Ajay Vaishnav and Siddharth Tak / ZRG
Even though budget-making is a highly technical exercise, it can’t be devoid of the emotions, personal traits, preferences and ideology of the finance minister presenting it. Budgets, in fact, provide a sneak preview of the nature of the personality presiding over the whole process.
This year’s budget would be P Chidambaram’s eighth in his career and arguably the biggest challenge so far. When he will be presenting budget due on February 28, Chidambaram will be walking on a tight rope. While the key challenge is to reinvigorate dipping economic growth along with fiscal consolidation, the burden of expectations on social welfare front too would be immense. Whether he will bite the bullet and curtail government expenditure or give in to populist quarters.
Over these years, Chidambaram has emerged as a pro-reformer without ignoring the concerns of ‘Aam Aadmi’. The latter is more due to the Sonia-Gandhi-led UPA’s pro-poor social welfare approach.
In fact, Chidambaram’s worst and best budgets came during non-Congress regimes. As part of G K Moopnar’s Tamil Manila Congress in the 1996-97 National Front-Left Front government led by H D Deve Gowda, Chidambaram’s first budget where he imposed a Minimum Alternate Tax (MAT) on profits invoked the wrath of the corporate.
It’s said first impression is the last impression. Not in Chidambaram’s case though. After a poor start, he could do the unexpected. In front of a national audience (thanks to expanding live television coverage), Chidambaram gave a crisp 90 minutes speech and changed the whole perception. By hacking taxes and duties across the board, relaxing FII investment limits and opening up insurance sector along with a black money amnesty scheme, Chidambaram became corporate India’s darling. Till this day, the Union Budget for the year 1997-98 was termed as the “dream budget”.
Zee Research Group (ZRG) has profiled the budgets of P Chidambaram. As it emerges from the analysis, the reformist finance minister appears to be pro-farmer, takes special interest in capital market and augmented tax revenues.Exhibit 1: Statement of Chidambaram related to sectors like Irrigation, Capital Markets, Insurance and Taxation
|Budget||Agriculture and Irrigation||Capital Market||Insurance and Banking ||Taxation along with other key decisions|
|1996-97||1)Introduced Accelerated Irrigation Benefit Programme to provide financial assistance to State Governments for accelerating the pace of irrigation development in the country2)“At present, a five year tax holiday is available under section 80-IA to enterprises engaged in developing, maintaining and operating infrastructure facilities such as roads, highways, bridges, new airports, ports and rail systems. I propose to extend this incentive to investment in irrigation, water supply, sanitation and sewerage systems.”||Set up the Disinvestment Commission||1) It has been agreed with RBI to promote the setting up of new private local area banks with jurisdiction over two or three contiguous districts2) Introduced the Jeevan Suraksha and the Jan Arogya insurance schemes3) “I propose to raise the limit under section 80D of the Income-tax Act for deduction in respect of insurance on the health of the individual and his family members from Rs.6,000 to Rs.10,000.”||1) “We owe a special consideration to our senior citizens. At present, senior citizens benefit from a special tax rebate of 40 per cent up to an income level of Rs. 100, 000. I propose to raise this to Rs.120, 000.”2) “I propose to introduce a 'Minimum Alternate Tax' (MAT) on companies. In a case where the total income of the company, as computed under the Income Tax Act after availing of all eligible deductions, is less than 30 per cent of the book profit, the total income of such a company shall be deemed to be 30 per cent of the book profit and shall be charged to tax accordingly.”3)The establishment of an Infrastructure Development Finance Company (IDFC)|
