With the Gujarat elections having snuffed out any prospects of Congress calling for early polls, Prime Minister Manmohan Singh and Finance Minister P Chidambaram have been busy working out the focus areas of Budget 2008.
The good news could be an increase in the income tax exemption limit, though a cut in rates is virtually ruled out. Singh and Chidambaram have been labouring over the Budget and have been meeting frequently they spent a good two hours together on Thursday evening and the major points of emphasis are understood to have been thrashed out.
The effort will be to keep tax rates stable, check inflation and incentivise manufacturing. Sources said that with several state polls due later this year, the FM may keep political imperatives in mind. So, government is likely to raise the tax exemption limit from Rs 1.1 lakh a year to Rs 1.25 lakh but may not tinker with tax slabs. Taxable income of up to Rs 1.5 lakh will continue to attract 10% income tax.
While a section in the finance ministry is pushing for redefining slabs, the overall mood, driven by political considerations, seems to favour deferring the exercise for the moment. A final decision will be taken towards the end of the month. With polls due in states like Delhi, which has a large number of salaried employees, government is keen to be seen helping them tackle the rise in food prices.
The FM's efforts, said sources, are expected to be directed to maintaining the growth impetus in the economy despite a global slowdown, particularly in the US. This will see the budget rolling out measures to ensure the economy maintains its 8-9 % clip. This is felt to be essential as the UPA nears the last lap of its term.
A special focus on manufacturingparticularly on segments like textiles and leatheris part of a strategy to prop up the sector which has been hit by the hike in interest rates and rise of rupee against the dollar.
Both the PM and FM are not in favour of announcing tax breaks. Though revenues have gone up, the FM has been wary of reducing rates. He has been more concerned over widening the tax net and stemming revenue loss.