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Saturday, March 17, 2001

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Budget with a difference


Come February and there is always a great deal of excitement about the annual "Budget," which is traditionally presented on the last day of the month. This is odd considering that the budget of the Government of India should be little more than a boring statement of accounts of how much the government spends on various programmes and how much it receives from taxes.

There are two reasons for why the budget always has attracted so much attention. First, the Government always uses the budget to announce new programmes and policies in, for example, electricity, agriculture, roads and sometimes even sports and schools. So the budget is more an annual national policy document than just a statement of accounts. Second, since there is so much secrecy about the budget preparations there is this suspense about what the Finance Minister (the person who always presents the budget) will do with taxes. Will he - India has never had a woman finance minister - levy new taxes and raise existing tax rates or will he reduce some rates and abolish a few others?

Most middle class families were anxious about the budget this year because in the weeks before it was announced there were fears that Mr. Yashwant Sinha would increase taxes to meet the costs of rebuilding Gujarat after the earthquake.

In the event, Mr. Yashwant Sinha's budget has surprised many because they feared the worst. It has lowered income taxes that people who earn more than Rs. 50,000 a year pay on their earnings. It has also reduced the corporate tax that companies pay on their profits. The budget has also reduced the tax (customs duty) that is levied on most imported products. And yet another levy that has been reduced on a number of products is excise duty. Some of the products that will cost less now are aerated soft drinks, motor cycles and cars.

Is it only good news then? It all depends on how much you earn and what you spend your money on. A family which pays income taxes and is thinking of buying a car has much to rejoice about. But a low-income family that is not in the tax bracket gains nothing from the cut in income taxes. And if it is planning to buy a black and white TV it will find that the TV has become more expensive because Mr. Sinha has imposed excise duties on such TVs and a number of other products like footwear, bulbs and low- prices biscuits which were earlier free from excise duties. Others who are complaining are salary earners close to retirement who have put all or a large part of their money in government savings schemes. These people hoped to manage their retirement with what they earned on these savings but now the Finance Minister has reduced the interest rate in these schemes.

The Indian budget as we said in the beginning is more than about taxes. This year the budget has announced new programmes for agriculture, it has said that the Government will begin to employ fewer people and the existing labour laws are to be modified to make it easier for companies employing up to 1,000 people to close down if their businesses become unprofitable - provided they pay higher compensation to the workers who are to lose their jobs.

For these and other such announcements the budget has been praised by most commentators. Not everybody shares this enthusiasm - this writer is one of the sceptics - for Indian budgets have a tradition of making grand promises and the government losing its way as the year progresses. But the proof as they say is in the pudding and we will know this time next year if Mr. Sinha or the sceptics were right.

Good or bad budget, there is at least one thing Mr. Sinha will be remembered for in years to come. For decades, governments have followed the ritual of announcing the budget only at 5 pm. This followed the colonial practice of the budget being simultaneously presented around noon in the U.K. Parliament in London and in India in the evening. This was not the only reason for the 5 pm presentation. Another reason was that since until the 1990s, all that budgets seem to do was to raise taxes, a presentation in the evening gave producers and the tax collecting agencies the night to work out the change in prices!

Still, with the presentation being moved now to 11 am one can say good riddance to a colonial practice - more than half a century after the U.K. Parliament stopped being informed about India's budget.

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