|1997-98(Dream Budget)||“Agriculture is the lifeblood of our economy. The CMP calls for a doubling of the flow of credit to agriculture and agro-industries within five years.”||To introduce a capital indexed bond where the repayment of the principal amounts will be indexed||“LIC will continue to enjoy a monopoly in the life insurance business and GIC will continue to enjoy a monopoly in the non-life, non-health insurance business. I would also like to make it clear that only a few Indian companies, that is Indian-controlled and with majority Indian ownership, will be permitted to enter the health insurance business.”||1) This budget made tax rates moderate for individuals as well as for corporates. He reduced maximum marginal income tax rate for individuals from 40 per cent to 30 per cent, and cut the income tax rate for domestic companies to 35 per cent from the earlier 40 per cent2)Time is opportune to introduce a Voluntary Disclosure of Income Scheme (VDIS) in order to recover black money|
|2004-05||The Rural Infrastructure Development Fund (RIDF) was established in NABARD in 1994-95. Many State Governments and many honourable members have opposed the closure of RIDF. “In deference to their wishes, and in tune with my own thinking, I have decided to revive the RIDF and a corpus of Rs. 8000 crore will be provided for RIDF during 2004-05”( RIDF was instituted with the sole objective of giving low cost fund support to state governments and state owned corporations for quick completion of ongoing projects relating to medium and minor irrigation, soil conservation and other forms of rural infrastructure)||Tried to make equity investing more attractive by reducing the taxman's claim on investor profits: he did away with long-term capital gains tax and halved the short-term capital gains tax to 10 per cent||1) Introduce a new Group Health Insurance Scheme through public sector non-life insurance companies. The insured will be members of Self-Help Groups (SHGs) and other credit linked groups (CLGs)||1)Chidu‘s propose to increase the excise duty from 8 per cent to 16 per cent on a few items including vaccum flasks, plastic insulated ware, scented supari, prefabricated buildings, laboratory glassware, black and white television sets, populated PCBs, imitation jewellery, candles and parts of clocks and watches2) New scheme called the Senior Citizens Savings Scheme offering an interest rate of 9 per cent per annum.|
|2005-06||1) A new scheme for development /strengthening of Agricultural Marketing Infrastructure Grading and Standardization to be introduced to induce large investments from the private and cooperative sectors for setting up agricultural markets.2) NREGA was introduced to provide a legal guarantee of 100 days of wage employment in the financial year. 3) Working Group constituted by the Department of Fertilizers examining issues for implementing the New Pricing Scheme for fertilizers commencing from April 1, 2006||A high level Expert Committee on corporate bonds and securitizationto be appointed to look into the legal, regulatory, tax and market design issues in the development of the corporate bond market.||Amendments to be introduced to the Banking Regulation Act, 19491) To remove the lower and upper bounds to the statutory liquidity ratio (SLR) and provide flexibility to RBI to prescribe prudential norms.2) To allow banking companies to issue preference shares; to introduce specific provisions to enable the consolidated supervision of banks and their subsidiaries by RBI.3)Amendments to be introduced to the Reserve Bank of India Act(2005-06)||1) All States have agreed to introduce the value added tax (VAT) with effect from April 1, 2005; Central Government to compensate the States, according to an agreed formula, in the event of any revenue loss.2) In order to promote investment, Chidu has proposed to reduce the customs duties on selected capital goods and parts thereof to below 15 per cent, to 10 per cent in some cases and to 5 per cent in some others|
|2006-07||Farm credit increased to Rs.125, 309 crore in 2004-05 (well above the target) and is again expected to cross the target of Rs.141, 500 crore set for the current year and also add another 50 lakh farmers to their portfolio||Limit on FII investment in Government securities to be increased from $ 1.75 billion to $ 2 billion and the limit on FII investment in corporate debt from $ 0.5 billion to $ 1.5 billion; ceiling on aggregate investment by mutual funds in overseas instruments to be raised from $ 1 billion to $ 2 billion||Net capital support to banking sector standing at Rs.22,808 crore, to be restructured to facilitate increased access of banks to