New Delhi: Finance Minister Pranab Mukherjee sprung a few pleasant surprises for consumers in his Union Budget for 2011-12, but made no significant move towards giving a new impetus to economic reforms. Keeping his tax proposals revenue-neutral for the government, he lightened the income-tax burden by a fraction for the country's 1 crore taxpayers, while raising excise taxes selectively to compensate for the losses from lower income-tax.
Mukherjee raised the exemption limit for personal income-tax from Rs 1.6 lakh to Rs 1.8 lakh a year, effectively saving tax-payers Rs 2,000 annually. In addition, he lowered the threshold age for senior citizens - who enjoy a higher tax-exemption limit of Rs 2.4 lakh - to 60 from 65, thus bringing a large number of older people into the ranks of tax beneficiaries. He also created a new category named very senior citizens for those above 80, giving them an exemption limit of Rs 5 lakh per annum.
This apart, Mukherjee lowered the surcharge on corporate tax from 7.5 per cent to 5 per cent, which will lower the tax outgo - and improve net profits - for all companies who do not have to pay their taxes under MAT (Minimum Alternate Tax). For the latter, the tax bill will be marginally higher, with the rate going up from 18 per cent to 18.5 per cent.
Contrary to apprehensions, however, Mukherjee did not roll back any of the excise duty cuts that he had effected in order to provide a stimulus to spending during the low-growth years following the global recession. He maintained the peak rate of excise duties and service tax at 10 per cent, so that all items already at that level will not become more expensive. This may particularly please car-makers as well as car-buyers, who were prepared for an increase in prices.
However, by adding a number of new items to the service-tax net to contribute to the extra Rs 11,000 crore he is taking in from indirect taxes - compensating for foregoing Rs 11,000 crore in direct taxes by dint of his cuts - Mukherjee did end up making certain services costlier. Primary among these is air-travel.
Having exceeded his direct tax targets for 2010-11, Mukherjee reasoned that there was probably no need to raise tax rates to increase government revenues. Having set himself a stiff disinvestment target of Rs 40,000 crore for the year, he is obviously betting on other means for shoring up his revenues. That is something he must do if he is to bring the fiscal deficit down to 4.6 per cent of the GDP in 2011-12, as he has proposed. The fact that the fiscal deficit for 2010-11 will come in at 5.1 per cent, well lower than the targeted 5.5 per cent, must have encouraged his decision to let the stimulus remain.
The stock markets certainly cheered that move, as it did his tax cut for corporates and a number of measures to enable more FII dollars to be poured into the Indian markets. Primary among these is relaxing the limits for FII investments in mutual funds. Moreover, the intention to disinvest Rs 40,000 crore worth of PSU holdings will also give a new fillip to the primary market.
What was missing, however, were bold moves on the reforms axis. There was no announcement of allowing or increasing foreign direct investment in retail and insurance, as widely expected. Of course, such announcements do not necessarily have to be made in a Budget speech, even though the platform has traditionally been utilised to state such initiatives.
How will life change for India and Indians after this Budget?
Much depends on how well the large number of points about implementation of various plans and schemes are actually executed. However, on the whole it was a general signal that the economy is on a growth path, heading into double digits in the foreseeable future, and perhaps it's best for the government to eschew over-planning and focus on distribution and socioeconomic equity. If that is indeed the intent of Mukherjee's annual financial statement, he may still end up having done a reasonable job, despite the lack of fireworks.
But for big ticket reforms or ingenious initiatives for the larger population of India, don't go looking in Budget 2011. Those are still in the future - immediate or distant.
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