underway. This could mean virtually no new taxes, and perhaps even a lowering of some of the rates.

The key objective is Paretian, that is, if everyone can’t be left feeling better, no one should be left feeling worse, at least. The main casualty of this approach will be the fiscal deficit, about which no one cares very much any more anyway. The FRBM (fiscal responsibility & budget management), for the foreseeable future, is history.

Thus, on the corporation tax side, it is more than likely that the de jure tax incidence of 42 per cent will be reduced. How this will be done — elimination of surcharge or FBT (fringe benefit tax) or both — remains to be seen, and is probably not very important.

Likewise, on the personal income-tax front, there is an economic need to boost middle class spending, a political need to match, fully or partially, the BJP’s promise of raising the tax threshold to Rs 3 lakh.

There is also pressure on the banks, which are flush with funds, to not just reduce lending rates but also lend more to infrastructure projects. But they want the interest they receive from loans to infrastructure to be exempt from income-tax. This seems likely.

The Prime Minister is also said to be keen that the Budget send out a reformist message. This means using the price mechanism, instead of taxation, as the main instrument of resource allocation in the economy.

In practical terms, however, this means reducing subsidies. The increase in petrol and diesel prices was a feeler. There has been virtually no opposition. It also means serious disinvestment. Sectorally, the PMO wants to offer something to the US and Israel that also benefits India.

The Economic Survey has already indicated that some defence industries may be opened up for FDI. Many infrastructure PSUs could also see limited equity sales.

10 Janpath wants expenditure on the social sector to be increased, not least because of the Assembly elections that lie ahead. The cost of this is likely to be met largely through the sale of spectrum, which is expected to fetch around Rs 40,000 crore.

It should also not come as a surprise if the RBI transfers a significant portion of its surplus to the Government. The RBI’s balance sheet has a surplus of Rs 15,000 crore. Thus, overall, it may well be a neutral budget, like the Railway Budget has been.

More Stories on : Budget | Taxation | T.C.A. Srinivasa-Raghavan

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