additional resources for lending to the productive sectors; Bill on insurance to be introduced in 2006-07||1) In India, first time proposal for introduction of Goods and Services Tax (GST) was made on 28th February 2006 in the Budget Speech for the year 2006-07 by Sh. P. Chidambaram, the then Hon’ble Finance Minister and in para 155, he stated as under: "It is my sense that there is a large consensus that the country should move towards a national level Goods and Services Tax (GST) that should be shared between the Centre and States. I propose that we set April 1, 2010 as the date for introducing of GST. I propose to take one step this year and increase the service tax rate from 10 per cent to 12 per cent.”2)The National Housing Bank (NHB) introduced a novel product for senior citizens: a 'reverse mortgage' under which a senior citizen who is the owner of a house can avail of a monthly stream of income against the mortgage of his/her house, while remaining the owner and occupying the house throughout his/her lifetime|
|2007-08||Target of Rs. 225,000 crore for 2007-08 with an addition of 50 lakh new farmers to the banking system; provision of Rs. 1,677 crore for 2%|
interest subvention for short-term crop loans
|1)Promote the flow of investment to the infrastructure sector by permitting mutual funds to launch and operate dedicated infrastructure funds2)Allowed short selling settled by delivery and securities lending and borrowing to facilitate delivery by institutions||New scheme called 'Aam Admi Bima Yojana' to be introduced for death and disability insurance cover through LIC to rural landless households which enjoy no cover at all||Proposed to raise the exemption limit for small service providers from Rs. 400,000 to Rs. 800,000. Consequently, 200,000 assessees out of a total of 400,000 assessees will go out of the service tax net|
|2008-09||1) Scheme was announced to waive farm loans, which ended up touching 36.8 million farmers and cost the government around Rs 60,000 crore2) 14 irrigation projectsapproved as National Projects by Government; Irrigation and Water ResourcesFinance Corporation (IWRFC) proposed to be set up with initial capital of Rs.100crore contributed by the Central Government, to fund long-gestation major andmedium irrigation projects ||Take measures to develop the bond, currency and derivatives markets that will include launching exchange-traded currency and interest rate futures and developing a transparent credit derivatives market with appropriate safeguards||Rashtriya Swasthya Bima Yojana to be implemented with effect from April 1,2008||1) Threshold limit of exemption from personal income tax in the case of all assesses increased to Rs. 150,000. Government changed income-tax slabs to provide a tax saving of over Rs 44,000 to individuals with a yearly income of up to Rs 5 lakh.2)Insert a new sub-section (11C) in Section 80-IB to grant a five year tax holiday to hospitals located in any place outside the urban agglomerations especially in Tier-2 and Tier-3 towns3) Roadmap for Goods and Service Tax being prepared for introduction of GST fromApril 1, 2010|
Exhibit 1.2: Chidu on his bosses
|1996-97||The United Front is a coalition. Before assuming office, the partners of the coalition finalised a document called "A Common Approach to Major Policy Matters and a Minimum Programme", popularly called the CMP. This historic document was released to the nation by our Prime Minister, Shri Deve Gowda, on June 4, 1996. “When I began work on the CMP I was not even a Minister. When we completed our exercise I found myself in the office of Finance Minister. Therefore, my commitment to the CMP goes beyond the office I hold. Hon'ble Members will have many opportunities this afternoon to test my commitment and they will find that the CMP has provided the foundation and set the agenda for this Budget.”(CMP was first launched by the united front government led by H.D. Deve Gowda)||Prime Minister, Shri Deve Gowda,|
|2005-2006||“I reaffirm my belief, and Ialso declare my conviction that the UPA Government under Prime Minister Dr. Manmohan Singh has charted a new path that is more acceptable to the people of the country and that will bring the greatest good to the greatest number.”||Prime Minister, Dr. Manmohan Singh|
