Going for Growth

The Finance Minister needs to be congratulated for giving a big push to his reform agenda despite the political and economic constraints whi...

The Finance Minister needs to be congratulated for giving a big push to his reform agenda despite the political and economic constraints which he faces. The performance of the Indian economy during the current financial year 2004-05 has shown that it has tremendous in-built resilience to withstand external shocks like the sudden increase in oil and commodity prices, partial failure of the monsoon etc., and still achieve a growth rate of 6.9.

The Budget proposals have attempted to tackle the issues of growing unemployment, inflation and the low rate of growth of the manufacturing sector which was evident in the past. To boost the manufacturing sector, he has brought down the rates of customs duty which will bring down the input cost of raw materials. He has also rationalised the excise duty structure, specially to help the textile industry which is employment-oriented. Unfortunately, the Finance Minister has not given a boost to the tourism industry which has employment potential for millions of young persons. Agriculture and rural development have been given the necessary impetus because growth of these sectors has a direct impact on employment of the rural masses and, more importantly, putting purchasing power in the hands of about 450 million Indians. The Finance Minister8217;s emphasis on providing education and medical facilities to persons living below the poverty line is a clear indication of the concern which he shares with the Prime Minister.

While no amount is taken credit for from disinvestment proceeds of public sector units, his emphasis on allowing foreign direct investments in retail trading shows clearly that he is prepared to toe an independent line from his Leftist supporters. The streamlining of the income-tax structure would result in middle-class taxpayers benefiting to the extent of almost Rs 2,000 per month. While the rebate under Section 88 has been removed, he has introduced a new provision for allowing more forms of savings as a deduction to the extent of Rs 1,00,000. In other words, the effective rate of exemption of taxable income can be upto Rs 2,00,000 per individual.

As far as the upper-class salaried employees are concerned, the Finance Minister has exempted perquisites from taxation in the hands of employees but has proposed that the company providing the fringe benefits would be liable to pay tax thereon at the flat rate of 30. In other words, if a company spends say Rs 3,00,000 on an executive by providing him with a car, house, servants, etc., the 30 tax would be levied on the amount spent for providing such benefits to the executive. Obviously, while working out the cost of the remuneration package, this tax would be taken into account which may impact the cash salary payable to an executive. The Finance Minister has therefore ensured that fringe benefits will be provided by a company only at a price.

This is undoubtedly a growth-oriented Budget which will make its impact on the lives of people not only in the fiscal year 2005-06 but also in the years to come. With the implementation of the Budget proposals being taken up seriously by the Government, it will not be far when India will have a growth rate running into double digits.

The writer is a well-known tax consultant and Supreme Court advocate