BUDGET ANALYSIS 2006-07 IN BRIEF

 Shikha Dhawan

On 28th Feb 2006, the finance budget for the year 2006-07 was announced by honorable Finance minister Dr. P .Chidambaram in gala mood due to longevity in buoyancy of Indian economy, which is proved to be the most favorable situation for the announcement of the financial bill.

Following the Bharat Nirman Programme, the main focus of the budget seemed to ‘Agriculture’, where the minister has announced an increase in the agricultural and rural credit and short term loans by the commercial banks and continuation of refinance facility @ 7% through NABARD, which is said to be a good step as the banks are flushed with funds in such high liquidity situation. Basic emphasis was laid on the rural sector, micro-finance and north-eastern states. Another sector which is centre point of development in any sector in any economy, i.e. infrastructure is also taken care of properly in this budget.

Subsequently, fall in custom and excise duties and stress on increased allocation to education and health care are the big positives of this budget. Simplification of fringe benefit tax and no further hikes in personal and corporate income taxes added to the list. At an optimistic note, the fiscal and revenue deficits are expected to be @ 3.8 % and 2.1% respectively.

There has been a proper coverage of the Capital markets’ needs in this budget. Setting up of a corporate bond market will enable long term development of the debt market in India. Increasing FII participation in govt. securities and easing up on mutual fund investment in markets abroad are steps in the right direction.

Still there are some problems to mention in relation to the present budget. One is, overall stress on numbers and less talk of execution and structural changes to maximize delivery. The main sectors on which there were more expectations on the policy changes have not been discussed properly in the bill viz. telecom, power, petroleum, coal etc. Regarding infrastructure, the FM spoke of developing new express ways along a few routes. It has been a good idea but implementation checks must be put in place as a lot of highway development has been painfully slow. The other problem is the omission of some key issues like there should be more inducement to investment than savings. As per recent changes in the savings rate in the economy, the need of the hour is to introduce certain policies / measures to encourage more investments – domestic as well as FDIs to be pumped into our economy.

Budget 2006-07 is being regarded as an ‘Easy Budget” by the economic analysts. As far as expectations from Dr. P. Chidambaram were concerned as a FM, this budget is being regarded as a simple budget from a complex man (FM). Despite being simple, it is based on very optimistic rosy picture of future ‘Indian Economy’, which is expected to be among top three economies of the world by 2026.