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Wednesday, February 28, 2007

India Budget 2007-08 and 2006-07 report card

Indian Budget was presented today. A few quick observations:-

On Economy:-
* A 9.2% growth in GDP with services and manufacturing growth at more than 11%
* Real Growth (i.e.inflation adjusted) per capita income is 7.4%
* A high level of savings rate at more than 30%
* Fiscal Deficit at 3.7% for 2006-07 and budgeted at 3.3% for 2007-08

Areas of concern:-
* Money Supply (M3) grew by 21.3%. High inflation risk.

Structural Initiatives/Changes:-
* Social Security Net to be expanded to cover the heads of 80 lakhs (8 million) rural landless households not covered presently. Government proposes to pay the 50% of premium of Rs 200 (approx USD 5) per year.
* Government plans to acquire RBI's 60% stake in State Bank of India. Why?
* Proposes to use a small part of the foreign exchange reserves without the risk of monetary expansion for financing infrastructure. RBI will be assured of a return higher than the average rate of return on its incremental investment.
* Proposal to set up an autonomous Debt Management Office and as a first phase a middle office, in a move towards better fiscal discipline.

* Announces creation of "Reverse Mortgage" through National Housing Bank.
* Creation of Mortgage Guarantee Companies I assume, along the lines of Freddie and Fannie.

* Asset Management Services provided by individuals will be levied service tax.
* Small and Medium Enterprises (with less than 1 crore (10 million) in taxable income) will have a reduced rate of income tax.
* Proposal to grant pass-through status to venture capital funds in respect of investments in venture capital undertakings in biotechnology; information technology relating to hardware and software development; nanotechnology; seed research and development; research and development of new chemical entities in the pharmaceutical sector; dairy industry; poultry industry; and production of bio-fuels and for investment in hotel-cum-convention centres of a certain description and size.
* Definition of capital gains to extend to include certain works of art
* Proposal to raise the rate of dividend distribution tax from 12.5 per cent to 15 per cent on dividends distributed by companies
* Proposal to raise the dividend distribution tax on dividends paid by money market mutual funds and liquid mutual funds to 25 per cent for all investors.
* Proposal to bring ESOPs under Fringe Benefit Tax

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