My rundown of Budget 08-09

It went just as expected. In the last budget before the national elections which are to be held next year, Finance Minister P. Chidambaram presented in parliament a budget aimed solely at making the masses happy. It was a budget every bit as populist as predicted by industry and media.

Income tax slabs were altered to allow more people to avoid paying tax. No tax will be charged on an income of INR 150,000 for men, 180,000 for women and 225,000 for senior citizens. This has allowed approximately 8 million people to fall out of the taxable category.

There are also a host of small tax waivers, such as those on certain parts of set-top boxes, crude sulphur and naphtha. These are very random in selection and are suspect to be the result of lobbying from certain interest groups.

The big story about the budget was the tax waiver for farmers. An approximate amount of INR 600 billion (USD 15 billion) will be spent to waive farmers’ loans which have been taken from co-operative banks. It is not a surprise that at the time of this announcement, where the money will come from has not been accounted for. Banking stocks crashed by approximately 5% within seconds of this announcement. This waiver overlooks the loans taken by farmers from other sources, such as private banks and moneylenders.

No real sops for corporates have been announced, with the tax slabs remaining the same. Although this might seem a budget which will help the masses and make life a little bit easier for them, Mr. Chidambaram has introduced many measures which have slipped below the radar. For instance, the Securities Transaction Tax (STT), which is paid when one buys or sells stocks, is now to be treated as an expense instead of a tax. This means that it is taxed twice! This move could also potentially drive many stock brokers out of business. India Inc. does not seem to be happy with this budget.

There are no doubt a lot of very good schemes that have been announced. AIDS drugs are cheaper, millions of rupees have been allotted to child and women welfare initiatives, duties have been slashed across a range of products. Finally, something for tiger conservation as well. A lot of grand projects like the loan waiver, mega power projects, a nationwide urban renewal project are also in the pipeline.

I’m sure all these new schemes that have been announced are with the best interests of the Indian populace. But I pose three questions.

Are these schemes enough to fulfill our growing needs as a developing economy?

Why is the source of funding not known when the scheme is announced?

If these grand projects have been announced without much hindrance from the opposition, the population or the legislature, why did the Congress Government wait until the last budget before the elections to do so?