Click to play videoNew Delhi: Finance Minister Pranab Mukherjee will present Union Budget 2009 on Monday in Parliament. The Budget will be a big test for the Congress-led United Progressive Alliance (UPA) Government on whether it can live up to its thumping electoral victory.
But analysts say the Budget may not really be a dream one since the government is faced with the threat of revenue under pressure and debt at the risk of expanding.
The Finance Minister is expected to build on flagship programmes of the UPA Government such as the National Rural Employment Guarantee Scheme, the Rural Health Mission and education sector programmes.
However, phasing out of the fringe benefit and securities transaction taxes may also be on Pranab Mukherjee's agenda.
The Government may scrap the controversial Fringe Benefit Tax that earned it Rs 7,400 crore last year but is disliked by the salaried class.
Major boosts for housing and highway sectors, too, are expected as a measure to spur domestic demand to sustain growth. Expectations are certainly high that the Budget will lay out a roadmap for the next five years.
With economy showing signs of recovery following the slowdown witnessed in the second half of 2008 and the first few months of 2009, the Budget is likely to lay special emphasis on sustaining and accelerating growth.
Thrust on housing and infrastructure sector will create demand in many other sectors like steel, cement etc.
Some of the measures could be additional tax benefits for investment in infrastructure funds as also raising the ceiling on housing loan interest payment for income tax exemption, sources said.
As much as Rs 1.50 lakh a year paid on interest on housing loan is exempted from income tax at present. The housing industry is demanding that this ceiling should be raised to Rs 3 lakh a year.
Pranab Mukherjee is likely to pay special attention to the realty sector and tax payers may get more sops for investment in housing and infrastructure schemes.
Disinvestment in public sector units will also be on the agenda as money generated from the sale shares in profitable companies will come in handy in expanding and spending on social sector schemes.
CNN-IBN has learnt that the Government is likely to announce major decisions related to disinvestment in PSUs and set a fresh agenda for economic reforms.
Vivian Fernandes, Economic Policy Editor, CNBC-TV18, reports that the Government could off load 10 per cent to 15 per cent of its stake in 61 central PSUs in which it holds 100 per cent stake. The disinvestments would be gradual and the money won’t flow in immediately but a target for reforms would be set.
Budget proposals may contain measures for subsidised wheat and rice at Rs three a kg for the poor, in accordance with the Congress' poll promise.
Even though there may not be any major change in income tax rates, but the salaried-class could get additional tax exemption benefits.
However, the Finance Minister may seek to shore up revenue through expansion of service tax net, besides withdrawal of some import duty exemptions as inflation is now negative.
Planning Commission Deputy Chairman Montek Singh Ahluwalia has already gone on record saying that the Budget will not be ‘populist’ but will have popular measures.
“I am sure Finance Minister will present a popular Budget", Montek had said about the Budget.
But one of the major challenges before Mukherjee will be to balance the growth requirement to the budgetary deficit that would need a market borrowing of over Rs 3 lakh crore during the current financial year.
Fiscal deficit was projected to be 5.5 per cent of GDP in the Interim Budget, but that was when the Finance Minister did not announce the third stimulus package. The package was announced in reply to the debate on Interim Budget, which itself would take fiscal deficit to six per cent, sources said.
As such, the Economic Survey has also recommended elimination of all cesses, surcharges and transaction taxes, including the fringe benefit tax and securities transaction tax along with introduction of New Income Tax Code that would simplify the tax laws.
In this context, the Budget may not increase cess on petrol and diesel from the current level of Rs 2 a litre, which is demanded to fund the national highways, rural development and laying of state roads.
On other hand, the gross budgetary support for the planned investment, a issue jointly decided by the Finance Ministry and the Planning Commission, could be in the range of Rs 3,35,000 crore, an amount almost equivalent to expected market borrowing.
The Interim Budget had proposed Rs 2.85 lakh crore, for planned investment. Faced with intense pressure from corporate India to announce another stimulus package and to cut tax rates, Mukherjee is likely to come up with fiscal sops for the segments of the industry hit hard by the global crisis.
"Indeed we may have to consider additional Plan expenditure of anything from 0.5 to 1 per cent of GDP," he had said in Interim Budget.
The Budget may give various tax exemptions to infrastructure bonds to channelise savings for the long term projects.
Besides, exporters may get some sops as exports have declined since October, 2008, costing five million jobs.
So far as software exports are concerned, they may continue to get tax holidays beyond March 31, 2010, which would benefits IT companies.
The stimulus packages, which included steps like reducing taxes and raising public expenditure, were intended to raise economic growth which slipped from about nine per cent to 6.7 per cent during 2008-09.
For the current year, Prime Minister Manmohan Singh expects the economy to expand by seven per cent and several other economists also share his view. The Economic Survey had pegged the growth rate to seven per cent, plus or minus 0.75 per cent, if the US economic downturn bottoms out by September and monsoon is normal.
The Budget may also announce auctioning 3-G spectrum, which is likely to fetch the government Rs 25,000-30,000 crore. It may also announce listing telecom major BSNL.
Recapitalising public sector banks to ensure funding to productive sectors for sustaining the growth process may also find a place in the Budget.
The Budget may, however, skip mentioning about Goods and Service Tax, scheduled to be implemented from next fiscal.
(With inputs from Vivian Fernandes, Sonal Joshi and PTI)
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