FM begins repairs, cuts spending, meets fiscal deficit target, taxes 'super rich'
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The last full budget of the UPA government has begun a repair job for an economy that has hurtled from a heady 9 per cent plus growth rate to an abysmal 5 per cent rate, setting an austere tone largely through expenditure compression and a little bit of additional taxation.
Finance minister P Chidambaram's efforts bore fruit as later in the day, rating agency Standard & Poor's said it will not downgrade India to a junk status as an investment destination. It said the budget is in line with the medium-term fiscal consolidation plan and the sovereign ratings will continue "unaffected".
Not giving in to the pressure of delivering an extravagant pre-election budget, Chidambaram has exercised utmost restraint on expenditure to contain the fiscal deficit at 5.2 per cent for 2012-13. Simultaneously, he took a number of measures to spur growth such as a 15 per cent investment allowance for fresh investments of over Rs 100 crore and extra sops for housing. He has also set the ball rolling for implementing the Goods and Services Tax by setting aside Rs 9,000 crore to compensate states for phasing out the Central Sales Tax. He promised to introduce the Direct Taxes Code Bill back to the House in the current Budget session. These two legislation will complete the long-pending reforms in taxation.
The Finance Minister also tried to plug the numerous holes that Budget 2012-13 offered, such as the exaggerated assumption on not just tax receipts, but also receivables from spectrum auction. He has estimated a modest economic recovery after a 10-year low growth rate of 5 per cent this fiscal. His estimate of a nominal 13.4 per cent growth rate translates into a real growth rate of 6.4 per cent assuming an average annual inflation of 7 per cent.