Friday, February 29, 2008

Indian budget released

by Phillip Horton

On the 29th of February the Indian finance minister Palaniappan Chidambaram had prepared the final budget before this government’ term ends. The new budget has come out with slashes in taxes along with waiving the farm loans. This move by the minister according to many is to gather as much support from the voters and to promote consumer spending. The government is trying to hasten the growth rate of the country after the nation expanded at the slowest rate after the year 2005.

In the latest budget the finance minister included many personal income tax exemptions and decreased the excise duties. India’s economy is Asia’s third largest economy and it had grown at a pace of 8.4 percent in the three months before December. This growth was lesser than what the economy had grown in the three months before the last quarter. In the quarter before the last one, the growth of the nation’s economy had been at 8.9 percent, said the Statistics Department on the 29th.

The finance minister Chidambaram, who is a product of the Harvard, is hoping that the tax relief and handouts that he has incorporated in his budget would help in bolstering more popularity amongst the masses of India. The popularity of his Congress party had fallen in the 2007 state elections as a result of the high consumer prices. As luck might have it the budget that has been prepared this time might be just what was required to improve the nation’s economy which for the last three years has been weakened by the inflation-countering interest rate hikes. As a result of these interest rate hikes the economy is facing the biggest slowdown since the year 2001.

Some of the economists after having gone through the budget said that it was bound to be a populist one. There was pressure on the government to increase growth by monetary stimulus as a result of the ever increasing borrowing costs and also as a result of the uncertainty that exists about what the effect of the slowdown would be on the world economy. The budget that the finance minister has prepared is believed to be a good one in the present scenario.

The bonds were able to gain a bit once the government without any warning slashed its annual bond sales by almost 7 percent. The Indian rupee had to sustain losses as well when it came to 39.99 against the dollar, which was the lowest in this week.

Another view that has come up amongst the opposition party is that the finance minister, whose party faces general elections as well as 9 state elections in 2008, came up with such a budget just to gain electoral support. The budget that he has prepared will have tax exemption limit to the extent of 150,000 rupees. The fact that this has been implemented in a country where only slightly more than 30 percent of the total population pays taxes makes this decision of the finance minister rather interesting.

 

 

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