Chidambaram seeks to appease farmers, win votes

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Delivering a budget for the masses instead of India's classes, Finance Minister Palaniappan Chidambaram, proposed waiving loans held by small farmers (600 billion rupees) and pledged higher spending on health and education to spread the benefits of an economic boom beyond the cities to rural voters.

India has a population of 1.1 billion and 60 percent or more live and work in rural areas.Due to risks from turbulence on global financial markets and rising oil, metals, wheat and rice prices worldwide, Chidambaram said while he was confident India's economy would grow by 8.8 percent in the fiscal year ending on March 31 a fall from a scorching 9.6 percent in 2006/07, its fastest pace in 18 years.

While he vowed to keep rising inflation under check, Chidambaram increased defence spending by 10 percent in 2008/09. He also increased urban infrastructure spending to 68.7 billion rupees and Rural infrastructure spending will be 140 billion rupees further, Government spending on national highways will be 130 billion rupees.

He however, brought cheer to the individual taxpayer by raising the basic income tax exemption limit from Rs1,10,000 to Rs1,50,000. The move will see the individual save at least Rs4,000 in taxes in financial year 2008-09. The exemption for women asseesees has been raised from Rs1,45,000 to Rs1,80,000, while that for senior citizens from Rs1,95,000 to Rs2,25,000. Tax to GDP ratio in 2007/08 seen at 12.5. Bad news, though, for those who earn their living playing on the stock market. The FM has raised the rate of short-term capital gains tax on the sale of listed shares from 10% to 15% while keeping corporate tex stangnant.

Further, "Foreign institutional investors (FIIs) will face higher taxation because the short-term capital gains tax has been raised to 15 percent from 10 percent. In principle, it is laudatory but it increases the cost of doing business for FIIs." said Sudhir Kapadia, Head of Tax, Regulatory services, KPMG, Mumbai.

"The focus is on inflation, the social sector and consumer. However, capital spending is a little disappointing. The reduction of the fiscal deficit in '08/09 to 2.5 percent is positive, however it may not include the impact of the pay commission, so it could be higher than forecast. A lower than expected gross borrowing programme is positive from the market perspective," said Shuchita Mehta, Chief India Economics, Standard Charterd Bank, India.

To know more about the Union Budget 2008-09 and how it impacts you read the budget analysis by our Partner firm in Mumbai, Rahul Gautam Divan & Associates, attached below:

Also attached below is the budget analysis from the Confederation of Indian Industries (CII):

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