It was a tightrope walk for finance minister Pranab Mukherjee. He had to raise

RELATED ARTICLES Direct tax collection to miss budget estimates Govt to present budget for 2012-13 on March 16 Budget likely to increase tax exemption limit to Rs 2 lakh Govt may lower STT in budget to boost markets Budget may bring more services in tax net

money and yet give growth a leg up. In his budget for 2010-11 presented on Friday, he did that by partially rolling back the stimulus package, imparting a welcome degree of moderation to taxation, allocating funds to the right sectors, unfolding a scenario where government borrowings would be lowered to 5.5 per cent of GDP and, finally creating an environment to reach 8.5 per cent economic growth. But in doing all that, he also risked higher inflation.

There were no big-bang announcements, and the focus remained firmly on fiscal consolidation and growth. All this will mean Rs 20,500 crore more by way of new or withdrawn taxes. For taxpayers, companies, exporters and markets, it was win some and lose some. Nothing underlined this more than the shuffling of the tax structure.

The changes gave a lot but also took away substantially. Increases in duties on crude and petroleum products brought about an immediate increase in the prices of petrol and diesel, resulting in independent’s India’s first opposition walkout even as the budget speech was being read out.

Mukherjee raised the tax exemption limits and reduced the surcharge to 7.5 per cent from 10 per cent for companies. For individuals, the exemption limit remains unchanged at Rs 1.6 lakh. Beyond that slabs have been redefined. Thus, those with income up to Rs 5 lakh will pay 10 per cent tax; incomes between Rs 5 lakh and Rs 8 lakh will attract 20 per cent; for incomes higher than that, the rate is 30 per cent. For women and senior citizens, the exemption limits remain unchanged. These reliefs amount to Rs 26,000 crore.

The minister more than makes up the income-tax sacrifice by mobilising Rs 46,500 crore more in indirect taxes. This will come from by a 2 per cent increase in excise duty, an increase in petroleum customs and excise, a hike in minimum alternate tax (MAT) from 15 per cent to 18 per cent, and from eight more services that have been brought under the service tax net.

Petroleum companies lost no time in announcing a Rs 2.71 a litre increase in petrol prices and a Rs 2.55 per litre hike in the case of diesel. Consumers’ burden, as a result, will increase by Rs 6,000 crore over the year.

Companies will save Rs 5,000 crore due to the lowering of tax surcharge. But the increase in the MAT rate will mean an additional corporate outgo of Rs 6,000 crore.

In the service tax net are added brand ambassadors, film copyrights, sound

recording, health check-up provided to company employees, medical record maintenance, electricity exchanges, organisers of lotteries and games. Though the rate stays at 10 per cent, the new additions will mean Rs 3,000 crore more in the government’s pocket.

In the attempt to clean up the government’s balance sheet, however, the plot was perhaps lost somewhere in terms of the war on inflation. Mukherjee himself admitted that inflation, particularly in food, was still a major concern. But Kaushik Basu, chief economic advisor, thought inflation would go up by only 0.448 per cent. “It is only a blip; it will balance out in the long term,” he said.

As for reforms, two key moves -- the goods and services tax and the direct tax code – will have to wait for one more year, as consultations with states and political parties will have to take place first. These can now be expected only on April 1, 2011.

On other reforms, one feeble statement has been made, hinting at the likely opening up of the retail trade to domestic and foreign companies. This has come in the context of inducing competition at the retail level to tame prices of essential commodities. The budget also unveils a four-pronged strategy to expand agriculture productivity, reduce wastage, enhance farm credit and thrust to food processing sector.

If any decision can be called a bold reform measure, it has to be the announcement of aggressive disinvestments and equity sale in profitable government companies, which, Mukherjee hopes, will raise Rs 40,000 crore. Another revenue stream, 3G auctions, will bring in Rs 35,000 crore.

There were hardly any new proposals for infrastructure, rural or urban. The minister only announced large allocations and fine-tuning of the implementation of flagship schemes like Bharat Nirman and rural employment guarantee. The focus on education, health and food security remains intact, though.

A new element has been introduced to the development agenda. It is the rollout of a package of incentives and work plans to promote environment friendly technologies and projects, and intertwine them with energy ventures.

On the macro-economic front, Mukherjee has toed the line prescribed by the 13th finance commission for consolidation and fiscal correction. The measures include phasing out the revenue deficit, reducing the fiscal deficit and moving towards double-digit growth in the economy. But that’s more a statement of intent than a concrete plan of action.