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Interim budget may include tax changes: HM

Reuters
Feb 12, 2009 at 03:20pm IST

New Delhi: India's interim budget later this month may include some changes in the tax structure and further stimulus measures, Home Minister and former finance minister Palaniappan Chidambaram said on Thursday, as authorities move to salvage growth.

"Wait until February 16. I suppose everything is possible," Chidambaram said when asked if changes to tax rates could be included.

External Affairs Minister Pranab Mukherjee, who is currently acting finance minister, will present the interim budget, also known as a vote on account on February16, Chidambaram told a news conference.

TAX CHANGES: Former Finance Minister Chidambaram said anything is possible in the interim budget.

India has to hold general elections by May, and the full budget for the 2009/10 fiscal year will be delivered by the new government once it has been formed.

India has cut key lending rates, slashed factory gate duties and pledged to spend more on infrastructure and exporting sectors to protect growth in Asia's third-largest economy.

Indian manufacturers have cut prices of their products after factory gate duty rates were reduced by four percentage points in December, but industry and exporters are lobbying for more tax cuts to ward off a slowdown and protect profit margins.

Analysts say the government could announce more fiscal measures in the interim budget, or after that, to protect jobs and revive industrial output before heading for elections.

"They might keep the options open for some fiscal support -- more expenditure and tax exemptions for textiles, exports and for small and medium sized firms," said N.R. Bhanumurthy, a senior economist at the Institute of Economic Growth.

"The chance of across-the-board duty cuts is low but they can cut duties selectively for sectors hit by the slowdown. My hunch is the fiscal deficit will not widen significantly if they cut duties selectively," he added.

The central bank last week forecast a fiscal deficit of close to six percent of gross domestic product by the end of March. That and higher market borrowing by the government leave little fiscal space for more relief measures, analysts say.

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