As a big step on the last of those, the minister, citing concern over the misuse of subsidies provided under various schemes, said the government would provide a direct cash subsidy on kerosene and fertilisers to people below the poverty line (BPL) from March next year. A task force headed by Nandan Nilekani is working out the modalities for the proposed system of direct transfer of subsidy for kerosene, LPG and fertilisers, he said.
A little into his presentation, the markets cheered Pranab as he talked about stepping up the disinvestment process and about plans to contain inflation. The Sensex rose by over 250 points and hovered about there till the end of his speech. After the FM announced that duties would remain unchanged, corporate India smiled and the markets soared higher with the Sensex going up almost 500 points at one stage. The Sensex closed 122 points higher to end at 17,823. The 50-stock Nifty gained 29 points to 5,333.
All eyes were on what Mukherjee would roll out as taxation relief for the aam aadmi. That moment came one hour and 20 minutes into his speech when he annouced propsals on direct taxes. Here is what the FM had for individual tax players, saying his priority was to make taxes more moderate:
• Tax exemption limit raised to Rs. 1,80,000 from Rs. 1,60,000 for the general category
• Senior citizens' age qualification reduced from 65 years to 60 years
• Exemption for senior citizens raised to Rs. 2.5 lakh
• Higher exemption for new category of very senior citizens - above 80 years of age.
• Tax exemption raised to Rs. 5 lakh for these very senior citizens.
And in some good news for those among the salaried that do not have other sources of income, the Finance Minister has exempted them from filing tax returns.
Salaried taxpayers who do not have other sources of income and whose incomes are subject to Tax Deduction at Source (TDS) will be excluded from filing returns with effect from June 1, 2011.
Earlier, the FM announced that the Direct Tax Code Bill was likely to be passed by Parliament in the next financial year.
The Finance Minister has also hiked the minimum alternate tax (MAT) from 18 per cent to 18.5 per cent. Last year, MAT was hiked from 15 per cent to 18 per cent. This is a negative for corporates. However, the FM has also cut the surcharge on domestic companies from 7.5 per cent to 5 per cent.
The FM said that the central excise rate had been retained at 10 per cent. Excise duty applies to virtually all manufactured goods. The FM has also retained services tax at 10 per cent. Analysts had expected him to hike both.
Service tax has been hiked on air travel - by Rs. 50 for domestic travel and Rs. 250 for international travel in the economy class. On higher classes, it will be 10 per cent flat. Service tax has been widened to cover hotel accommodation above Rs. 1,000 per day, air-conditioned restaurants serving liquor and some category of hospitals and diagnostic tests.
Mobile phones and refrigerators will be cheaper, branded clothes and gold will cost more.
The peak rate of customs duty would be maintained at 10 per cent in view of the global economic situation, Mukherjee said. The basic customs duty on agricultural machinery has been reduced to 4.5 per cent from 5 per cent.
Importantly, Mukherjee said the Government proposed to introduce the Constitution Amendment Bill in the current session to pave the way for the introduction of the long-awaited Goods and Services Tax (GST) regime. The government had originally planned to roll out GST from April 1 last year but a consensus could not be reached. The Bill needs a two-third majority in both the Houses of Parliament to be passed.
GST would subsume most of the central and state taxes like excise and sales tax, making rules easier for the industry and other tax payers.
The net loss from direct tax proposals was estimated at Rs. 11,500 crore, Mukherjee said.
Economy to grow at 9%: Pranab
The Finance Minister began his Budget speech by saying that the economy had bounced back, industry was regaining ground and he projected a double-digit service growth in "the near future." He said the economy was expected to grow at 9% in 2011-12. The GDP, he said, had grown at 8.6 per cent, the agriculture sector had grown at 5.6 per cent, industries at 8.1 per cent and the services sector at 9.6 per cent.
On expected lines, early in his speech he identified inflation and high food prices and corruption as key challenges before his government. And said he saw this Budget as a transition to a more transparent and result-oriented economic management. He promised that average inflation would be lower in the coming year.
Focus on reforms push
With a focus on pushing reforms, Mukherjee said the government would keep up the tempo of the disinvestment process. He said the disinvestment target was Rs. 40000 crore for the next financial year.
Mukherjee also said discussions were on to further liberalise the Foreign Direct Investment (FDI) policy. Also, portfolio investment would be permitted in SEBI-registered mutual funds from foreign subscriptions, essentially allowing foreign investors in mutual funds.
He also announced bank licenses to new private sector players and the speeding up of various pending financial sector bills.
Boost to Agri sector
Pranab Mukherjee's sixth Budget comes in the backdrop of high inflation, tight liquidity and rising current account deficit. Unsustainable subsidies and a sense of policy paralysis as far as major reforms are concerned have been a drag on the economy. Mukherjee has the difficult task of putting the economy back on track as well as keep the masses or the aam aadmi happy.
Towards that last bit, Mukherjee has also given a bonanza to the farming community, announcing loans at an interest rate of four per cent, three per cent less than the market rate, for farmers who pay their dues in time. He has also proposed raising the credit target for the farm sector by Rs. 1 lakh crore.
Mukherjee said the credit target for the agriculture sector had been increased by Rs. one lakh crore to Rs. 4,75,000 crore. Also, he said, banks had been asked to focus on farm credit lending to small and marginal farmers. Faced with high food inflation and the country's dependence on import of pulses and edible oil, the Finance Minister also announced various schemes for promoting production of vegetables, pulses, oilseeds, fodder and nutrition-rich crops like millets and maize.
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