INTRODUCTION

• The Union Budget for 2008-09 was presented in the Parliament on 29th February,2008.
• Economic Survey published yesterday indicated that Indias growth rate has come down to 8.7% from a level of 9.6% last year. GDP is expected to grow at 13.0% in current prices in 2008-09. Assuming an inflation rate of 5.0%, the implicit growth rate of real GDP then in 2008-09 will be 8.0%.
• In 2007-08 agricultural performance has been particularly poor; the sector grew by 2.6% compared to 3.8% in 2006-07.
• Similarly, industrial growth has come down to 9% as compared to 11.2% last year.  In this context it was expected that this budget will focus on the growth of both agriculture and industry
• Given the political economic compulsions the focus has been more on inclusive growth than on enhancing growth per se.
  
  Major segment-wise budget proposals are mentioned below.

AGRICULTURE

• So far as the farm sector is concerned Rs.60,000 crores worth of farmer loans have been waived.
• Emphasis is on on agricultural investment, particularly in the area of irrigation.
• Gross Capital Formation (GCF) in agriculture as a percentage of GDP increased from 10.2% in 2003-04 to 12.5% in 2006-07 (Target is to raise it to 16.0% during the 11th Plan).
• The Special Purpose Tea Fund set-up last year for re-plantation and rejuvenation will be provided Rs.40 crores in 2008-09.  Similar support is proposed to be extended to other plantation crops such as cardamom (Rs.10.68 crores), coffee (Rs.18 crores). A crop insurance scheme is also proposed next year for tea, rubber, cardamom etc

In pursuance of the inclusive growth theme higher allocation for education and health is proposed:

EDUCATION

• 300 more ITIs to be upgraded with an investment of Rs.750 crores.
• 16 new central universities, 3 IITs, and 1 IIM (Shillong) to be started along with 6,000 high quality schools to be built by 2009.
• IT industry to get Rs.100 crores to connect knowledge institutions
• Education (and health each) to get 20% more in budget allocation compared to previous year.

HEALTH

• Total allocation for health sector is proposed at Rs.16,534 crores – an increase of 15% over 2007-08.
• Schemes like The National Rural Health Mission, National Programme for the Elderly and Integrated Child Development Services etc are proposed to improve the health of masses.

INFRASTRUCTURE

Power

• Against the 11the Plan target for additional power generation capacity of 78,577 MW, a capacity of about 10,000 MW will be achieved by end March 2008.
• Accelerated power development and reforms project – Rs.800 crores to be provided in 2008-09. A national fund for T&D reforms to be created.

Roads

• Allocation for National Highway Development Programme (NHDP) enhanced from Rs.10,867 crores in 2007-08 to Rs.12,966 crores in 2008-09.

Oil & Gas

• Seventh round of bidding under the New Exploration Licensing Policy (NELP) under which bids invited for 57 exploration blocks is estimated to attract US$3.5 bn to US$ 8.0 bn for exploration and discovery.

Coal

• Coal Regulator to be appointed

DEFENCE

• Allocation for defence to be increased by 10.0% from Rs.96,000 crores to Rs.105,600 crores.

TAX PROPOSALS

• There has been an improvement in the Tax/GDP ratio from 9.2% in 2003-04 to 12.5% in 2007-08.

Direct Taxes

• Exemption limit for personal income tax raised from Rs.110,000 to Rs.150,000 - A welcome step.
• New slabs and Rates are :  Up to 150,000 - Nil; 150,001 to 300,000  - 10%; 300,001 to 500,000 – 20%; 500,001 and above – 30%
• Surcharges will continue.
• Special exemption limit for women and senior citizens
• No change in corporate tax and surcharge. - A bit disappointing
• Banking Cash Transaction Tax to be abolished w.e.f. 1st April 2009 -  A welcome move
• Short term capital gains tax raised from 10% to 15% - to encourage longer term investment and control foreign exchange inflows (?)
• Tax exemption from TDS on corporate debt instruments issued in demat form and listed on recognized stock exchanges.
• Parent company allowed to set off dividends received from its subsidiary company against dividends distributed by the parent company (provided that the dividends received is already taxed under DDT and the parent company is not a subsidiary of another company).
• Commodity Transaction Tax (CTT) to be introduced on the same lines as STT on options and futures
• 5 Year tax holiday for 2, 3 and 4 star hotels in specified districts which are UNESCO certified heritage sites.

Indirect Taxes

• No change in peak customs duty although there has been a reduction in duty on certain items. For e.g. duty on steel melting scrap reduced from 5% to nil. Export duty on chrome ore increased from Rs.2,000 per tonne to Rs.3,000 per tonne.
• Customs Duty on project imports reduced from 7.5% to 5.0%.
• More new services included into the tax net like Asset Management Services (ULIPS), stock exchanges, commodity exchanges & clearing houses, Money changers.
• General cenvat rate reduced from 16% to 14% on all goods - A welcome measure though a marginal benefit to manufacturers.
• Specific Items of interest in the area of excise are: Duties on buses and chassis and small cars, brought down from 16% to 12% . In the case of Two and three wheelers duties brought down from 16% to 12% and duties on hybrid cars brought down from 24% to 14%.
• Customs Duty on crude and unrefined sulphur reduced from 5.0% to 2.0% to support domestic fertilizer production.
• Specified parts of set top boxes and specified raw materials for use in IT/electronic hardware industry to be exempt from customs duty.
• Excise duty on packaged tea and coffee mixes brought down from 16% to nil.
• Excise duty being exempted on end-used basis on refrigeration equipment (consisting of compressor, condenser units, evaporator etc) above 2 TR utilizing power of 50 KW and above
• Curiously enough excise duty raised on packaged software from 8% to 12%.
• Central Sales Tax being reduced from 3.0% to 2.0%
• Goods and Service Tax (GST) proposed to be introduced w.e.f 1st April 2010.