Budget 2007-08

Shubhashis Gangopadhyay

India Development Foundation(March 7, 2007)

Prepared for the joint discussion with ICRIER, NCAER and NIPFP; Jacaranda Hall, IHC

The Document

• Annual book-keeping

• Policy statement

• Tax implications

• Sops, exemptions and largesse

The Basics

• Receipts and expenditure

• Revenue deficit is down (2.0 to 1.5)

• Fiscal deficit is down (3.7 to 3.3)

• Capital versus revenue expenditure

Fiscal Management

Fiscal Management

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2

4

6

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10

1990-91

1992-93

1994-95

1996-97

1998-99

2000-01

2002-03

2004-05

2006-07P

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FD-GDP Ratio RD-GDP Ratio

Showing Restraint

Managing Accounts

0

5

10

15

20

2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08

Per

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Tax-GDP Expenditure-GDP

Managing Cash Flow

Measured Reductions

02468

10121416

2000-0

1

2001-0

2

2002-0

3

2003-0

4

2004-0

5

2005-0

6

2006-0

7

2007-0

8P

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nta

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RevExp/GDP CapExp/GDP

Macro versus Micro

• Overall deficit targets are being met

• Composition of expenditure a bit suspect

Setting

• Start of the plan period

• Continuity towards long term goals

• CMP

• Inflation and elections

CPI for Agriculture

Explaining the Price Rise for Agricultural Labourers (April-October 2006)

0.00

1.00

2.00

3.00

4.00

5.00

6.00

7.00

8.00

Kerala Karnataka Andhra P.

States

Per

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CPIal price rise

Is NREG the Culprit?

Explaining the Price Rise for Agricultural Labourers (April-October 2006)

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7

8

Kerala Karnataka Andhra P.

States

Per

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01002003004005006007008009001000

Rs.

Cro

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WPI price rise CPIal price rise NREG disbursement (Rs. Crores)

Keeping Above the Water

Growth of Real Wages

02

46

810

1214

Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep

Pe

rce

nta

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Gro

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CPIAL Wage (Agricultural)

Inference

• NREG disbursement raises local food prices

• But rural wages have been increasing

Real wage rise small but positive

• Agriculture is highly fragmented

Differing prices in adjoining states

Focus on Health

Expenditure on Health

-20

0

20

40

60

80

100

2003-04 2004-05 2005-06 2006-07 2007-08

Per

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Total AYUSH

HIV/AIDS

• NACP III to begin in 2007 -2008• Budget allotted for 2007-2008 is 969 crores• Steps by the government to destabilize HIV/AIDS by

keeping the prevalence to < 1per cent in the population• Focus on high risk groups in all states• Access to condoms• Universal screening of blood and safe blood• Hospitals to prevent mother to child transmission of

HIV/AIDS• To follow protocol for paediatric dosage developed by

Indian doctors

ICDS

• Budget increased from INR 4087 crore to INR 7061 crore for 2007-2008

• 173 new ICDS projects

1,07274 anganwaadi centres

25,961 mini anganwaadi centres

• Government committed to cover all habitations and settlements by ICDS during the 11th plan

National Rural Health Mission (2005-12)

• Decentralisation of health planning and management – Village Health Plan/District health plan – all districts will be ready with District health plans by March 2007

• Integration with programmes on health determinants (nutrition,sanitation etc.)

• Recruitment of ASHAs (Accredited Social Health Activists) – 320,000 recruited and 200,000 undergone orientation training

• Mainstreaming of AYUSH (Ayurveda,Yoga and Naturopathy, Unani, Siddha and Homeopathy) into the public health system – budget increased by 26 percent

• Integration of vertical health and family welfare programmes and funds (e.g. Polio – allocated 1290 crores)

Medical Equipment and Drugs

• General rate of import duty on medical equipment reduced to 7.5 per cent (equipment are taxed at 12.5 per cent at present with a concessional duty of 5 per cent on specified equipment)

