Tuesday, March 01, 2005
Indian Budget 2005 - The Showbiz
Union Budget 2005 - one of the most awaited one was unfolded today... Mr. Chidambaram seemed very confident presenting his dream of "Bharat Nirman"
Many people rate this budget more than average, however i beg to disagree here.... no doubt the budget is a decent one, but not what we expect from the so called "dream team" of Mr. Chidambaram, Dr. Singh & Mr. Aahluwalia. Most of the budget was "incremental" only & had nothing fresh in it. The reform measures of previous years are just carried forward, with some minor changes here & there...
Agreed that the economy is going through a good phase, but that does not warrants a stable & non-controvertial budget. Some might argue that when the economy is on a right path, then whats the need of trying paths to higher growth. But then we forget that we are today at this level, mostly because of the unconventional path used in some of the previous budgets, including the budget of 1991. New methods, although risky, can lead us to a better economy & what gains are made without risks???
The FM talked about reforms in education sector, but then the interest rate subsidy on education loan, announced last year has not reached the borrowers yet. Deduction under section 80E (for payment of education loan) has not been touched, and the deduction is still available at a low level of Rs. 40,000 per year (for 7 years), which should have been raised to atleast Rs. 60,000. Not much was talked about utilisation of funds collected through education cess levied last year. However, proposal to convert a college to the levels of Oxford/ Havard etc was a welcome move.
The FM talked about reforms in Banking sector & also the thrust to enduce public savings. However, the proposal of cash withdrawl tax @ 0.1% (on withdrawls more than Rs. 10,000 on a single day) was a real wash off. This proposal introduced as "Anti tax evasion measure", although seems to be small, can have cascading effects - firstly, it will effect only those people who wish to withdraw money for genuine reasons, as for person who wants to withdrwn cash to convert his money into black money, a sum of Rs. 10 for every Rs. 10,000 is a small price for such conversion & it will hardly stop him from doing so. Secondly, this will certainly stop people from keeping their liquid cash in banks, rather they'll prefer to have hard cash below their beds. Thirdly, this will end up people opening more & more accounts to distribute the cash & thus avoid the tax. This will lead to unnecessary over burdening of the banks, with no additional deposits. And lastly, it will certainly increase the paperwork of the banks, in order to keep track of such transactions & document the same.
During the whole budget, the FM talked about reduction in taxes, duties etc - but he also promised to increase the revenue collection by 50% over the next two years. However, the source of such increase has not been talked in details.
The companies were lured by decreasing the tax rate from 35% to 30%, however the real reduction is far less than it seems to be. The additinal surcharge of 10% will take it to the levels of 33% & add to it the reduced rate of depreciations (which obviously will reduce the levels of capital investments by the companies).
One of my major concern here is the biased budget against the salaried people. The basic logic behind Standard Deduction was to bring salaries at par with the profits of business class people (Businessmen get to deduct expenses, which were incurred to earn the profit, from their profits & pay tax on that, similarly standard deduction was the notional expense incurred by salaried people to earn that salary). However, after raising the slab rates of individual taxation, the FM has done away with standard deductions, but then the deduction of expenses for businessmen still remains the same. On the top of it, many more "fringe benefits" have become taxable in the hand of employers (which were earlier exempt)... so why salaried people should always bear the burder more than others???
P.S. There were many good points in the budget also, but they were very generic to talk about, except for long awaited increase in tax slabs & simplification of tax laws.
prateek2410 | 02:26 am
March 12, 2005 12:46 AM PST
yeah also, it just reminds me that to avoid paying 0.1% tax n too, promote the use of cheques(as Mr. Chidambaram indicated), a typical middle-class family wud have to employ a maid, a washerman, a driver n everybody else with bank accts. in their na,mes so that the family can make payments to them through cheques. Howzzat?!!!
March 10, 2005 04:07 PM PST
its right that putting 0.1% tax on cash withdrawal to control black money.But on the other side putting tax will be burden for the industrialists and businessmens for their daily transactions, and also it will not be controlled that black money, bescause no one will store their black money in the indian banks, because of the problems like this, i dont know on what way they will store their black money in the accounts which is accessible to all the govt officers,
March 2, 2005 12:38 AM PST
While this budget may be average I am still happy that they managed to nudge ahead(even though it be marginally) inspite of having to keep all parts of the government happy:)
Regarding the 0.1% I have no idea what he had in his mind. Anyways he has gone on record saying that it is the least important point for him in this budget, so I would expect some change to it.
March 2, 2005 12:26 AM PST
U r correct Prateek. another thing that needs mention is the grand schemes and funds for rural India, which r noble indeed. However, what the FM misses out here is the proper implementation n delivery mechanism to ensure that the benefits of these schemes reach the right people. n this is what makes me skeptical abt the whole bharat nirman idea.
As for 0.1% tax on cash withdrawals of more than Rs.10000 is concerned, i think the principle on which it is based is good(promoting a whiter economy) but instead of resortin to such useless methods, the FM shud actually hit at the source of the generation of black money. this 0.1% tax wud only be a trouble to genuine taxpayers n banks n also, lead to a parallel economy that exists as an alternative to banks.
Let's Make Money
About me ... in bullet points (as we say in MDI)
Name - Prateek Agarwal
Qualification - MBA (Finance), C.A., B.Com.(Hons)
Work-ex - 17 months
Location - Lucknow/ New Delhi
Hobbies - Poetry writing, swimming
Date of Birth - 24th October