How are you going to bridge the gap?

The FM has announced substantial additional allocation of funds to different schemes and projects such as increasing the Backward Regions Grant Fund to Rs 5800 crore, to Rajiv Gandhi Drinking Mission to Rs 5850 crore etc. Further he has also announced new schemes that would involve fiscal infusion. Add the Centre’s contribution to the corpus fund for projects relating to NABARD and LIC (to name a few) and the picture would be clear.

The second dimension is the exemption / cut in Indirect taxes such as customs on cooking coal, polyster, gems, medical equipment, sunflower oil, crude and refined edible oils, 15 specified machinery etc and excise duties for several products such as plywood, food mixes, bio-diesel, pan masala without tobacco …. This would clearly mean a drop in revenue from these sources.

Third is the increase in the exemption limit with respect to the Service Tax (that would effectively move the really compliant businesses outside the scope) and Income Tax (albeit minor). This would also contribute to reduction of collections compared to the previous years.

Taking into account the removal of Surcharge for those businesses which have a taxable income of Rs.1 crore or less, and the CST coming down from 4% to 3% from 1st April 2007, the government’s revenues are going to shrink much further.

To counter all these, I noticed only 1% increase in Education Cess (probably the first time the money would really go into education) and extension of Minimum Alternate Tax( the implications of which are not yet clear).

I’m really curious about how Shri Chidambaram intends to fund all these with much reduced collections!

The Debate really begins.

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