In a cautious budget crafted amid continuing high inflation and uncertain global signals, Finance Minister Pranab Mukherjee on Monday steered clear of any big-bang reform announcements. Instead, through a slew of seemingly piecemeal measures, he sought to sustain the economic growth momentum, strengthen infrastructure to enable a shift to higher growth in the years ahead and reduce social imbalances through some effort at inclusive development.

Alongside, while taking specific steps for the longer term to moderate the rise in prices, particularly of farm produce, Mr. Mukherjee proposed to leave a trifle more in the pockets of all taxpayers as token compensation for the high inflation during the last 18 months and chose not to go ahead with the rollback of stimulus measures that was extended to industry during the global meltdown. In effect, the rate of excise duty as well as service tax is maintained at 10 per cent.

Understandably, the budget evoked divergent reactions. While large sections of industry lauded the proposals as “growth-oriented” and pro-reform,” others, mainly the Opposition parties, derided the Finance Minister's efforts as a “lost opportunity” and “exercise without direction.” However, in reality, Mr. Mukherjee's package of measures is an exercise in the interregnum, as the budget is aimed at consolidation rather than conquest

It is evident that Mr. Mukherjee has sought to utilise the 2011-12 fiscal as a year to prepare the economy for big-ticket reforms in the following year. The country's taxation regime, both direct and indirect levies, is set for a sea change through implementation of the Direct Taxes Code (DTC) and the Goods and Services Tax (GST). Inflation has to be moderated to tolerable levels while maintaining the current growth momentum.

During his speech in the Lok Sabha, he indicated that the budget was a transition towards a more transparent and result-oriented economic management system and while developments on the country's external sector were encouraging, continued high food prices remained the government's principal concern. In fact, the trend revealed shortcomings in distribution and marketing which showed up in huge differences between wholesale and retail prices at the expense of remunerative prices for farmers and competitive prices for consumers.

This explains the stress on development of infrastructure for the farm sector, including infrastructure status for cold chains.

In an effort to placate the salaried class, Mr. Mukherjee raised the income tax exemption limit from Rs. 1.60 lakh to Rs. 1.80 lakh to leave at least an extra Rs. 2,000 in the hands of taxpayers and brought down the age limit of senior citizens to 60 from 65 to provide an increased basic exemption limit of Rs. 2.50 lakh. However, he chose to leave the tax exemption limit of women taxpayers unchanged at Rs 1.90 lakh.

While keeping the excise and service tax rates unchanged at 10%, he imposed a levy of 1% on 130 other items, excluding food and fuel, which were hitherto exempted from the duty.

Vowing to bring in various legislation and charting a roadmap for financial sector reforms, Mr. Mukherjee raised spending on the social sector by 17 per cent to Rs. 1,60,887 crore, on infrastructure by 23 per cent to Rs. 2,14,000 crore, and increased the credit target for farmers from Rs. 3.75 lakh crore to Rs. 4.75 lakh crore.

Some relief was there for corporates too. He sought to reduce the existing income tax surcharge of 7.5 per cent on domestic companies to five per cent but hiked the Minimum Alternate Tax from 18 to 18.5 per cent.

As for service tax, Mr. Mukherjee sought to widen its ambit whereby hotel accommodation above Rs. 1,000 a day and AC restaurants that serve liquor will come under the net. Alongside, the scope of life insurance service is being widened to cover all services provided to any person by an insurer and legal services provided by a business entity to individuals and by individuals to entities, but not by individuals to individuals.

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