COURTESY: MSN INDIA - BUSINESS
Budget 2007 – Focus on Agriculture, Education, Child Development - Chidambaram's 6th budget
Wednesday, February 28, 2007
New Delhi: With hands tied by the electoral defeat in two states blamed by many on rising prices, India's Finance Minister P. Chidambaram presented a Rs.680,521 crore ($148 billion) general budget for 2007-08 Wednesday that focuses on social sectors and agriculture with only moderate cuts in taxes and import duties.
"Agriculture must top the agenda for policy makers and hold the first charge on resources," the finance minister said in his 100-minute speech in the Lok Sabha, the lower house of parliament, setting the tone for his sixth national budget and the fourth for the United Progressive Alliance government.
"The declared objective is faster and more inclusive growth," Chidambaram said as he enhanced budgetary allocations for education, agriculture, water, child development, urban renewal, employment guarantee scheme and social security.
The finance minister said he was also giving a new thrust to agriculture, on which two-third of the 1.17 billion population still depends, the small taxpayer and small service provider. "Faster economic growth has given us, once again, the opportunity to unfurl the sails and catch the wind."
His proposals invited praise from Prime Minister Manmohan Singh. "This budget focuses on fiscal consolidation," Manmohan Singh said, adding an attempt was made to address the concerns and aspirations of a larger section of society, especially the common man.
But the opposition was sceptical. "The budget proposals do not address the basic issues like curbing prices. This budget will stoke inflation and not reduce it," said Rajnath Singh, president of the opposition Bharatiya Janata Party.
A GLANCE AT BUDGET 2007
An impressive 27.8 percent increase in the gross tax revenue during the current fiscal.
Direct Tax:
Proposed 1-percent cess on all taxes to finance secondary and higher education schemes, over and above the 2 percent cess on basic education.
Substantial increase in the allocations for the National Rural Employment Guarantee Scheme and an extension of its coverage to 330 districts from the present 200.
Defence budget increased by 7.8 percent to Rs.960 billion.
Relief to individual tax payers came in the form of a token Rs.10,000 hike in the threshold limit of exemption, to result in a saving of Rs.1,000, as also an increase in the base limit for women and senior citizens.
Income Tax Exemption Limit is set at INR1,10,000.
Increase in limit for Women to INR1,45,000; for Senior Citizens to INR1,95,000.
Government would lose Rs 800 crore due to the services tax exemption giving relief to over two lakh people.
Proposed to levy service tax on the Resident Welfare Associations whose members contribute more than Rs 3,000.
The limit in Banking Cash Transaction Tax for individual and HUF withdrawals was raised from Rs 25,000 to Rs 50,000.
Employee Stock Options (ESOPs) proposed to be brought under Fringe Benefit Tax (FBT).
Deduction in respect of medical insurance under Section80 (D) increased to Rs 15,000 and Rs 20,000 for senior citizens.
Budget is more gender sensitive:
Women received special mention in the "gender sensitive" budget for 2007-2008 with an increased outlay for women specific programmes and 50 ministries setting up special gender budgeting cells.
"Fifty ministries/departments have set up gender budgeting cells. For 2007-08, 27 ministries/departments and five union territories covering 33 demands for grants have contributed to a statement placed in the budget papers.
"The outlay for 100 percent women specific programmes is Rs.8,795 crore (Rs.87.95 billion) and for schemes where at least 30 percent is for women specific programmes is Rs.22,382 crore (Rs.223.82 billion).
Indirect Tax:
Cut in peak rate of import duties to 10 percent from the existing 12.5 percent, but the central value added tax rate remains unchanged and the service tax net widened. Aim is to move towards a tax regime comparable with East Asian economies.
The duties on most chemicals and plastics are proposed to be reduced from 12.5 percent to 7.5 percent.
While the duty on prime steel is 5 percent, seconds and defectives augment supply. So the duty on seconds and defectives of steel reduced from 20 percent to 10 percent.
All coking coal, irrespective of the ash content, is proposed to be fully exempt from duty.
Following up on the excise duty cut on all man-made fibres and yarns from 16 percent to 8 percent, Customs Duty on polyester fibres and yarns reduced from 10 percent to 7.5 percent. Consequently, the customs duty on raw materials such as DMT, PTA and MEG will also be reduced from 10 percent to 7.5 percent.
Since gem and jewellery industry is a "growth- and employment- driver", the duty on cut and polished diamonds reduced from 5 percent to 3 percent; on rough synthetic stones from 12.5 percent to 5 percent; and on unworked corals from 30 percent to 10 percent.
