Many people were dis-appointed by the Mini Budget. Neverthless many people, particularly stock market investors and salary earners, hoped that they would be favoured by an election eve Bonanza through reduction in their income tax liability. The Finance Minister, quite wisely, decided not to stir the hornet’s nest in the Lok Sabha by announcing income tax changes that could not be implemented as parliament could not pass such a finance bill under the vote-on account.
So what is the balance sheet of this Mini-budget. From a reform perspective, there are two significant plus points and two minus points. First the announcement of a halving of the central Stamp duty, even though implementation must await a change in the stamp act is a positive signal. The stamp duty is a highly inefficient and outdated tax. The reduction in rates may not even reduce revenues as evasion is likely to decline as more people follow regular registration procedure. The second positive signal is the setting up of the non-lapsable Defence fund. As major defence purchases have to be forward looking because the fast pace of technological development and consequent obsolescence, and the procurement procedures are unduly drawn out dilatory, defence planning suffers. This fund will make it possible to plan and procure major weapons systems more efficiently. The two negative factors are to (a) continue the license-subsidy Raj in the sugar industry, and (b) to merge 50% of DA with salary for central government servants. The latter will not only increase the revenue and fiscal deficit of the central government on a continuing basis but also have a negative effect on State governments’ finances.