Category % Opinions

Chief executives 76 The budget focused on inclusive and

sustainable growth

58 It lacked in reform orientation

Corporate heads 55 The budget did not take any meaningful

steps to promote growth

95 It did not address the issue of promoting infrastructure,

on which depends future economic growth.

Source: The Confederation of Indian Industry (CII) & Pricewaterhouse Coopers

Last week, the Indian finance minister, P Chidambaram presented his fifth and last full-fledged budget 2008-09 to the parliament. Critics termed it a "please all" or "general budget". Others labelled it as a half-hearted effort. The congress projected it welfare and opposition said it is an election budget (the ruling coalition, run by the congress party and supported by the left, faces nine state polls this year besides the general elections by May 2009). The majority of the business community, salaried class, farmers and the corporate sector welcomed the different proposals. It provided relief to farmers, urban middle class and the minority. A critical analysis concluded that it is a farmer-oriented budget which would give dividends in the coming state elections of India.

According to many economists there is a disturbing aspect which is its failure to provide a sufficient fiscal incentive to the Indian economy at the time of global recession and sub-prime. They predicted that it would be adversely affecting growth and employment generation in the country. It seems that the congress party has strengthened its hand against the opposition and leftist allies with a farmer-friendly budget, raising a chance of early elections and reviving hope for a controversial nuclear deal.

Basic salient features

(a) Rs.7508 billion financial outlay, (b) revenue receipts for 2008-09 are projected at Rs602,935 crore and revenue expenditure at Rs658,119 crore. The revenue deficit for the current year will be 1.4 percent against the budget estimates of 1.5 percent, (c) Rs.1332.87 billion fiscal deficit. It will be 3.1 percent against an estimate of 3.3 percent. (Standard & Poor's said that while the budget assumes a fiscal deficit of 2.5 percent of GDP for the year ending March 31, 2009, compared with the 3.1 percent deficit in fiscal 2007-08, the actual deficit could bloat to 6.7 percent of GDP in the coming 12 months), (d) revenue deficit is estimated at Rs.55,184 crore, (e) increase in defence expenditure by 10 percent putting aside Rs.1,056 billion ($26.5 billion), (f) huge hike in capital expenditure from Rs377 billion to 480 billion for 2008-09 for procuring latest arms, (g) rise in the income tax exemption threshold to Rs150000, (h) slash customs and excise duties on a variety of goods, (i) withdrawal the controversial banking cash transaction tax. (j) reducing of the central sales tax from 3 to 2 percent, (k) raising the defence budget by 10 percent from Rs95000 crore to Rs105600 crore in the coming year, the estimates of plan expenditure have been fixed at Rs243386 crore which will be Rs.32.4 percent of the total expenditure. Non-plan expenditure has been estimated at Rs507498 crore.

Incentives/package to agriculture economy

Indian finance minister, P Chidambaram granted many comprehensive, meaningful and effective incentives to the farmer's community in his fifth budget. It seems that he presented a budget aimed squarely at elections and India's rural poor, with a $15 billion scheme to waive loans held by 40 million small farmers. Last year many regional and global reports strongly indicated and advised the government of India to do something extraordinary to rescue the poor framers. The burden of farmer's loans has been a major and sensitive issue in India, increasingly brought to public notice with the suicides of 4,000 farmers since 2004 after failing to pay off their debt. The salient features are given below as: (i) Rs.60,000 crore agricultural debt relief package; (ii) complete loan waiver for small and marginal farmers; (iii) 4 crore farmers to benefit. Rs.2,80,000 crore target set for farm credit in 2008-09 and short term crop loan to continue at 7 percent interest, (iv) irrigation and water resources finance corporation to be set up a rain fed area development programme to be started for the overall betterment of the poor people.

The economists may be doubtful about its diversified but integrated effects in the long run, but the political pundits are clear that: it would help in the elections.

Minorities/ lower caste

Minorities and lower caste play a very important role in the socio-politico-economic sectors of India. Their contribution towards a shining India is tremendous. The finance minister provided much effective relief to them.

Rs.3, 966 crore was allocated for schemes for SCs and STs; Rs. 18,983 crore for schemes earmarking 20 percent funds for SCs and STs. Multi-sectoral development plans for all 90 minority concentration districts. To make the population of women viable, productive and self-reliant. All women self help groups credit-linked to banks to be covered under Janashree Bima Yojana. Rural economy played a very important role in the booming economy of India due to which the national rural employment guarantee scheme will cover all 596 rural districts. A national programme is to be launched for the elderly. Rashtriya Swasthya Bima Yojana is for workers under BPL category in the unorganized sector.

