Finance Minister Mr Chidambaram has been clearly influenced by pressures ahead of the General Elections due in 2009.
The circumstances are writ large on what looks like a very Left-leaning Budget, which may have undone his earlier effort of the last four years that characterize his genius for financial prudence.
The waiving of loans on farms of up to 2 hectares will cost Rs 600 billion ($15 billion)... a clear case of bad economics. We need to understand more to figure out how this is going to be funded.
A couple of disappointments of Budget 2008 include the non-extension of Sec 10A/STPI tax holidays and the lack of any redress vis-a-vis the levy of FBT on ESOPs. The increase in short-term capital gains is a bit negative for the capital markets and it could have been avoided as the tax collections have been buoyant in the past few years.
The FM had also commented on more than one occasion that the Government would moderate taxes as the collections improved.
On the positive side, it is good to see a big push on healthcare i.e. the allocations for HIV/polio eradication, the new investments in new educational institutions and easing access to scholars seeking financial assistance. The challenge of course, as seen in the past several years, is in good execution of these well intentioned programs so that there are no “transmission losses”.
The Budget has also made a serious attempt to stimulate consumption demand by reducing indirect taxes on consumer durables like small cars, two- and three-wheelers etc., and by raising the personal income tax exemption limit. The Union Budget 2008 could have accomplished a lot more.
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