All eyes — from those of the inflation-hit common man to the country’s stock markets which have been one of the worst performers globally this year, ranking second only to trouble-torn Egypt — will be on finance minister Pranab Mukherjee on Monday morning in the hope of relief as he rises to present the Union Budget in the Lok Sabha.
With food inflation in double digits in the last two years, Mr Mukherjee is expected to raise the income-tax exemption limit to `2 lakhs to leave some spare money in the pockets of the middle class. While the country’s poor do get some shield from high food prices through the government’s public distribution system, there is no such elaborate system for the middle classes, particularly in the big cities. As of now, the exemption limit stands at `1.6 lakh for men and `1.9 lakh for women. The draft direct tax code, which is currently with Parliament, also envisages a uniform exemption limit of `2 lakhs per annum for both men and women.
The FM is also expected to raise the limit for investment in tax-saving infrastructure bonds from the current `20,000. This, besides giving a tax concession to people, will also help raise huge amounts of money required to meet the country’s infrastructure needs. The government has fixed a target of doubling investment in the infrastructure sector to $1 trillion in the 12th Five-Year Plan (2012-17).
With the Assembly polls nearing in Tamil Nadu, West Bengal, Kerala and Assam and Puducherry, Mr Mukherjee might also have some special plans in store for these poll-bound areas. As far as industry is concerned, Monday’s Budget may also unveil the UPA-2 government’s reform agenda. Prime Minister Manmohan Singh had promised earlier this month that a clear picture of his government’s reform agenda would be visible in the Budget when he addressed a press conference of senior TV editors. It is noteworthy though that while Indian industry would like the FM to announce big-ticket reforms in retail, insurance and other sectors to boost investor confidence in this country, Mr Mukherjee will need to take into account current political realities.
There is also a possibility that the finance minister may announce an amnesty scheme for persons with black money in order to mop up funds. The last such scheme was launched in 1997-98, and the then government had earned over `10,000 crores in revenue. This was over 12 times the total collection from previous such amnesty schemes.
A group in the finance ministry is already looking at the issue of black money. In recent months, it has become a political hot potato for the government, which is facing sharp attacks from the Opposition and criticism from the Supreme Court for not doing enough on the matter. However, even if the government does announce an amnesty scheme, this might not blunt the Opposition’s attacks on it. The Left has maintained that such amnesty schemes only help tax evaders.
The Centre is also expected to increase allocations for the education and health sectors, to push ahead with UPA-2’s social sector agenda. Mr Mukherjee could also announce a significant increase in the agriculture credit target for banks, raising it to `4,50,000 crores from `3,75,000 crores.
The FM is also likely to go against the wishes of industry and further roll back stimulus measures announced during the global financial crisis over two years ago. This is urgently needed as the government must maintain its fiscal deficit. This time there will be no bonanza for the government’s treasury as was the case in 2010-11 when it got `1 lakh crore through the sale of 3G and BWA spectrum.
The finance minister is also likely to increase the service tax basket and bring more services under its ambit.
The Union Budget is expected to reduce customs duty on crude from the current five per cent on crude oil and specific excise duty on petrol and diesel to help the public sector oil marketing companies, which are now bleeding due to spurt in international crude prices.
Though the government is likely to fall short of its disinvestment target of `40,000 crores in the current fiscal year, the finance minister is expected to announce disinvestment in more companies in the Budget. The minister could also increase the sunset period for tax benefits under the Software Technology Parks of India.