The Hindu Business Line : Pranab borrows big to fund handouts

New Delhi, July 6 The 2009-10 Union Budget is likely to leave more money in the hands of the aam aadmi through a massive step-up in social sector outlays and a marginal tinkering of personal income-tax slabs.

Alongside, it has done away with messy imposts such as the Fringe Benefit Tax (FBT) and the Commodity Transaction Tax (CTT), besides the 10 per cent surcharge on taxable personal incomes above Rs 10 lakh.

In addition, the CENVAT excise duty and the service tax rates have been retained at 8 and 10 per cent, with no roll-back to their respective ‘pre-stimulus’ levels of 14 and 12 per cent.

But all this extra spending and tax giveaways in the Finance Minister, Mr Pranab Mukherjee’s Budget — the first of the ruling Congress-led United Progressive Alliance (UPA) after its return to power — may not come without cost.

Rising expenditure

With the economic downturn hugely denting its tax revenues, the Centre’s total expenditures of Rs 10,20,838 crore for 2009-10 — the first time it has crossed the Rs 10-lakh crore mark and a 36 per cent jump over what was budgeted last fiscal — will be largely financed through borrowings.

The projected market borrowings of Rs 4,51,093 crore are about Rs 89,000 crore more than what Mr Mukherjee had provided for in his Interim Budget for 2009-10 on February 16. The Centre’s fiscal deficit — the gap between its revenue (both tax and non-tax) and expenditure — is consequently expected to balloon to 6.8 per cent of GDP this fiscal, against a mere 2.7 per cent in 2007-08 and 6.6 per cent in the pre-reform year of 1990-91.

FRBM takes backseat

The virtual go-by to the Fiscal Responsibility and Budget Management Act (FRBM) of 2003 was, however, defended by Mr Mukherjee. “This fiscal expansion will go a long way in reversing the impact of economic slowdown and accelerate our growth revival in the medium term,” the Finance Minister said, adding that he would return to the FRBM targets “as soon as the negative effects of the global crisis on the Indian economy are overcome.”

Critics, while acknowledging the need for some fiscal stimulus, nevertheless feel that the Budget could have minimised the FRBM slippages by raising more money through disinvestment (Rs 25,000 crore annually as suggested by the Economic Survey) and cracking down on non-merit subsidies.

Instead, not only has Mr Mukherjee targeted a miniscule Rs 1,120 crore from disinvestment, but his speech waxed eloquent on the former Prime Minister Indira Gandhi’s “bold decision to nationalise our banking system exactly 40 years ago!”

On subsidies, too, the Finance Minister has refrained from increasing issue prices of foodgrains sold through the public distribution system.

While proposing to move from a ‘product-based’ to a ‘nutrient-based’ subsidy regime on fertilisers and also disbursing these directly to farmers (instead of routing them through the industry), the Budget is silent on the specifics of how exactly it would be done.

Tax sops

The Budget does, however, have some sops for individual tax-payers, with the basic exemption limit being raised by Rs 10,000 (to Rs 1,90,000 for women and Rs 1,60,000 for others) and by Rs 15,000 for senior citizens (to Rs 2,40,000). Simultaneously, the 10 per cent surcharge on taxable incomes of above Rs 10 lakh has been abolished.

Effectively, this would mean that an individual with an annual taxable income of Rs 5 lakh will henceforth pay Rs 55,620 against Rs 56,650 earlier. If his income is Rs 6 lakh, the tax incidence falls from Rs 87,550 to Rs 86,520. The gain is still more when the taxable income is Rs 12 lakh; the abolition of the surcharge reduces the tax liability from Rs 3,00,245 to Rs 2,71,920.

At the same time, India Inc has been left disappointed, with no change in the corporate tax rate. Corporates further will continue to shell out the 10 per cent surcharge and the 15 per cent dividend distribution tax.

The only good news is the abolition of the compliance-intensive fringe benefit tax (thereby saving some Rs 10,000 crore annually), though this has been tempered by an increase in the Minimum Alternate Tax (MAT) rate from 10 per cent to 15 per cent of the book profits. But even here, companies paying MAT have been given a longer 10-year period to carry forward their tax period, instead of seven years now.

On the social sector, the outlay on the UPA’s pet NREGA has been hiked to Rs 39,100 crore, from last year’s budgeted Rs 14,400 crore.

More Stories on : Budget | Budget | Economy

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page