India's election year budget cuts duties, offers concessions to salaried and elderly taxpayers

By RAJESH MAHAPATRA, Associated Press Writer

February 28, 2003

NEW DELHI, India - Indian Finance Minister Jaswant Singh sought Friday to ease taxes for salaried workers and the elderly as he unveiled an election year budget that includes an increase in defense spending.

The finance minister raised the defense allocation in the 2003-2004 fiscal year starting April 1 by a hefty 93 billion rupees (US$1.93 billion). He did not say how much the government spent on defense this year.

India and Pakistan nearly went to war last year over the disputed Himalayan territory of Kashmir (news - web sites), but backed down after intense diplomatic pressure. The South Asian nuclear rivals have fought three wars since independence from Britain in 1947 — two over Kashmir, which both claim in its entirety.

Singh said the government is dropping a 5 percent "security surcharge" it had imposed on all individual taxpayers after India fought a three-month "mini-war" in 1999 along the border with Pakistan. The money was needed to rebuild the military's arms and equipment stocks, and companies will continue to pay the surcharge.

Despite a widening deficit, Singh also set aside more funds for infrastructure. Instead of adding to most taxpayers' burden, he said the deficit would be controlled by obtaining funds from new sources, such as taxing more services.

"The interest of elderly and senior citizens of the country is the responsibility of the government," Singh said, announcing new government-sponsored insurance and pension plans to take care of India's estimated 76 million elderly people, who are regular voters.

Singh also proposed expanding the coverage of a food-for-work program to 15 million families, up from 10 million.

Salaried workers would get further relief, as the budget will exempt a bigger part of their incomes from being taxed. For a typical upper middle class professional, that would mean an annual savings of about 7,000 rupees (US$150).

Singh said the new budget will make some goods — such as cars, clothes, lifesaving drugs and wheelchairs — cheaper through duty cuts, and leave more money with consumers and stock market investors.

Tax reforms, poverty eradication and infrastructure development were among the key objectives of the budget, Singh told Parliament.

Politically risky decisions, such as taxation of agricultural income and labor law changes, were not mentioned. Singh also stopped short of withdrawing tax incentives on home loans, meeting the demands of his party's allies and opposition parties.

Analysts had expected Singh to present a populist budget with an eye on state elections this year and national elections in 2004.

On Thursday, the government released its report card on the state of the economy, warning of a widening fiscal deficit that may derail efforts to pump up economic growth.