The forthcoming Interim Budget may be the last opportunity for the government to announce populist measures to get the support of voters before the code of conduct comes into effect.
The foremost consideration for the UPA coalition is to come back to power. If, incidentally, the measures help boost the economy, so much the better. The most important one should relate to income tax. The general exemption limit can be raised to Rs 200,000 from Rs 150,000.
It may be Rs 230,000 and Rs 275,000 for women and senior citizens, respectively, with suitable adjustments in the tax slabs to benefit everyone. There could be a promise of a flat tax at a lower rate in the regular budget. The tax net has widened and there are reported to be 30 million tax payers. On an average, there will be at least two members in each household eligible for voting, if not more.
Thus, the proposal will have a multiplier effect on the preferences for the parties in power, even if some do not go to the polling booths. The corporate tax rate may be reduced by five percentage points. All export receipts may be made fully tax-free — a position that prevailed till a few years ago. Interest income of banks from personal and housing/real estate loans may be exempted from tax to give a fillip to the related sectors. There could be further reliefs in indirect taxes too. The resulting deficits may be left uncovered for the time being with a promise to improve tax administration for increasing revenue and to introduce ‘innovative measures’ in the full-fledged budget. Even though the changes will be operational only from April, there will be an instant electrifying effect on the psychology of people and the stock markets. Any resulting rise in the inflation rate could be tackled later. Given the time-lags, it may happen only after the elections are over. If required, the advances from the Reserve Bank of India could be enhanced substantially with some financial re-engineering to facilitate its ever-greening.
A Seshan, via email
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