Budget Is Harsh On Common People

Rich People Should Be Happy

Pranab Mukherjee has benefited rich people
Pranab Mukherjee has benefited rich people | Source

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Increase in Excise Duty and Service Tax Will Fuel Inflation

Budget Will Affect Poor and Middle Class People

Finance Minister Pranab Mukherjee’s Union Budget for 2012-13 will increase the cost of living and inflation beyond imagination. It is possibly one of the worst Budgets ever. It can be compared to the Budget presented by the then Finance Minister Charan Singh in the late seventies when he increased the prices of almost every item to make the people suffer. Pranab Mukherjee has increased indirect taxes steeply on all commodities. This increase will affect the poor and middle class people more than rich people. Any increase in direct tax will affect only the rich and affordable people.

Increase in Excise Duty and Service Tax Will Fuel Inflation

GDP is projected to grow at 7.6% in 2012-13. The government plans to keep the subsidies under 2% of GDP. Disinvestment target has been fixed at Rs.30000 crore for the year 2012-13. Last year the target was fixed at Rs.40000 crore and the government could not achieve it. Fiscal deficit for 2012-13 has been planned to decrease from 5.9% to 5.1% but it is doubtful whether the government can achieve this. More services have been included in the service tax net and the tax has been raised to 12%. Excise duty has also been increased to 12%. Debt to GDP ratio is estimated at 45.5%.

Rich People Should Be Happy

After burdening the people with all these measures, the finance minister has given a token concession to tax payers by raising the income tax exemption limit from Rs.1.8 lakhs to Rs.2 lakhs. Upper limit of 20% tax slab has been raised to Rs.10 lakhs from Rs.8 lakhs. This will benefit rich people. Baggage allowance on foreign travel has been raised to Rs.35000. This will also benefit the rich and the affordable. As most of the members of the parliament are millionaires and billionaires, it is understandable that they have brought a Budget to benefit their own tribes. The rich people should be very thankful to the government for this Budget.

Rs.200 per Year Was a Big Income in Those Days

The first ever Budget in India was presented on February 18, 1860 in the Imperial capital of Calcutta by James Wilson, the Finance Minister in the Viceroy’s Executive Council. Wilson proposed to charge a temporary income tax for all those whose income that exceeded Rs.200 per year. This was the beginning of the imposition of Income Tax. Two hundred rupees per year was considered as a rich earning in those days.

Economy Affected By Inflation and European Union Debt Crisis

The Budget has been presented at a time when the government has to overcome the twin challenges of economic slowdown and declining government finances. The Budget addresses the latter effectively by raising indirect taxes from all possible sources. Indian economy had been growing at a healthy 8.4% in the last two years on an average but is expected to grow by only around 7% in the coming year. But this growth is still healthy compared to the international standards. Last year Indian economy was deeply affected by high inflation and European Union debt crisis.

RBI’s Raise in Interest Rates Affected Economic Growth

The high inflation prompted the RBI to raise interest rates periodically in its monetary policy announcements. The raise in the interest rate failed to curb inflation to the desirable level but had the unintended effect of suppressing economic growth. The government has realised that only when fiscal policies are in tune with monetary policies can the latter have any effect on the economy to the desired extent. Therefore the government has planned to reduce its fiscal deficit to 5.1% of GDP in the coming year. But whether this can be achieved is debatable.

Gold Consumption Should Be Curbed

One welcome feature of the Budget is the increase of import duty on gold. Gold imports have increased by 50% in the first three quarters of the current fiscal year. Gold is unproductive. India is the largest consumer of gold in the world (recently China marginally exceeded this). But people’s huge investment in gold goes unproductive as the government cannot make use of this investment. Therefore the government is right in raising duty on gold to discourage consumption. But it is doubtful whether Indian women can be dissuaded from gold merely by raising duty on it. Indian women’s sentimental attachment to gold is so strong that no force on earth can break it. Still, it is a good attempt by the finance minister.

Will The Supreme Court Strike Down Amendment To Sec 9 Of IT Act?

The government needs to be complemented for its amendment of Section 9 of the Income Tax Act giving the government the power to reopen cases like sale of Hutch to Vodafone. Supreme Court struck down the imposition of tax on Vodafone. Later on a news appeared in the media that the Chief Justice of Supreme Court Kapadia’s son was employed in a firm connected with Vodafone and the Chief Justice struck down the government imposing tax amounting to Rs.11500 crore on Vodafone to benefit the firm so that his son could get promotions in future. If this news is true, then the Supreme Court may strike down the amendment to Section 9 of the Income Tax Act with retrospective effect and favour Vodafone. We have to wait and watch what happens. But the government deserves appreciation for bringing this amendment.

Infrastructure Has Received a Boost

Government’s move to slash funds for the controversial NREGA scheme is also welcome. The scheme has been criticised for its poor performance in many States. The scheme also takes away skilled labour from other sectors like construction and farms that results in a widespread shortage of manpower. Importance given to Aadhar scheme is a welcome one. Duty exemption granted to life saving drugs is to be appreciated. Defence allocation has been increased by 18%. This is very important as India has hostile enemies like China and Pakistan bordering it. India is planning to launch a Mars mission next year and the Budget has allocated funds to ISRO. Airlines companies can now go for ECB (External Commercial Borrowings) to boost their finances. Customs duty exemption on imported coal and lower levy on foreign funds will help power sector to a great extent. In general, infrastructure sector has received a good dealing at the hands of the finance minister.

Next Budget Will Be Soft and Dole out Concessions to Minorities

This Budget is the last Budget which can raise resources for the government to a great extent. The ruling party will have to brace itself to face the parliamentary election in 2014. This means next year’s budget will have to be soft and dole out many concessions for the people. There are rumours that the government is planning to waive off the entire agricultural loans amounting to nearly rupees one lakh crores both at the central level and at the state level in next year’s budget in order to win farmers’ votes. There are also rumours that the government may waive off all loans taken by minority community from all banks to win their support in the next elections. Therefore it is understandable that the government has presented a harsh Budget this year in order to dole out concessions next year.

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Comments 1 comment

muthukasi 4 years ago

the are budget is very correck

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