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What the FM's speech should have been
T N Ninan
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March 03, 2007
P Chidambaram is a good lawyer, and a good finance minister, but a poor salesman. His Budget this year has got decidedly mixed responses. Here is how he could have sold the same Budget -- perhaps with better results.

Mr Speaker, Sir, I am happy to report that the government's finances in the year that is drawing to a close are better than budgeted. Revenue has exceeded our estimates quite handsomely. Though some items of expenditure, notably interest and fertiliser subsidy payments, have been high, there are specific reasons for this. The fiscal deficit has been contained to less than what was budgeted, at 3.7 per cent of GDP. Tax initiatives like the value-added tax have worked smoothly, and the computerisation of tax administration has moved forward several steps, with beneficial results.

The sound health of the economy, and its rapid growth, provide a strong foundation for next year's Budget. Since nothing is broken in industry or services, nothing needs to be fixed. However, after two years of 9 per cent growth, it is prudent to plan with some caution. We have therefore assumed GDP growth of 8 per cent next year, and that prices will come under control, averaging no more than 5 per cent during the year. On that basis, we expect tax revenue to grow by 17 per cent. This is enough to keep us on the desired track for fiscal correction. And so, in the interest of a stable tax regime for business and for individual tax-payers, I am leaving most taxes unchanged.

The only substantial change is a reduction in the peak customs tariff from 12.5 per cent to 10 per cent. There are some other small but essential changes, no more than half a dozen, which I will spell out briefly... The details of all the changes, with their rationale, are explained in an easy-to-understand format in papers that will come to you along with the Budget documents.

We will continue with reform of the tax system, and we have agreed with the states on a road-map for switching to an integrated goods and services tax by 2010. I will also be coming to the House with a new direct tax code, later this year.

We will maintain tight discipline on the major heads of expenditure, which are interest payments, defence and subsidies. If defence requires more money for any reason, that will of course be made available. Control of the major heads of expenditure will give us the elbow room to provide more for the government's key programmes, designed to improve health, education, employment and the rural infrastructure, which last includes water and roads. We are introducing some welfare measures for needy students, to tackle the high drop-out rate, and improving on the old age pension programme.

These expenditure increases range from 22 per cent to an ambitious 32 per cent, while support for the annual Plan in what will be the first year of the 11th five-year Plan is also being raised by more than 20 per cent. Finally, we have a range of initiatives designed to help farmers and improve agricultural performance�which members will agree has become an urgent need.

These programmes address key development objectives and the needs of the vast majority of our population. The benefits of economic and revenue buoyancy are therefore being channelled also to the poor and those in need of a helping hand.

Members will be concerned about the quality of spending. The government will continue to work on ensuring improved service delivery, and we will come back to this House with a full report on the subject.

The total expenditure next year will increase by 10 per cent, helping us to reduce the fiscal deficit to 3.3 per cent of GDP, as required under the fiscal responsibility law.

These satisfactory numbers are the result of willing cooperation on the part of tax-payers and the sustained efforts of our tax officials. We owe our thanks to them all.

With these words, Mr Speaker, Sir, I commend this Budget to the House.



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