The 2009-10 budget presented by Pranab Mukherjee, has not sacrificed any of the popular sentiments of progressive budget making followed in previous years by his dapper predecessor and buccaneer financial wizard P Chidambaram, often hailed for presenting dream budgets, who sent messages for attracting investments to India.

Cautious optimism has been the hallmark of Pranab da’s budget. And this alone will send clear messages to the investing community abroad that India is a safe place to invest having survived the global meltdown. The UPA has returned with a strong mandate to rule with no coalition partners to dictate terms – that’s why people expected a bold budget with more emphasis on reforms; when they were not there they were disappointed, particularly industry and stock market.

The Economic Survey had thrown indications on how to fuel growth, disinvestment being the key. But no major statement on foreign direct investment, disinvestment and instead a policy statement that financial institutions like banks and insurance will continue to be in the public sector.

Pranab Mukherjee, being a traditionalist, has put in a lot of safety plugs into his budget exercise. He had a lot of handicaps to start with. Fiscal deficit had burgeoned to 6.8 per cent, revenue expenditure had bloated, recession had its effects on industry, trade, commerce and exports and there were poll promises to be kept in line with the election manifesto, a thanks giving gesture to be gone through.

He has done the best under the circumstances. He has also made it clear the budget is a continuing exercise – it is not a one stop affair, announcements can be made outside of the budget also, that he will do this when the economic environment improved. So there is hope for the industry and stock markets.

Thanks giving…

The finance minister has made massive allocations under the NREGA programme – Rs 39,100 crore to cover 4.74 crore households. A Food Security Bill is in the offing. Massive relief to farmers with 75 per cent of their overdues under debt waiver and the debt relief scheme extended to 31 December this year. A committee to examine the plight of Maharashtra farmers suffering under usurious money lenders, not covered last time. 25 kg wheat and rice for below poverty line population at Rs 3 per kg. These are measures clearly aimed at the rural folk who have voted well for the UPA government – a thanks giving indeed.

Marginal adjustments in tax slabs…

What about the urban population? The finance minister has extended relief by making marginal adjustments in the taxation slabs. He has raised the exemption limit for majority of taxpayers at the entry level. Here is how it works. Senior citizens benefit a great deal as the exemption limit gets pushed up further by another Rs 15,000. From the existing limit of Rs 2.25 lakh now it goes upto Rs 2.40 lakh. For women, there is relief as the limit goes up from Rs 1.80 lakh to Rs 1.90 lakh and for the vast majority of taxpayers it goes up from Rs 1.50 lakh to Rs 1.60 lakhs.

At a time of joblessness – 60 lakh people have lost their jobs in India due to the recession and another 60 lakh might as well – these reliefs count a lot as they put more money into the hands of the people. Some tax consultants have argued that the tax relief amount to just about Rs 1000 for a majority of the people below the Rs. 10 lakh income bracket and above the Rs. 10 lakh bracket it is, a minimum of Rs 22,415.

So the statement by Brinda Karat, CPI-M polit bureau member, that it’s a budget for Khas Aadmi and not Aam Aadmi might sound true on the surface only. If you go deeper, the majority reliefs for the above Rs. 10 lakh bracket actually come from the abolition of the 10 per cent surcharge on direct taxes and not the adjustment in the taxation slabs.

The finance minister has indeed done a tight rope walking, trying to satisfy the rural population who voted en masse, urban population who reposed trust and industry which was supporting eagerly awaiting sops.

The Finance Minister has done well to scrap the Fringe Benefit Tax (FBT). It was a long pending measure, more of an irritant than an income generator for the government. It put the finance people of corporates at considerable stress on how to calculate the taxes. A welcome relief. But the finance minister did not scrap the 10 per cent surcharge on corporate taxpayers though he did that for individuals.

Scrapping the Commodity Transaction Tax is another great relief. It will promote trade on the Multi Commodity Exchanges (MCX) where gold, silver and other metals are traded generally. It will also promote trade on the NCDEX where mostly agricultural commodities are traded in the futures market. But the FM did not scrap the Securities Transaction Tax on the stock markets.

Considering the volume of trade is so high on the stock exchange, the government can ill afford to lose this revenue. Generally, with so many foreign players coming into the Indian markets, especially in the context of the global meltdown, scrapping it would have been an ill-advised.

The FM’s budget has to be viewed in an overall context of high fiscal deficit, low GDP growth (slipped to the 5-6 per cent range after peaking to 9 per cent in 2007).

Markets are sluggish, banks are holding on to money and not lending, creating problems for industry; so industry expected bold statements on divestment and higher FDI in the banking and insurance sectors and measures to promote greater inflow of foreign direct investment. It also expected the abolition of the dividend distribution tax, an anomaly where a company is taxed twice when it pays dividend to one set of people and again when a company receiving it distributes to another. The FM should have scrapped this.

Why no bold measures on FDI or FII portfolio investments? one might ask. Consider the fact that FII investments are highly fragile and prone to flight when an economy weakened. So he did not want to risk any new measures in this regard given the weak world economic situation.

Industry is disappointed that the Minimum Alternate Tax (MAT) has been enhanced from 10 per cent to 15 per cent. It was expecting some relief.

A big question on the budget that is crying for answer is how the FM mobilises resources to pay for the large allocations made under different rural uplift schemes and to cover the concessions given to taxpayers. Tax concessions are all revenue netural, there is no loss. But the new taxation measures yield only Rs 3000 crore.

So the FM is pegging his hopes on the 3G spectrum licensing process which is expected to yield a whopping Rs 35,000 crore. Disinvestment in the PSU’s of NHPC and Oil India, growth to return to 9 per cent which will obviously mean more production of goods and services and, therefore, higher buoyancy in tax collections.

Overall, it’s a budget based on restraint and caution, addressing immediate needs besides giving thanks to rural and urban voters. A job done judiciously under the circumstances of recession but let’s wait and watch if the FM delivers on the promise of Direct Taxes Code and Food Security Bill both progressive measures.