A balanced budget, but with a loan waiver that will hurt

A balanced budget, but with a loan waiver that will hurt
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First Published: Sat, Mar 01 2008. 12 01 AM IST

Anjan D.  Ghosh, Head, Corporate Sector Ratings, ICRA
Anjan D. Ghosh, Head, Corporate Sector Ratings, ICRA
Updated: Sat, Mar 01 2008. 03 20 PM IST
The key challenges facing the policy makers in this Budget has been to : sustain the growth rates seen in the recent past against the backdrop of global uncertainties and slowdown; ensure that the growth is an inclusive one; and keep inflation within control , especially in view of the spiralling prices of crude oil and other agricultural commodities.
Anjan D. Ghosh, Head, Corporate Sector Ratings, ICRA
Against this backdrop, the finance minister has presented a balanced budget, with significant increase in outlays on social sectors such as health and education as well as physical infrastructure such as power, roads and energy.
The loan waiver for small and marginal farmers, which is expected to cost the system Rs. 60,000 crore is, obviously, the most populist scheme .The loan waiver is a negative not only in terms of the fiscal impact but also in terms of its effect on the credit culture. Other obvious disappointment for the corporate sector are the fact that there has been no change in corporate tax rates, which was expected given the buoyancy in tax revenues. For the common investor, increase in Short Term Capital Gains Tax from 10% to 15% is a negative move
At the same time, the Budget has done its bit to promote industrial growth with a wide ranging cut in excise duty in a variety of industries such as cars (for small cars), two Wheelers, three wheelers, paper, drugs and several others.
Reduction in CENVAT from 16% to 14% and CST rates from 3% to 2% is also a positive move. Leaving the peak customs duty unchanged is also on expected lines in view of the rupee’s appreciation. There are policy announcements with regard to development of Corporate Bond market, creation of a market for Exchange Traded Currency and Interest Rate Futures and rationalization of Stamp Duty.
The other measure which will should provide cheer to the industry is avoidance of double taxation on dividend distribution. The Tourism and Health care sector stands to benefit from the 5 year tax holidays under Section 80IB.
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First Published: Sat, Mar 01 2008. 12 01 AM IST