Budget 2008: An Overview

Budget 2008 will the fifth and final budget of the UPA government.With both UPA and NDA gearing up for the general elections in 2009,the demands to make the budget compatible with the ruling party’s political calculations are natural. Political compulsions to present a people-friendly budget will deter finance minister P Chidambaram from taking far-reaching measures.

BudgetFM will be doing everything to make the aaam aadmi happy. One of the most common demands made by the common man is that the working class should be given greater tax relief.Women want that there should be no discrimination in the tax structures based on gender.People are okay with the current taxation rates on auto spare parts,oil,cng but there should be no further increase in rates.Traditionally, the perception in the middle class has been that they are a much-neglected lot as far as getting a voice in budget making is concerned.So they are expecting that atleast this time there will be something in store for them.The disaffection of middle class can be quite dangerous for the Congress.

The government must think twice before announcing schemes like National Rural Employment Guarantee Scheme because a recent CAG report found that only 3.2% of the registered households could avail of 100 days of employment guaranteed by the above scheme between February 2006 and march 2007.It highlighted corruption, inefficiency, diversion and misutilisation of funds.So, instead of creating more and more centrally-sponsored straitjacket schemes for the entire country, the Centre should transfer funds to the states to undertake such development activities which suit the specific requirements of a particular state.

The rupee has risen sharply against the dollar with deleterious impact on exports.In the textile sector alone 1.3 million jobs have been lost as a result of declining exports.So the government should either sterilise or slow down the inflows.

Talking about petroleum sector,FM may hand out a few small concessions to the oil PSU’s.There has been no revision in petroleum prices for a year now and those in the power circles believe the Budget won’t throw up anything beyond some exemptions and tinkering in duty structure.

India is growing by 9% annually and needs a good infrastructure backbone to support the current boom in the economy.However,creating infrastructure is a long term phenomena.Infrastructure companies dont want any kind of tax holidays but want the Reserve Bank Of India to offer differential interest rate structure for them.They want that credit should be available at a cheaper rate.The current investment in infrastructure is around 5% of GDP.India needs $490 billion to touch the figure of 9% by 2012 as targeted by the government.For that the companies require two components-financial and physical resources- and both are inter-related.The main concern is physical resources and for that they require advanced technology.They require foreign tie-ups,joint ventures and more of imports.So,the budget should aim at cutting down import duties along with policies to encourage foreign participation.

Corporate India wants the government to do away with taxes like fringe benefit tax which they feel is unnecessary.Indirect taxation of goods and services should be integrated into the Goods & Services Tax(GST) plus the tax on luxury goods should be increased.Retail industry wants that service tax on rental properties should be rationalised as it is hurting them.They also want clarifications in the FDI-related issues.ITeS and outsourcing sectors are expecting that once again they’ll not be brought under the service tax net.

The hospitality industry wants the government to increase the budgetary allocation for tourism.They want that the recent tax holiday incentive granted only to hotels coming up in the NCR region be extended to all categories of hotels.

The Budget could be more populist than the earlier Budgets of Mr Chidambaram, given the Congress needs to spruce up its voter base in the wake of losses in recent state elections.

But,the need of the hour is to take firm and bold steps to control fiscal deficit,rein in inflation,provide growth impulses to the faltering economy and take steps to face global recession.

 

 

Budget 2008- What to expect?

The Annual Budget is just a month away. Whether it is the poorest of the poor or the richest Billionaires, all of them want a reduction in taxes. With this the last budget of the coalition government, will it be a dream one or will the FM play safe?

With just a month to go for the Annual Budget of 2008-09, it is time to speculate as to what changes can be expected in this edition of the Budget. The Indian economy has been sanguine with GDP growth of 9.25% in2006-07, inflation below the danger mark and sustainable interest rates. But what changes can be expected in this edition. Will there be any measures to counteract the effects of the recession of the US Economy? Will RBI step in to control the gargantuan influx of capital income into the economy. Well, the Finance Minister will have a lot of points to ponder on as he sets out to unleash his last budget of this term.

One thing that we cant ignore is that this will be the last budget of the current coalition Government. The United Progressive Alliance is due for its Lok Sabha elections in 2009 and with the dispute over the Nuclear Deal with the Left, the coalition has been on the Brink of Divorce. Thus, the Finance Minister might not give a budget that could stir up a political storm and bring the ruling government down. He would rather play safe. We can expect a popular budget with the aim of appeasing specifically targeted sections of the Voting Community. Thus vote bank politics could again play a vital role in this year’s Annual Budget.

P. Chidambaram had indicated that there could be a significant revamp in the taxation schemes. The Direct taxes could be reduced from the existing 33.6% inclusive of surcharge to about 25%-30%. Thus, the reduction in the Direct Taxes would come as a sigh of relief to the several individuals as well as corporates who are affected by the Direct Taxes. Reducing the tax rates could also provide an incentive to taxpayers to declare their entire income honestly so that the overall tax collections can be improved. Plus the Surcharge on tax which is paid by Individuals and association of people who have an annual income greater than Rs 10 lakh is expected to reduce. Currently, there is 10 per cent surcharge on personal and corporation income tax which may plummet in this budget. It could come down to as low as 5%. Partnership firms and domestic organisations, whose income is greater than Rs 1 cr will also benefit from this.

The recession of the US Economy has meant that the rupee has appreciated to a great deal. The exporters are feeling the brunt as their profit margins continue to go down. It is predicted that this trend is likely to continue. The RBI is expected to address this issue through its monetary policy and tax cuts in order to reduce the load on the exporters can also be expected. The fiscal deficit is expected to be scaled down to al little above 3% of its GDP. The FRBM Act that is the Fiscal Responsibility and Budget Management is proposed in this Budget. With respect to the fiscal deficits, the FM will also have to ensure that investments do not fall drastically.

It is a known fact that India has failed in having a World Class Infrastructure and has also not succeeded in providing adequate quality services in Education, Healthcare, Water Supply and Sanitation. The challenges of infrastructure will require large amounts of funds. It is believed that in this current eleventh five year plan from 2007 to 2012, we would need to invest almost US$500 billion to meet the infrastructure alone. This current budget could ease regulatory issues in order to facilitate building up of a World Class Infrastructure.

Lets just hope that Budget 2008 turns out to be the least taxing not just for the Finance Minister but also for the billion plus citizens of India.