Pranab Mukherjee is right. As he himself admits in the last sentence of his speech, the budget does not lend itself easily to headlines.

Yet, contrary to street view, the finance minister has probably tried to go a few key steps beyond what was otherwise thought possible in a bad year like this one.

One, he sought to put a leash on expenditure on subsidies, bringing for the first time the concept of a cap in terms of proportion of GDP.

Two, in a much- needed booster for the stock market, he has introduced the Rajiv Gandhi Equity Saving Scheme that should have a long- term positive impact and attract new investors, especially in the lower tax brackets.

The scheme allows half of up to Rs 50,000 invested in equity to be deductible from the taxable income.

Three, he has allowed more foreign fund inflows in the form of higher borrowings abroad. This also indicates he is confident that the rupee will remain strong over the long term, but he has obviously taken a calculated gamble, for it could go awry if there is another global crisis triggering capital outflows from emerging markets as in 2008.

But for all intent and purposes, this is a work-in-progress budget at best and a maintenance budget at worst. Given the direness of the government’s financial situation, it was probably only to be expected that Mukherjee would tap anything that could yield some tax.

In the process he hopes to raise Rs 41,400 crore extra next year, much of which will come from excise, customs and service tax collections.

To that end he has decided to tax a much wider platter of services. The sweep of taxation here could cover anything and everything the government deems as a service, barring 17 services that are on the negative list. Nearly 200 services outside the negative list is fair game for the taxman. Moreover, the tax itself has been stepped up from 10 per cent to 12 per cent.

Ditto for excise duty, which has been raised from 10 to 12 per cent and applies to over 85 per cent of all goods manufactured in the country. But such an increase had been anticipated for a while.

As a result, almost every manufactured item a consumer requires gets costlier. For example, cars, refrigerators, even a tube of toothpaste – everything will have a higher price tag.

Manufacturing companies, specially in consumer goods, have been quick to react, saying there is no question of absorbing the excise hike and prices of their products have to be stepped up.

Quick on the draw, carmakers have already announced increases in prices. s in most budgets, in this one too there is more take than give. Among the concessions is some relief in personal income-tax: the minimum taxable income has been raised by Rs 20,000 to Rs 2 lakh, and the first tax slab (drawing 10 per cent tax) is up to Rs 5 lakh; the next one is Rs 5 lakh to Rs 10 lakh (tax rate 20 per cent), and the third is anything above Rs 10 lakh where the tax is 30 per cent.

Though this will put some extra money in the hands of taxpayers, it was a disappointment as the popular expectation was a new exemption limit of Rs 3 lakh.

But it is the services which will bear the brunt of additional tax mobilisation. This alone is projected to bring in Rs 18,660 crore in the new financial year. This will mean one will have to pay more for services such as telecom, banking, air travel, life insurance, foreign exchange purchase and sale and many more. Services, account for nearly 60 per cent of India’s economy.

For the first time, a specific cap has been placed on subsidies. It will be 2 per cent of GDP (or, Rs 204,000 crore) in 2012-13 and 1.75 per cent in 2013-14. This will mean fuel and fertiliser prices will go up, affecting all on either side of the rural-urban divide.

The cuts in subsidies or the revenue hopes are not really moderate, reflecting the state of the government’s coffers and the need for fiscal discipline and consolidation. The fiscal deficit is expected to go way beyond the earlier projection of 4.6 per cent of GDP and be in the range of 5.9 per cent for the year.

Significant steps have been taken to breathe new life into power, coal, roads and civil aviation. Micro and medium enterprise too come in for some relief.

All this to revive industrial growth that sank to 3.6 per cent in first 10 months of the year. The withholding tax on interest payments against overseas borrowings by companies in power, airlines, roads and bridges, ports and shipyards, housing and fertiliser has been hacked to 5 per cent from 20 per cent.

Restrictions on venture capital fund investments have been removed. The dividend distribution tax on companies with a multi-tier structure has gone. And foreign outfits of Indian companies have now been allowed to repatriate dividends at 15 per cent from the earlier 30 per cent.

For he stock market, the securities transaction tax (STT) has been cut to 0.1 per cent from 0.125 per cent for all cash deliveries. To encourage small retail investors to buy equity, a tax deduction of 50 per cent on investments up to Rs 50,000 has been announced.

Though the introduction of the direct tax code has been deferred, Mukherjee has some groundwork in preparation for ushering in, at some future date, both the code as well as the goods and services tax (GST). This has been done by bringing excise duty and service tax on an even keel at 12 per cent; this is likely to be the mean rate for levy of GST whenever introduced. For simplification and easy graduation to GST the government has introduced a one- page common return form for central excise and service.

Going beyond the usual expression of intent to tackle black money, Mukherjee announced a few of measures to curb generation and laundering of tax-evaded money. For one, the declaration of assets held abroad is made mandatory. The tax authorities have been given the freedom to go back 16 years and reopen tax assessments of these assets. Further, tax will be collected at source on cash purchase of bullion or jewellery of over Rs 2 lakh, TDS will also be deducted on transfer of immovable property and trade in coal, lignite and iron ore.

Among other measures, the onus of proving receipt of funds from shareholders has been placed on closely held companies; and share premiums will be taxed at the fair market value. All unexplained money, credit, investments and expenses would be taxed at 30 per cent irrespective of the slab the taxpayer belongs to.

Gold being such a gigantic business in India, Mukherjee has not let go of the opportunity. He Import of gold will now be taxed at 4 per cent, up from 2 per cent. This is aimed at lowering both the trade deficit (now at 8 per cent of GDP) and current account deficit (now at 3.6 per cent of GDP). Mukherjee pointed out that gold imports at $58 billion this year were the largest drain of foreign exchange after crude oil. He also slapped a 2 per cent excise duty even on unbranded jewellery and gold articles. Branded gold articles and jewellery have already been in the excise net from before.

The budget followed the economic survey in projecting an optimistic 7.6 per cent GDP growth in 2012-13, a fiscal deficit of 5.1 per cent and inflation at 6-7 per cent.

> badarinath@mydigitalfc.com