India's Largest Database on New Projects
February 28, 2007: The Finance minister P Chidambaram has tried his best to make the high 8.6% average growth achieve in last three years more inclusive by addressing the agriculture and social sectors in Budget 2007-08. However, in doing so, he left the middle-class feeling cheated and the corporate sector displeased with a new 1% cess and a hike in dividend distribution tax to 15% from 12.5%. Chidambaram’s tax measures triggered a 541-point, or 4%, correction in the markets, which had risen almost 3,200 points in the last one year. Given the prevalent political climate, in which the government is under attack from allies and even within the Congress for rising prices, his focus on economically and socially backward sections and agriculture, could not have been better timed.
This was perhaps the last opportunity before general elections for the United Progressive Alliance government to take bold steps in tax reforms. After having put a comprehensive list of all tax exemptions to be reviewed in the public domain. While the Budget announcements gave an impression that he had doled out largesse to weaker sections, Chidambaram kept his record of not overshooting the fiscal deficit target. In fact, he bettered the target this year by 0.1 percentage point and set it at 3.3% of GDP for 2007-08. For the urban sector, he raised the exemption limit for personal income-tax by a meagre Rs.10,000 and hiked the deduction with respect to medical insurance premium to Rs.15,000. But his other new direct tax measures helped him budget additional resource mobilisation of Rs.3,000 crore.
The
increases in excise duties—for instance, on cement—and the cut in peak
customs duty to 10% are essentially fiscal measures to rein in inflation, which
touched 6.63% mid-February. The finance minister could not push reforms in this
Budget due to political compulsions, but he had the comfort of an economy
already on a roll which is stated to be the bottom line of the Budget 2007-08.
Source:
Financial Express