NEW DELHI: With no or very little option available to do anything drastic, Finance Minister P. Chidambaram is unlikely to spring any surprises when he rises in the Lok Sabha on Tuesday to present the 2006-07 budget. If at all he pulls something out of his hat, it will be pleasantas five States are slated to go to the polls later during the year.

Prime Minister Manmohan Singh and Mr. Chidambaram have made it amply clear in the recent days that the United Progressive Alliance Government will take adequate care to protect the interests of the farming community and the rural poor, as also India Inc. and the "aam aadmi."

Goodies for all

In this tightrope walk, Mr. Chidambaram's mantra is likely to be growth with consolidation. Some goodie or the other is likely to be doled out to almost all sections of society.

A comprehensive farm package to impart the much-needed push to agriculture and lessen the "excessive indebtedness" of small and marginal farmers is on the cards. The ongoing exercise of simplifying the taxation structure is likely to carried forward by way of reforms in indirect taxes and corporate taxes.

India Inc. may also heave a sigh of relief as the "traumatic" fringe benefits tax (FBT) — viewed as a "major irritant" by the Congress also — is likely to be re-introduced in a much simpler form or replaced by a flat levy. The banking cash transaction tax may be continued for another year to enable the authorities to expand their database as it helps in monitoring the "black money trail."

Interestingly, neither the corporates nor the salaried classes expect any further lowering of the tax slabs. They may get a respite as another levy by way of a health or infrastructure cess is unlikely; the education cess though is likely to continue.

The salaried class may get an increase in the exemption limit from the current Rs. 1 lakh to about Rs. 1.10 lakh to Rs. 1.15 lakh for purposes of income tax computation. This is expected to serve a twin purpose. First, it will put a few lakh assessees out of the tax net and enable the authorities to concentrate on the "big fish." Secondly, while promoting higher savings, it will also leave an increased disposable income in the hands of the taxpayers and push up the demand for manufactured goods.

As for indirect taxes, the Government is already committed to bringing down the customs levy from the current 15 per cent to the ASEAN peak level of 8-9 per cent. Even as this scaling down is likely to be staggered, Mr. Chidambaram will have to calibrate the excise duties accordingly to provide an adequate cushion for the domestic industry.

To generate more employment, certain sectors such as textiles, leather, auto, and agro and food processing are likely to be provided fiscal incentives. While the agro and food processing sector is likely to be included in the farm package, textile weavers may be provided a sop by a drastic cut in duty on silk yarn imports from China.

More duty on luxury cars

Similarly, the auto industry may see a cut in excise from 24 per cent to 16 per cent. However, as the Left parties have suggested additional levy on luxury cars, the excise reduction may be limited by way of engine capacity or the price brand to benefit the small and mid-size segments.

The Government is also committed to honouring its pledges enunciated in the National Common Minimum Programme, such as the rural employment guarantee scheme, the urban renewal mission and the `Bharat Nirman' programme. Implementing all these, even in phases, calls for a huge amount of resources.

To mop up more revenue, about a dozen or more services, including medical and legal, are likely to be added to the 81 already under the tax net. With the sector contributing nearly 52 per cent of the country's gross domestic product, the Government's objective is to garner more revenue from this segment to make up for the shortfall in income tax. Already, the sector has witnessed a 66 per cent growth, and is likely to account for a total collection of about Rs. 23,000 crore as compared to the 2005-06 target of Rs. 17,500 crore.

The excise collections have witnessed a massive surge this fiscal, and the budgeted target is likely to be met, if not exceeded. If the GDP growth momentum is maintained at the eight per cent plus levels, it would generate more revenue and also higher savings.

For the present, tax on certain farm income, as suggested by the Standing Committee on Finance, is unlikely although the net may be thrown wider to include certain charitable trusts and institutions, currently enjoying exemption.

Likewise, in the petroleum sector, while the recommended hike of Rs. 75 in the price of liquefied petroleum gas cylinders will have to wait for some more, Mr. Chidambaram may indulge in some "minor tinkering" in the prices of petroleum products to reduce the subsidy burden while switching over to specific rates of import duties, as suggested by the Rangarajan Committee.

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