Aiming to augment irrigation facilities and processing of agricultural products, the duty on drip irrigation systems, agricultural sprinklers and food processing machinery will be brought down from 7.5 percent to 5 percent.
While specified medical equipments attract a concessional duty of 5 percent, the general rate of import duty on medical equipment is proposed to be cut from 12.5 percent to 7.5 percent.
In order to make edible oils more affordable, crude as well as refined edible oils were proposed to be exempted from the additional CV duty of 4 percent, while the duty on sunflower oil, both crude and refined, is being reduced by 15 percentage points.
On a lighter note, “good news for cat and dog lovers" the duty on pet foods reduced from 30 percent to 20 percent.
In order to promote research and development, the budget proposes to extend the concessional rate of 5 percent duty available to public funded research institutions to all research institutions registered with the Directorate of Scientific and Industrial Research.
For the pharmaceutical and biotechnology sector, the duty on 15 specified machinery is proposed to be cut from 7.5 percent to 5 percent.
"Import of aircraft, including helicopters, by the private importers. Proposed to levy an import duty of 3 percent, which is the WTO bound rate, on all private import of aircraft including helicopters.
To conserve natural resources as well as to raise revenue, it is proposed to impose an export duty of Rs.300 per metric tonne on export of iron ores and concentrates and Rs.2,000 per metric tonne on export of chrome ores and concentrates.
For Corporate Sector, the surcharge on corporation tax removed only for firms with a taxable income of Rs.10 million or less.
Proposed an increasing the Textile Upgradation Fund (TUF) to Rs 911 crore as against Rs 535 crore during 2006-07.
A scheme for modernisation and technological upgradation of choir industry in also on the anvil for which Rs 23.55 crore has been earmarked.
According to experts, increased allocation to TUF will boost more investment in textile sector.
The sentiments were also reflected in the performance of the stock markets.
The 30-share sensitive index (Sensex) of the Bombay Stock Exchange (BSE) dropped 310.05 points at 13,168.75 points, and the broader Nifty of the National Stock Exchange (NSE) was down 93.80 points at 3,800 points.
Global sell-off, Budget woes drag Sensex down 541 pts. Mumbai: Mirroring heavy sell-off in global markets, the Sensex opened with a huge negative gap of 434 points at 13,045, and soon tumbled to a low of 12,801.
The index, thereafter, swung to the Finance Minister's speech swinging in a broad range of 13,000 and 13,300. A fresh round of selling towards the end, saw the index drop to lower levels.
The Sensex finally settled with a huge loss of 541 points at 12,938. In the process, the index today recorded its biggest-ever loss in absolute terms on the Budget Day and second-highest in percentage (4%) terms, since 1991.
The market has reacted with shock to the budget proposal of dividend distribution tax being raised from 12.5% to 15% on dividends distributed by companies and to 25% on dividends paid by money market mutual funds and liquid mutual funds to all investors.
PAN mandatory for security transactions Clearing the confusion about the identification cards for the participants in the capital markets, it is proposed to make PAN (Permanent Account Number) the sole identification number.
Regulations regarding mortgage guarantee companies and guidelines about functioning would be put in place.
The Budget also includes a proposal to allow Indian investors to invest in overseas capital markets through mutual funds. Mutual funds would also set up Infrastructure Fund schemes.
Corporate Comments:
"This is a common man's budget and not a corporate India's budget," said R. Seshasayee, president of the Confederation of Indian Industry (CII). "It is neither bold nor courageous," he added.
"It is definitely not a 'wow' budget," said Shivinder Mohan Singh, director of the pharmaceuticals major Ranbaxy Laboratories, referring to the 'dream budget' Chidambaram had presented exactly 10 years ago in 1997.
"Industry and services have done well. Attention is, therefore, being diverted to agriculture. A plant needs nursing and not a firm oak tree," he later told a press conference explaining the main premise of his budget.
Rising prices, he said, was a concern and projected an inflation rate of 5.2 percent for the current fiscal, against 4.4 percent for the previous year. "We are confident that we can moderate the present inflationary trend," he assured.
In a bid to bring down overall inflation and help curb the rise in the prices of some food items, he said excise duty on crude oil would be reduced to 6 percent from 8 percent and futures trading banned immediately in wheat and rice.
"A comprehensive review should await the proposed income tax code which will be introduced in parliament this year," the finance minister said on the issue of moderating the direct tax regime further.
