New Delhi, February 3
Finance Minister Jaswant Singh today made good use of the interim Budget (2004-05) for doling out largesse to the Central Government employees but disappointed the sizeable middle class by not proposing any changes in the income tax structure, though he gave a post-dated cheque to the salaried class by promising to reconsider the present income tax exemption limits.

The most important interim Budget proposal, which will go a long way, is merging 50 per cent of the dearness allowance with the basic pay for the Central Government employees.

From the point of view of pure economics, the decision is based on the assumption that higher income will lead to higher spending which will translate into greater consumer spending which will have multiplier effects across other sectors of the economy.

Moreover, from a macroeconomic perspective, a higher income slab across the board will lead to higher tax revenues.

Some caveats remain unaddressed. The larger demand in the economy through higher individual incomes could at best be in the consumer durables segment. A demand-driven market, which saturates faster than those of long-gestation projects.

Mr Jaswant Singh announced a slew of populist measures targeted at the agricultural, cooperative and health sectors, small-scale industries and government employees.

He announced the raising of house rent allowance for government employees in union territories, setting up of Lok Nayak J P Fund for agricultural infrastructure, a non-lapseable defence modernisation fund worth Rs 25,000 crore, a Rs 15,000 crore revamp plan for cooperative banks, raising the credit limit for small and medium enterprises, reduction in stamp duty on Central Government instruments, setting up of AIIMS-like super-specialities in six states and a medical college each in Andhra Pradesh, J and K, Tamil Nadu, Uttar Pradesh and West Bengal, raising free baggage allowance from Rs 12,000 to Rs 25,000 while the customs duty on such baggage will be reduced from 50 to 40 per cent with immediate effect, augmenting the provision for infrastructural development in mega cities to be augmented by accessing infrastructure fund, LIC and other sources, and accelerated supply of drinking water for mega cities like Bangalore, Chennai, Delhi and Hyderabad.

There were also definitive measures aimed at reducing transaction and addressing the core issues of supply side economics such as credit availability and simpler procedural norms.

The focus on development finance and the decision to convert the Industrial Development Bank of India (IDBI) into a lead developmental finance institution are being seen as reflection of addressing this issue in earnest.

The specifics of the economics, however, yet remain undefined as the rationale for the government to merge the cash-strapped Industrial Finance Corporation of India (IFCI) with a profit-making entity ( possibly PNB) is not clearly spelt out.

A major announcement made by Mr Jaswant Singh pertained to stamp duty on all Central Government stamp papers in the wake of the stamp paper scam. He announced a reduction on stamp duty by 50 per cent on all Central Government stamp papers as a step towards the reduction of stamp duty on instruments where the authority to fix rates is of the Central Government. Besides, a comprehensive reform of the entire stamp duty regime is being addressed in consultation with the state governments as a high duty increases transaction costs restricting economic activity.

On revenue and Budget estimates for the current year, Mr Jaswant Singh said the revised estimates had shown a decrease of Rs 11,143 crore as compared to the Budget estimates. This reduction in expenditure had been achieved despite spending on rural development, the Sarva Shikshan Abhiyan, Delhi Metro Rail Project and additional support for the Railways.

The net tax revenues had shown an increase of Rs 3,370 crore. Non-tax revenue was estimated to be Rs 5,722 crore more than the estimated level. Disinvestment receipts at Rs 14,500 crore were also higher than the estimates of Rs 13,200 crore.

The gross budgetary support for the Plan 2004-05 had been fixed at Rs 1,35,071 crore, an increase of 11.6 per cent over the current year. Out of this, Rs 81,367 crore is the budgetary support for the Central Plan, a 12.8 per cent increase over the current year. On the non-Plan side, the estimate for the next year showed a net increase of Rs 16,218 crore.