|2005-06||One of India’s proudest sons, Dr Amartya Sen, argues in his book “Development as Freedom” that development is a process of expanding the real freedoms that people enjoy. He says, “Growth of GNP or of individual incomes can, of course, be very important as means to expanding the freedoms enjoyed by the members of the society. But freedoms depend also on other determinants, such as social and economic arrangements (for example, facilities for education and health care) as well as political and civil rights.” The UPA Government accepts this ethical dimension to the discussion of economic issues, and in this Budget I have attempted to reflect that dimension.||UPA government|
|2006-07||“The GDP growth target for the Tenth Plan was set at 8 per cent. Thanks to three years of 7.5 per cent plus growth, it is possible that the overall growth rate will be 7 per cent. In recent speeches, the Prime Minister has raised the bar to 10 per cent, and the Government is determined to take the country to that high growth path. Growth will be our mount; equity will be our companion; and social justice will be our destination.”||Prime Minister, Dr. Manmohan Singh|
|2007-2008||The UPA Government has delivered on the promise of savings and investment, and will deliver on the promise of encouraging more savings and translating the savings into more investment. It has delivered on the promise of growth, and will deliver on the promise of making growth more inclusive. “I believe that, given a right mix of policies, the poor will benefit from growth that is driven by savings and investment and that is more inclusive”. As Dr. Muhammad Yunus, the Nobel laureate, said, "Faster growth rate is essential for faster reduction in poverty. There is no other trick to it."||UPA government|
|2008-09||“Keeping inflation under check is one of the cornerstones of our policy. Recently, the Prime Minister declared, "I think no Government in our country can be oblivious to the objective of ensuring reasonable price stability without hurting the growth process." There can be no clearer enunciation of policy. However, since the downside risks have increased worldwide, we must be vigilant and prepared to make swift adjustments in our policies to achieve the goal of growth with price stability.”||Prime Minister, Dr. Manmohan Singh|
Exhibit 1.3: Chidu’s Lighter Side (Beyond business)
|1996-97||“ Mr. Speaker, Sir, at the end of this exercise, I ask myself what is a budgetabout? While it is a measure of the health of the economy, it is also a mirror to the travails and aspirations of the people. 2000 years ago, Saint Tiruvalluvar laid down the golden rule for the King’s Ministers:“Iyattralum, eettalum, kattalum, katta Vakuthalam Vallath Arasu” (To be able to increase wealth, to lay it up and guard,And also well to distribute it, marks a royal lord.)”||Saint Tiruvalluvar|
|1997-98||“ I would appeal to this House, and to the Indian people to heed the call ofGurudev Rabindranath Tagore:Desha desha nadita kari mandrita tabha bheri,Aashilo jata birabrinda aashana tabha gheri.Deen aagata oyi, Bharat tabu kayi?Shay ki rahila lupta aaji shaba-jana-paschatay?Louk bishwakarmabhar mili shabar shathay(Thy call has sped over all countries of the worldAnd men have gathered around thy seat.The day is come; but where is India?Does she still remain hidden, lagging behind?Let her take up her burden and march with all.)”||Gurudev Rabindranath Tagore|
|1997-98||What will we do without our critics? As Saint Tiruvalluvar said:“Idipparai Illatha Emara Mannan Keduppar Ilanum Kedum”(Behold the King who reposeth not on those who can rebuke him/He will perisheven when he hath no enemies.)||Saint Tiruvalluvar|
|2005-06||Saint Tiruvalluvar who said: “Pini Inmai Selvam Vilaivu Inbam Emam Ani Enba Nattirkku Iv Iyndhu” (Health, wealth, produce, the happiness that is the result, and security These five, the learned say, are the ornaments of a polity)||Saint Tiruvalluvar|
|2006-07||“I am aware of the severe difficulties faced by farmers in the last two years. Ours is a compassionate Government. I also have severe fiscal constraints. When faced with a dilemma, I usually turn to my favourite poet-philosopher, Saint Tiruvalluvar. Writing over 2,000 years ago, he said:"Karumam Sidhaiyamal Kannoda VallarkuUrimai Udaithu Iv Ulagu"(The world is his who does his jobWith compassion)”||Saint Tiruvalluvar|