NEW DELHI, 1 March 2006 — Building upon the robust picture of the Indian economy, Finance Minister P. Chidambaram yesterday presented a Rs. 5,639 billion ($125 billion) national budget for 2006-07 that blends reforms and populism and promises to push the country’s annual economic growth rate to 10 percent.
Prime Minister Manmohan Singh hailed the budget as “outstanding,” the left parties and the opposition criticized it as “anti-people” and “pro-rich.”
Commenting on the budget, Manmohan said: “It is a pro-common man budget and will help the country to move toward a higher growth path.”
Referring to the budget enabling funding in core areas, Manmohan said: “It is an excellent combination of the twin imperatives of social justice and economic growth.” Through the budget, it would be possible for the government to step into areas which cannot be taken care of by market forces. “We will use public finances in sectors like rural development, infrastructure and education,” Manmohan said.
“There is an investment boom in the country and it is necessary to maintain the confidence of investors,” the finance minister said in his 110-minute speech to the Lok Sabha, the lower house of Parliament, even as he provided more funds to rural areas, education, job creation, health and infrastructure.
“It appears that India is catching up with the high investment rate of East Asia and China. Honorable members will notice that, in every sector, the attempt is to promote more investment,” he said as he unveiled his taxation measures with an eye on virtually every constituency — domestic and international.
The stock markets responded favorably to the budget, with the 30-share sensitive index of the Bombay Stock Exchange scaling an all-time high of 10,422.65 points before ending slightly lower to register an overall gain for the day of some 0.85 percent.
Chidambaram, a Harvard-educated lawyer, also expressed optimism that India will not only attract more foreign direct investment, especially in infrastructure, but also become a manufacturing hub for textiles, auto, steel, metals and petroleum products for the world market.
At the same time, he did not lose focus of the domestic constituency, mainly the farm sector, and sought to provide large outlays to primarily eight main areas — education, potable water, midday meals, sanitation, health, child development, rural jobs and urban renewal.
“Growth will be our mount, equity will be our companion and social justice will be our destination,” he said, with an eye on impending elections in five states, including one in West Bengal governed by left parties, which extend outside support to the federal government.
He also promised to rein in the fiscal deficit in the budget at 3.8 percent of gross domestic product in 2006-07, as against revised estimate of 4.1 percent this fiscal year, which ends on March 31.
Just a day earlier, the economic survey for the current fiscal had projected the country’s growth of gross domestic product at 8.1 percent for the current fiscal compared with 7.5 percent for the previous year.
The proposals in the form of the Finance Bill, 2006, and other amendments will be debated in Parliament during the budget session and will be put to vote after a month’s recess that begins March 17 to take retrospective effect from April 1.
Chidambaram’s budget also keeps the personal and corporate tax rates unchanged, hikes developmental outlays for rural areas, brings down the peak customs duties on farm products and abolishes a scheme on compulsory filing of returns.
Its immediate impact will be that small cars, aerated drinks, meats, instant and ready-to-eat food like pasta, idli-dosa mixes, ice-cream and electronic items such as DVDs will be cheaper, while smoking will become dearer.
The finance minister also did away with the one-by-six scheme on the mandatory filing of tax returns by some individuals, saying it had lived its purpose, but proposed across the board increase in the securities transaction tax.
For the corporate sector, the tax rates have been kept unchanged but the minimum alternate tax has been increased from 7.5 percent of book profits to 10 percent, and more services have been brought under the service tax net.
The service tax rate has been hiked to 12 percent from 10 percent and will contribute significantly to the tax kitty, since the sector now accounts for 54 percent of the country’s gross domestic product.
In the external sector, Chidambaram reduced the peak rate for non-farm products from 15 percent to 12.5 percent and brought down the duties for several items like alloy steel, mineral products, chemicals and some life-saving drugs.
“I believe that the world has recognized the potential of India,” the finance minister said.
“It is now for us — the generation to which has been given the privilege of carrying the torch — to rediscover the greatness of this country and the potential of its people,” he said in the budget speech.
Chidambaram said he will rein in fiscal deficit at 3.8 percent of gross domestic product in 2006-07, as against revised estimate of 4.1 percent this fiscal year and hike plan outlay by 20.4 percent to spur growth.
The finance minister said he expected the next fiscal to be good if not better than this fiscal and said his government expected to log 10 percent growth in gross domestic product soon, against 8.1 percent forecast for this fiscal.
