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Finance Management | "Budget 2008: The Great Indian Budget Drama"

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Budget 2008: The Great Indian Budget Drama

- by Dr. Gourav Vallabh *

Page - 1

Indian Finance Minister, Mr. P. Chidambaram, presented the fifth and final full Budget before elections due by May 2009. Seldom has a Union Finance Minister had more cushion while formulating a budget than Mr. Chidambaram when he set out to do the numbers for
2008-09. With tax revenue booming and economic growth running at 8% plus despite a slight slowdown, he had lots to give away. In this scenario, you don't have to go out of your way to garner more revenue, because with the economy booming, more tax revenue than you can spend will come your way, if you simply make sure that economic activity continues without disruption.

I will call this budget an attempt to be populist focused on agri-sector. As expected from an election year budget, Government tried to please all kind of voters by giant debt waiver for agricultural loans, by increased allocation for National Rural Employment Guarantee Programme, by generous increase in the minimum tax slab for individuals. He is perhaps also hoping that strong economic growth would keep revenue buoyancy stable to help him pay for all that he planned.

Finance Minister has specifically targeted the middle class by lowering income taxes for everybody. This gives an indication of populist. Till the time there is a tax growth of around 8%, one can think of giving tax relief to every section of society. Another flaw of this relief is this is more for people in higher income group in comparison to lower income group.

There is also an indirect goody, or absence of any further pain, for industry which has been spared a further fall in the median import duty rate. This should have happened so as to bring Indian tariff barriers in line with those of its important Asian trading partners. The Finance Minister has cited rupee appreciation in the last year to justify this. However, with Indian import duties still high and without any sign of Indian firms facing severe import competition in the domestic market from cheaper imports, the Finance Minister could have cut import duties further without rally hurting Indian business. The proposal to leave peak import duties unchanged (except a few) is a sign of providing protection to the domestic industry but will not force Indian business to be more competitive. This is one of the negative aspect of the budget.

The Finance Minister has not brought down the peak customs duty, and this remains at 10%. In reality, however, the customs duty will go down because the countervailing duty will go down. With excise duties having come down, that too will be lower. That will make imported goods somewhat cheaper. There are certain specific proposals relating to customs duties, such as those for project imports, which have been brought down from 7.5% to 5%. This should definitely help the infrastructure sector, which is a priority area for the economy today.

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Dr. Gourav Vallabh is at present Professor (Finance) at XLRI Jamshedpur.
He is a Certified Financial Risk Manager (GARP, USA), Chartered Accountant (ICAI, India), Company Secretary (ICSI, India), Ph.D. (UoR, India), M.Com., LL.B.
Currently, he is also associated with Govt. of Rajasthan in the capacity of Honorary Advisor to Ministry of Revenue.


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