Monday, February 28, 2005

Indian Budget 2005-6

There was one expectation and one fear before this budget. The budget fully met the expectation of solid tax reform and belied fears of a politically driven increase in expenditures that would be largely wasted without achieving any social or economic objectives. Given the reputation of the PM and FM as tax reformers and their own statements to this effect tax reform was expected in Customs, Excise and Income tax. This has indeed happened in all three years. The reduction in the peak customs duty rate to 15%, reduction of the excise on PSF and tyres to the general rate of 16%, simplification of the personal income tax and the 30% rate on corporate tax are among the positive features. This does not mean that there are no negative elements in the tax changes only that they are within reasonable bound expected of any government and not so large as to dilute the overall positive impact of the reforms. The reform thrust has been reinforced by removal of another 108 items from the list of SSI reserved items and the reforms of the financial sector.
On the expenditure side, promised increases in expenditure on social sectors (education, health), agricu;lture, rural infrastructure and employment have gone hand in hand with efforts to reduce wastage and improve their effectiveness. This includes efforts to find alternative institutions for channelling these expenditures, improving monitoring and evaluation of the effect of these expenditures and exploration of private-public partnerships.

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