Though Indian finance minister Pranab Mukherjee ominously quoted Shakespeare in his budget speech on Friday — “I must be cruel only to be kind” — he chose not to annoy most sections of society and produced a rather timid budget.
In the middle of his nearly two-hour-long speech in the Lok Sabha, the lower house of the Indian parliament, Mukherjee quoted Hamlet, the prince of Denmark, warning that economic policy (as in medical treatment) often required some painful procedures.
But his tax proposals — both direct and indirect — were devoid of the pain. For individuals, especially the middle-class, he raised the income-tax exemption limit marginally, from Rs180,000 to Rs200,000. In effect, a person earning about Rs200,000 a year would not have to pay any income-tax. Similarly, those earning between Rs200,000 and Rs500,000 would have to pay just 10 per cent tax, and those earning between Rs500,000 and Rs1 million would have to pay 20 per cent tax. The tax rate for those earning above Rs1 million is 30 per cent.
There were no changes in the corporate or personal income tax rates, though corporates were burdened with an additional two per cent excise duty and service tax. The standard effective excise duty rate was increased from 10.3 per cent to 12.36 per (inclusive of educational cess); so too was the effective service tax rate. All services, except 17 specified ones in the negative list, are now under the service tax net.
The growing subsidy burden — on account of food, fertiliser and fuel — has also resulted in Mukherjee failing to rein in the fiscal deficit. The fiscal deficit ratio shot up to 5.9 per cent in fiscal 2011-12 (ending March 31, 2012), as against 4.6 per cent in the previous financial year. For 2012-13, Mukherjee has projected a fiscal deficit of 5.1 per cent. The revenue deficit has gone up from 3.3 per cent of GDP in 2010-11 to 4.4 per cent in the current fiscal.
According to the finance minister, India’s GDP — which will add up to $2.1 trillion — is expected to grow at 6.9 per cent in the current fiscal (as against 8.4 per cent in the previous two fiscals). For fiscal 2012-13, he has projected a GDP growth rate of 7.6 per cent. Referring to the government’s disinvestment policy, Mukherjee said he hoped to raise about Rs300 billion through disinvestment in 2012-13. However, the government would retain a 51 per cent control over its units and also the management of the firms.
He noted that the 12th five-year plan would see investments of a whopping Rs50 trillion in infrastructure, with the private sector expected to account for half of it.
But the budget had some bad news for Indians who buy gold in large quantities. Mukherjee doubled the import duty on gold to four per cent, considering the huge rise in demand for the yellow metal. “One of the primary drivers of the current account deficit has been the growth of almost 50 per cent in imports of gold and other precious metals in the first three quarters of this year,” said the finance minister, justifying the hike in customs duty on gold. Last year, India imported a record 969 tonnes of gold.