Union Budget 2005–06: Promises and Prospects

Abstract

The Union Budgets are traditionally surrounded by hype, debate, and controversies. This year's Budget has been no different. Presented in the backdrop of favourable macro-economic conditions, a sound business environment, a booming capital market, and a relatively stable political scenario, it drew a lot of expectations from all quarters. This issue's Colloquium is a post-mortem of the Budget, 2005–06 by an eminent panel of analysts. While highlighting the broad tenets of the Budget, they put across their views on the positives and the negatives and discuss their implications. The objectives of the Budget have been implicitly stated as being the same as the National Common Minimum Programme which broadly advocates the maintenance of growth rate of 7–8 per cent, promotion of investment, generation of employment, introduction of fiscal reform, stimulation of growth in agriculture, manufacturing, and infrastructure, and alleviation of poverty. The following positives emerged from the discussion: An explicit focus on the development of rural areas to reduce the pressure of migration to the urban areas. A clear roadmap for evolving a strategy for agricultural diversification. Incentives provided for strengthening the agriculture marketing infrastructure with a focus on agricultural credit, insurance, and micro finance. Dereservation of SSIs of 108 items and giving them the choice to pay excise duty for the first Rs.100 lakh and claim CENVAT or else remain outside the chain to help in integrating them into the value chain of production. A package of financial sector reforms including the removal of limits of SLR and CRR and facilitating the FII trading in derivatives. Substantial reliefs in the corporate tax and personal income-tax which should promote savings. Taxation of zero coupon bonds at 10 per cent of long-term capital gains. The panelists identify the following problem areas in the Budget: Lack of transparency in the revenue implications of the tax proposals. Injecting fresh equity and providing fresh loans to PSUs as this would mean a reversal of the reforms. Difficulty in achieving effective fiscal consolidation. Fringe benefit tax on service, facility or amenity provided by an employer to his employee. Internal contradictions in the policies related to the housing industry, small scale sector, VAT, and disinvestment. Overall, the panelists consider it a positive Budget in the sense that it would at least not disrupt the buoyancy of the economy. However, considering the opportunities that the overall environment offered, a more aggressive approach would have lifted the Indian economy further to help it emerge as yet another Asian Tiger.