Sticking to his promise that the last full Budget of UPA-2 would not be populist, Union finance minister P. Chidambaram on Thursday went for fiscal consolidation and raised taxes on the super-rich in an attempt to shore up revenue.
However, the relief for the super-rich is that the proposed surcharge of 10 per cent imposed on earning over `1 crore will be for only one year. Mr Chidambaram also raised taxes on things consumed by the affluent classes, including imported yachts, SUVs, imported high-end cars and motorcycles and luxury homes. From France to the US, there has been a tendency to impose more taxes on the super-rich as countries are struggling to come out of debt.
With the finance minister keen not to lose revenue, the middle class, which has been hit by high prices, only got token relief on the personal income-tax front by giving a benefit of `2,000 on income between `2 lakh and `5 lakh. Mr Chidambaram said this would benefit 1.8 lakh tax payers to the value of `3,600 crore. However, he chose not to increase the tax exemption level from `2 lakh, saying that would mean a number of people would escape the tax net.
Mr Chidambaram unexpectedly announced a fiscal deficit of 5.2 per cent for 2012-13, lower than the target of 5.3 per cent, and promised to bring it down further to 4.8 per cent in the next fiscal. He is banking on increased revenue, including from a high disinvestment target for the next fiscal at `55,814 crore, up from `24,000 crore estimated in the current fiscal, this despite the fact that in two fiscal years the government has failed to realise disinvestment targets set in the Budgets. Even after two 2G auctions failing, the Budget is targeting a fee of `40,800 crore from the telecom sector. Tax proposals are expected to bring in another `18,000 crore in 2013-14. According to analysts, in case revenue drops, the government may be forced to cut its expenditure. Mr Chidambaram has also sought to reduce major subsidies on fuel, food and fertilisers by 11 per cent to over `2.20 lakh crore in fiscal 2013-14 compared to the revised estimates for the current fiscal. The government also raised Plan expenditure by just 6.58 per cent to `5,55,322 crore from the Budget estimate of `5,21,025 crore for the current fiscal.
The finance minister tried to tighten rules for foreign investors claiming benefits under tax treaties, something which spooked the markets as they feared that investment coming from Mauritius may be taxed. Trying to allay the fears of foreign investors, Mr Chidambaram said India would follow a tax stable regime.
To address the major constituencies before the election next year, Mr Chidambaram said the Budget’s focus is on women, the poor and jobs for the youth. He announced an all-women public sector bank and proposed setting up of a Nirbhaya Fund as a tribute to the 23-year-old Delhi gangrape victim.
He also tried to wean investors off gold by tinkering with the Rajiv Gandhi Equity Savings Scheme and promising to introduce inflation-indexed bonds or inflation-indexed national security certificates.
On the social sector front, though the finance minister did not announce any new major scheme to attract people, he, however, proposed to bring urban India under the universalised health services scheme — Nation Health Mission — by allocating around `21,000 crore which will include both the ongoing rural health mission and urban health mission. The amount is 24 per cent more than last year’s revised estimate, when the scheme was limited only to rural India.
On UPA chairperson Sonia Gandhi’s pet programme of ensuring food security through an act of Parliament, Mr Chidambaram has set apart `10,000 crore over and above the normal provision for food subsidy. But this amount can only be spent after Parliament enacts the law.