Education, housing, old age pension, food subsidy, skill development, SMEs, cottage industries

India is ranked the first in its educational standards in the region. It is the country with the most PhD holders in the world. The standards of science & technology, medicine, bio-tech and IT are very high in the world. To further enhancing and consolidation, the finance minister pledged many comprehensive programs and incentives to the education sector in his fifth budget.

The government will establish 16 central universities. 3 IITs, 2 IISERs and 2 schools of planning and architecture will be established. 6,000 high quality model schools will be opened in the days to come. New scholarship schemes for promoting innovations in science were introduced in the budget 2008-09. Each district will have a Nehru Yuva Kendra. Drinking water systems will be provided in the schools in water deficient areas. Subsidy on houses under Indira Awas Yojana will be increased from Rs.25,000 to Rs.35,000 in plain areas and from Rs.27,500 to Rs.38,500 in hill/difficult areas. Allocation of Rs.1000 crore for Aam Admi Bima Yojana. Allocation under Indira Gandhi old age pension scheme increased from Rs.2392 crore to Rs.3443 crore and Rs.32,667 crore provided for food subsidy under the public distribution system.Rs.1000 crore provided for establishing a non-profit corporation for skill development. Six mega-clusters planned for handlooms, power looms and handicrafts. Government to provide Rs.16,436 crore as equity support and Rs.3,003 crore as loans to the central public sector enterprises

Income tax, custom duties exemption

The benchmark Bombay Stock Exchange Sensitive Index (or Sensex) plunged by more than 500 points as Chidambaram announced a 5 percent increase (from 10percent) in short-term capital gains tax on the sale of shares held for less than 12 months. Majority of the salaried class showed a sign of relief. Income tax exemptions limit hiked to Rs.1.5 lakh; 10 percent tax for income between Rs.1.5 lakh and Rs.3 lakh; 20 percent between Rs.3 lakh and Rs.5 lakh. Income above Rs.5,00,001 to attract 30 percent income tax. To provide some cushion to womanhood and senior citizenship exemption limit for women tax payers increased to Rs.1,80,000 and for senior citizens to Rs.2,25,000. No change in corporate income tax rates and surcharge (Managing director, ABN AMRO Asia Corporate Finance said that "overall, it will be viewed as neutral to positive by investors").

Increase in overall defence budget

Security concerns are great in the rapidly changing geo-political, geo-strategic scenarios and terrorism era. The finance minister increased the defence budget to $26.40 billion. It increased by 10 percent which is the fasted or highest hike since independence. The defence budget will be spent on a modernization programme of the armed forces. India plans to spend at least 30 billion dollars until 2012 to modernize the military with an immediate purchase of 126 war jets costing 12 billion dollars followed by ships, submarines and artillery. 40 percent of the funds will go for the upkeep of assets and our existing manpower. He also set aside millions of dollars in addition to the annual defence outlay to set up institutions and schools for families of servicemen and women. He allocated 1.85 billion dollars to the navy which is shopping for six submarines in addition to the six it bought last year from Armaris and European defence firm MBDA for three billion dollars. The 137-ship navy is also in advanced negotiations to buy eight long-range investigation planes from either US-based Boeing or the European consortium EADS for two billion dollars, besides building a nuclear-powered submarine. He allotted 2.71 billion dollars for the air force.

Regional after effects

The regional repercussions are multidimensional and complicated. It has already altered China and Pakistan. China has raised its defence budget by 17.6 percent military spending in 2008 will reach 417.8 billion yuan ( $57.2 billion). The new government will definitely do its level best to match the military spending of India in the new federal budget.

Reactions of major industries/industrialists

Companies such as Tata Consultancy Services and Infosys Technologies showed mixed reactions. They were looking for effective and integrated measures that would help them tackle the increasing cost of production. According to them the global slowdown in IT spending, and a depreciating dollar are badly hurting their profitability and market access. The Indian currency appreciated 12.8 percent against the US dollar last year, undermining the sector, which gets more than 60 percent revenues from the US. According to the Confederation of Indian Industry (CII), the country's leading industry association, the reduction of manufacturing duties and income taxes are the right steps that will indirectly benefit the industries.

Concluding remarks