India's Budget Focuses On 'Inclusive Growth'
Monday, March 1, 2010
The Union Budget focuses on 'inclusive growth and insuring food security' according to an Indian Ministry of Finance Statement, but includes credible measures for improving the investment climate, strengthening infrastructure and fiscal consolidation.
Presenting the Union Budget 2010-11 in the Lok Sabha on February 26, the Finance Minister Shri Pranab Mukherjee, spoke of three challenges:
Reverting quickly to the high GDP growth path of 9% and higher;
Consolidation of recent gains in making development more inclusive; and
Removing weaknesses at different levels of governance improving public delivery mechanisms.
"The Budget, therefore, focuses on fiscal consolidation, making growth more broad-based and ensuring that supply-demand imbalances are better managed", said Mukherjee.
Expressing concern at the emergence of double digit food inflation, the Minister said that the government has set in motion steps in consultation with the State Chief Ministers to bring down the inflation in the next few months and ensure better management of food security.
The combined debt of the Centre and the States would be capped at 68% of the GDP to be achieved by 2014-15. A status paper would analyse the situation and a road map for cutting debt would be published within six months and annually thereafter.
The fiscal deficit is pegged at 5.5% for 2010-11. In the Medium Term Fiscal Policy Statement being presented along with other Budget documents in the House today, the rolling targets for fiscal deficit are pegged at 4.8% and 4.1% for 2011-12 and 2012-13, respectively.
The Finance Minister emphasized the need for continued tax reforms. The Tax Returns forms are being simplified and the Income Tax Department is now ready to notify simpler forms for individual salary tax payers. The new Direct Tax Code and the Goods and Service Tax (GST) have now been rescheduled for introduction from April 2011.
Major relief has been provided to individual taxpayers by enhancing exemption limits and reducing tax in different slabs of personal income.
The surcharge on domestic companies is being reduced from 10% to 7.5%. However, the minimum alternate tax (MAT) is being increased from 15% to 18%.
Exemptions and deductions have been provided to increase spending on research. The investment linked deduction to new hotels of two star category and above is being extended to give boost to investment in the tourism sector.
A one-time interim relief is being provided to the housing and real estate sector by allowing pending projects to be completed within a period of five years instead of four years for claiming a deduction on their profits.
The standard rate on all non-petroleum products will be increased from 8% to 10%. The specific rates of duty applicable to Portland cement and cement clinker are also being adjusted upwards proportionately.
Similarly, the ad valorem component of excise duty on large cars, multi-utility vehicles and sports utility vehicles which was reduced as part of the first stimulus package, is being increased by 2% to 22%.
The basic duty of 5% on crude petroleum, 7.5% on diesel and petrol and 10% on other refined products is being increased. The Central Excise Duty on petrol and diesel will rise by INR1 (USD0.02) per litre. Excise duty on non-smoking tobacco will increase and a compounded levy scheme is being introduced for chewing tobacco and branded unmanufactured tobacco based on the capacity of pouch making machines.
In support of the agriculture and allied sectors, mechanized handling systems in warehouses will get project import status with a concessional import duty of 5%. Installation and commissioning of such equipment will be fully exempt from service tax.
Concessional duty will also be applicable for cold storages, food processing units, specified equipment for food preservation etc. The concessional import duty to specified machinery for use in the plantation sector is being further extended to March 2011. Testing and certification of agricultural seed is being exempt from service tax.
Tax exemptions have been announced for equipment used in solar systems and wind energy system, LED lights, electric cars, cycle rickshaw, mobile phone components and certain medical equipment.
The rate of tax on services will stay at 10%.