The budget presented by the Finance Minister Mr Pranab Mukherjee is concentrating on fiscal discipline based on increase revenue realization. An important feature of the budget is that it mobilizes additional revenue of Rs 45000 crores from indirect taxes by increasing the service tax and excise duties to the pre- fiscal stimulus levels.

            On the populist side, one should notice that the finance minister has provided additional funds for higher fuel subsidy, food subsidy and fertilizer subsidies. The major achievement of the budget from the populist side is that there has no subsidy cut on these three fronts. The move by the finance minister to enhance the subsidies despite revenue shortages is means significant populism. This strategy of not increasing the diesel price through higher excise duties and fund for additional food expenditure silences both the UPA allies like the TMC and the NDA.

            But, how the Finance Minister was able to finance the high subsidy bill? Indeed, there was the clear option for him to raise two important taxes – excise duties and service taxes to their normal level. The government in 2008-09 has reduced both of these taxes as part of the fiscal stimulus programme. Hence, the government actually had a reserve tax potential to raise revenue by increasing these two taxes to their normal levels. The service tax and excise duties were increased to 12% in this budget, enabling the finance minister to mobilize additional Rs 45000 crores.

            On the direct tax front, the increase in exemption limit for personal income tax to Rs 2 lakh is a moderate one given the high inflationary scenario in the country. Similarly, the attempt to introduce equity saving scheme may not attract large level retail investors as the proposed exemption is only 50%. 

            In conclusion, the achievement of 5.1% fiscal deficit for the next year is an achievement. This will check inflation pressure in future. The lower than expected fiscal deficit gives credibility to the budget.

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