Student Speak

The theme for budget 2008 was not just Growth; it was 'Inclusive Growth'. The budget will have a direct impact on 4.8 crore people through Rural Employment Program, 14 crore children through Mid-Day Meals, 3 crore tax-payers due to hike in tax slabs and 4 crore farmers through the massive 60,000 crore loan waiver. Many economists have branded the budget as a 'politics over economics' budget. Also, questions have been raised on the implementation mechanism for the above schemes. However, one cannot deny the fact that our finance minister has tried his best to ensure that the principles of fiscal prudence are adhered to. The budget is taking steps in the right direction by increasing the number of direct beneficiaries of the budget.

This budget has clearly incentivised investments in the health care and tourism sector by declaring tax holidays for hospitals and hotels built at specific locations. Considering the fact that India has mediocre health care facilities even in Tier-1 cities, this was a welcome step.

Education- often considered a panacea to a major portion of the country’s problems received a staggering 34,000 crore as budgetary allocation. For the first time, the focus has shifted from quantity to quality with the government announcing the set up of 6000 quality education schools. Another significant change was an increase in allocation to the secondary sector. Until now, the primary sector alone was given paramount importance.

Finally, the budget tries to maintain harmony between inflation and growth rates by reduction of duties on essential products and increasing consumer spending through reduced taxes. We are at a juncture where growth is slowing down and the international environment never looked so uncertain. Under such conditions, government spending and domestic consumption play an important role in stimulating growth and our finance minister has tried to walk the tightrope. It is only time that will tell if this exercise is a success or not!
Amidst all these uncertainties, there is a set of people who would definitely celebrate Budget 2008 – B-school graduates who would save Rs. 49,000 after joining their lucrative, 6-digit salary jobs!
Digant Haria, Class of 2009, NITIE

Whether the Union Budget 2008 is for long-term and inclusive growth or whether it is a populist one detrimental to stock markets depends on how one looks at it. I endorse the former view.

The debt waiver and relief for the small and marginal farmers is a step towards inclusive growth at a time when corporate India is already on a fast track towards growth. The banking sector, especially the PSU banks, should be happy with this step as the overdue loans are simply bad debt for them and the government reimbursing them through the bonds will help them get rid of these. Another step to boost agricultural growth (which has slowed down lately) is the continued emphasis on agricultural credit with the target of 2.4 lakh crore in 2008-09.

The increase in the short-term capital gains tax from 10% to 15% may have hurt stock market sentiments, but it is a step to promote longer term investment and a longer holding period in the markets, thus trying to curb volatility. The commodity derivatives will now invite Commodity Transaction Tax much like the STT.

Corporate India needs huge financing, especially in sectors like infrastructure and construction, and the typical debt-equity ratio for these projects is 7:3. The finance minister has focused on the growth and the need to deepen the corporate bond market. Taking steps to create an exchange-traded market for corporate bonds, developing exchange-traded currency and interest-rate futures, and enhancing the tradability of the domestic convertible bonds – these are all steps in the right direction.

Corporate tax has not been reduced. Given what the Finance Minister had in mind with regard to the huge debt waiver and relief to farmers, this could not have been possible. I view this as the contribution of corporate India and of us, the tax payers, towards inclusive growth.
 
The huge capital inflow and inflationary pressures have not let interest rates come down and hence we have seen some consumption slowdown in recent times along with a slowdown (as shown by the fall in Index for Industrial Production, IIP) in some industries such as automobiles etc. The excise cuts in small cars from 16% to 12%, hybrid cars from 24% to 14% and 2-3 wheelers from 16% to 12%, all pharmaceutical goods from 16% to 8% are steps to boost consumption in these sectors.

There has been a change in personal tax slabs with the income tax exemption limit hiked to 1.5 lakh; if one looks closely at the subsequent changed slabs, there has been an increase in the cash in an earning hand (e.g., a person earning 5 lakhs per annum will save Rs. 55,000 according to the new slabs). This will have a positive effect on consumption demand as well.

The stock market is down and the headlines scream populist measures, but then long-term, sustainable and inclusive growth does not come without its share of short-term pains. I give an ‘AAA’ rating to this Union Budget 2008 and our Finance Minister Mr. P. Chidambaram.