JULY 06, 2009

Budget 2009: All efforts to bring back economy on 9% growth path

By Ashok Dhingra

THE Finance Minister, Mr. Pranab Mukherjee, presented the first budget of the ruling alliance post election today in the Parliament, which is growth and investments oriented.  India had a GDP growth rate of 9% which came down to 6.7% in FY 2008 – 09 on account of global economic slowdown. The key challenges identified in the budget are to get back GDP growth rate of 9% at the earliest.

The Finance Minister had laid out a short term and a medium term measures for economic revival in his budget proposals.  Short term measures include - IIFCL to facilitate incremental lending to infrastructure sector in consultation with banks; higher allocations to NHAI under National Highway Development Programme, Railways, Jawaharlal Nehru National Urban Renewal Mission, National Rural Employment Guarantee Scheme; Accelerated Power Development Reforms Programme; formation of National Gas Grid to transport gas, etc.  Some special measures for restoring export growth like enhanced ECGC cover at 95% to badly hit sectors extended and export subvention of 2% on pre-shipment credit for 7 employment oriented schemes upto March 31, 2010 have also been announced.

To ensure medium term sustainability and to bring fiscal deficit under control the Government intends to roll out institutional reforms measures during current year. Some of key proposed initiatives in this regards are move to a system of direct transfer of fertilizer subsidy to farmers; setting up of an expert group to advise on viable and sustainable system of pricing of petroleum products; retaining of 51% of Government equity in PSUs, etc.

The Government proposes to continue the process of tax reforms, thrust of which has been to improve efficiency and equity in tax system. It is proposed to expand base, eliminate distortions in tax structure and introduction of moderate levels of taxation. Structural changes in taxation are being accelerated. GST is proposed to be introduced wef April 1, 2010 both at federal and State level under separate legislations.  This is the biggest tax reform proposed to be rolled out simultaneously on pan India basis.

On the direct tax side while rates of corporate tax has been maintained, exemption limits in personal income tax has been raised.  Further Fringe Benefit Tax and Commodities Transactions Taxes are proposed to be abolished. In deference to the wishes of the industry sunset clause for deductions in respect of export profits under section 10A and 10B of the Income Tax Act, 1961 has been extended by one year i.e. for FY 2010 – 11. The Government intends to strengthen disputes resolution mechanism for resolution of transfer pricing disputes and also proposed to empower CBDT to formulate ‘Safe Harbour’ rules. Small businesses with a turnover of upto Rs. 40 Lacs are proposed to be given an option to declare income at the rate of 8% of turnover and avail exemption from maintenance of books of accounts.

On the indirect taxes side present rate of excise and customs duty and service tax is proposed to be retained with certain changes in rates of duty on specified products. 

Sweep of service tax is proposed to be expanded by levy of service tax on transportation of goods by rail and inland water, cosmetic and plastic surgery and service in the field of law (except by an individual lawyer).

On the whole the proposal seems to be moving towards accelerating GDP growth rate and economic revival which is sought to be achieved by moving towards a simple and efficient tax structure, improving delivery mechanism of the Government and broaden agenda for inclusive development.  A good intent with determined efforts will achieve the desired growth rate. Let us hope that implementation is as good as the intent is.

(The author is Partner with J Sagar Associates)