Reference Auto

The Union budget has always been an event which has made more political sense rather than economic, and this year, it has been no different with finance minister Pranab Mukherjee trying to pacify the middle class as well as key allies like Mamata Banerjee, who didn’t make such a hue and cry, unlike in the railway budget.

Even though tax slabs as per the direct tax code (for individuals) have not been implemented yet, tax cuts have been structured as per expectations of the public with tax-free investments being raised to Rs 2 lakh from the earlier Rs 1.8 lakh.

There will be 20 per cent tax for up to an income of Rs 10 lakh this year, up from Rs 8 lakh last year.

Bank interest (on fixed deposits) of up to Rs 10,000 will not attract tax. But the year will be one where tough decisions will be taken with higher service tax and lower subsidies.

Moreover, equity schemes will provide tax relief. If a tax payer’s income is less than Rs 10 lakh, he will get 50 per cent tax deduction if he or she invests Rs 50,000.

That will not give you the liberty to splurge as you may have to shell out more for your bills, owing to higher service tax. Service tax has been raised from 10 per cent to 12 per cent, which is expected to garner over Rs 18,500 crore.

Defence budget has been raised to Rs 1.93 lakh crore. India has kept its defence spending high with the country even allocating higher per cent of its budget compared with China. But that hasn’t really reduced the tilt in favour of India (compared with China).

There has been no change in corporate taxes and cinema industry has been exempted from service tax.

The GDP growth rate is expected to be 7.6 per cent (this is a modest estimate and is likely to be scaled down further). Pranab has vowed to rein in inflation, though.

The budget has also given a fresh impetus to the airline sector, allowing it to raise $1 billion in external commercial borrowings or loans from foreign countries.

There is though some good news on the economic front. Agriculture and services sectors are set to turn robust and even the core or infrastructure sector looks promising. That could spur growth, if it at all happens.

The budget promised emphatic steps to rein in black money and give a further push to reforms.

The common man has received tax benefits but the two per cent hike in service tax will fizzle out the public as most of the services will be taxed.

There are two more years left for the Lok Sabha elections and Pranab has tried to balance his harsh measures with tax sops and made it appear like a people-friendly budget.

But next year, he will have to resort to a purely pro-people budget if the Congress wants to come back to power at the Centre, and then again, it will make more political sense rather than economic sense.