Monday, March 12, 2012

Punting on Pranab


The first question regarding the Budget is whether the FM has decided to deal with the reality of his fiscal situation, or will project revenues based on a much higher growth rate than is likely. Ajay Shah’s tracking site,, correctly predicted the last number of 6.1%; it is now showing a GDP growth number of below 5%. There is no question of the FM registering this.

The lowest GDP growth number he is likely to bake in to his budget predictions is 7.5%; this will lead him to grossly over-estimate tax revenues; nevertheless, it will call on additional resource mobilisation, now that higher expenditure has been legislated via food, fertiliser, and NREGA spends; not to mention the refusal to hike diesel and kerosene prices.

So how will he mobilise these resources?

Firstly, I think he will raise the MAT (Minimum Alternative Tax), for which there is no longer any justification.
Second, I would believe he will add back some excise, in a (partial) reversal of the 2008 stimulus measures.
The coverage of service tax will pretty much certainly go up.

In addition, I am thinking he will come up with one or more of the following, or their variants:
-         - Some form of Voluntary Disclosure Scheme, to bring back money from abroad
-          - Some removal of exemption on long-term capital gains on equity investments
-         -  Enhancement of wealth tax/a new ‘Upper-Upper’ slab for Income tax on those with income above some level like 25 or 30 lakhs per annum. 

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