• Duty on 15 specified machinery in pharmaceutical and biotechnology sector reduced from 7.5 percent to 5 percent

• Duty on most chemicals and plastics reduced from 12.5 percent to 7.5 percent

Clinical Trials

• Exempted from service tax

Advantages:

Disadvantages:

Expenditure on Education

Growth in Education

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10

20

30

40

50

60

2002-03 2003-04 2004-05 2005-06 2006-07 2007-08

Elementary Secondary+

Primary Education Focus

• SSA allocation increased by 35%• Mid-day meal scheme to cover upper

primary

• Teacher training boost – allocation almost tripled to Rs. 450 crores– 200,000 teachers to be added

• Classrooms to increase – by 500,000

School Education

Problem – dropout rate high

• Critical class – 8th to 9th class

• Solution – Scholarships from 9-12– 100,000 means-cum-merit scholarship– Rs. 6000/- a year– Rs. 750 crores in 2007-08

Secondary Education

• Allocation increase

– INR 1837 crore to INR 3794 crore

• Scholarships

– Through a fund with SBI

Education and R&D

• Promoting Ph.D.s – for some sections

• Research institutions – customs duty exempt

• Corporate in-house R&D – 150% deduction continued

Vocational training

• Vocational education mission– INR 50 crore– Based on PPP concept

• ITIs – 1396 centres of excellence – 300 more ITIs to be covered– Academic and financial autonomy– 2nd shift allowed

Physically Challenged

• Subsidy for regular employment

• Employer contribution to PF reimbursed

SME

• Increase in outstanding credit from INR 135,200 crore to INR 173,460 crore at end Dec 2006

• Government to encourage banks to lend to SME’s

• Proposal to allow credit rating of SMEs to fix interest rates by bank

• Exemption limit for SSI raised from INR 1 crore to INR 1.5 crore

Food Processing

• Customs duty on food processing machinery reduced from 7.5% to 5%

• Exemption on crude and refined edible oil from additional CV duty of 4% and reduction on duty on crude and refined sunflower oil by 15 percentage points

• Biscuit below INR 50 per Kg and all food mixes fully exempted

Urban Development

• Increase in allocation for SJSRY from INR 250 crore to INR 344 crore

• Promoting world class financial centre in Mumbai

• Five year tax holiday for luxury hotels in NCT regions like Gurgaon, Faridabad and Ghaziabad

Indirect taxes

Reform continued

• Move toward general sales tax: – central sales tax reduced – 4% to 3%– states to be compensated – revenue loss

• Peak customs duty to ASEAN levels: reduced - 12.5% to 10%

Reducing customs duty

Controlling inflation• Chemicals and plastics – 12.5% to 7.5%• Steel seconds – 20% to 10%• Coking coal – duty exempt• Polyester yarn and fibres – 10% to 7.5%• Diamonds – 5% to 3%• Dredgers – duty exempt• Food processing machinery – 7.5% to 5%• Medical equipment – 12.5% to 7.5%• R & D – 5% duty extended to all research institutions• Pharmaceuticals and biotechnology specified machinery –

7.5% to 5%

Reducing excise duty

• Ad valorem duty on petrol and diesel – 8% to 6%

• Other reductions– Job-creating sectors– Food processing – Cement– Umbrellas, footwear, plywood

• Biodiesel, water carrying pipes - exempt

Service tax

• Service tax extended to a no. of services

• Exemptions – Technology business incubators– Clinical trials for new drugs

Direct taxes

Personal income tax (lower)

• Standard exemption increased - all assessees, senior citizens, women

• Deduction for medical insurance premia increased

Direct taxes

• Corporate income tax • Infrastructure companies exempt – gas pipeline and

distribution; sea navigation channel

• In-house R&D – 150% deduction continued until 2012

• Hotels (2,3,4 star) in the NCR region – 5-year tax holiday

• CESS on education – secondary and higher – 2% - what for? (could it be scholarships in private educational institutions?)

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