We all are eagerly awaiting the presentation of Union Budget, 2005 by the Finance Minister Shri P. Chidambaram. The UPA government is committed to go ahead with second-generation reforms. We have already seen a few of them and a lot more is required to be done in this direction. Biggest challenge before the government is regarding the labour reforms, particularly in view of the fact that the government is dependent for its survival on the Left parties, who claim themselves to be Messiah of working class.

The Finance Minister is relatively well placed so far as financial and tax reforms are concerned.  Assured of positive results of its ongoing fiscal reforms particularly expenditure control measures, the government has decided not to tap the bond market any further in the current financial year after curtailing its market borrowing to Rs 1,02,000 crore during 2004-05. In fact, the actual market borrowing is just about two third of the budget target of Rs 1,50,681 crore. The lower borrowings indicate that fiscal deficit would be reined in within 4.4% of GDP during 2004-05.

Inflation had been sliding in the last few months while there was excess liquidity in the financial sector. There is fall in dollar value against the rupee and FII inflows are on rise in India. There is forecast of PM’s Economic Advisory Council on easing inflation and ample liquidity.

The government is putting together an assistance package to enable urban local bodies to give cities improved infrastructure and better transportation along with the redevelopment of slums. We can also look forward to lower property tax and stamp duties and amendment to Rent Control Act.

Another Expenditure Commission is expected to explore the chances of eliminating the huge subsidies built into the anti-poverty programmes, and instead release the same for the development of rural infrastructure. It will also lead to better management of government expenditure, which will release resources for more productive uses.

Crucial restructuring in the rates of excise and custom duties are likely in view of WTO commitments.

The threshold qualifying for service tax is likely to be pegged at Rs. 10 lakh. The Cenvat rate on manufactured products is 16% while the service tax rate is 10%. Integration of the two levels into a GST in due course would require raising the service tax rate.

The government could well heighten norms in the valuation of a host of perks to prevent possible misuse.

Along with the proposed restructuring of income-tax slabs, the government may withdraw the existing exemptions, either fully or partially. One of the cases could be of having two parallel methods of tax treatment on savings instruments to begin with. This envisages a scenario in which all contributions, accumulations and withdrawals in a savings plan like the public provident fund, the government provident fund, other provident funds and insurance policies up to a particular cut-off year are exempt from tax at all stages. Alongside, after the end of the cut-off year, all withdrawals would be taxed. This option could be exercised if the government is unable to fully eliminate the tax rebates provided under section 88 of the Income-tax Act, 1961.

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India will take at least 34 more years to achieve the 1950s’ GDP level of the United States. Assuming that Indian economy continues to maintain the current growth rate, it would take another 61 years for the country to catch up with the current economic level of the United States as per World Bank estimate

China’s unprecedented rise, fueled by foreign investment and technology, has put the Asian giant on a path to surpass the United States economically by 2025. The fusion of cheap-but-skilled labour, imported technology and economies of scale that make China so competitive according to a book on China.