Budget is the time when the savers are really stressed. Their savings are many a time wiped out as the Finance Minister goes about appropriating more of their income to balance the budget. Will 2008 be different? Yes it is likely. Remember this is the last budget prior to general election due in 2009. Many voices are rising that salaried class needs to be taxed less. One way of doing that is give them way to postpone their taxes. I do not foresee a great change in the tax rates. The exemption limits at best will be readjusted in pace with the inflation. But there can be a window for the infrastructure projects to tap the savings of the salaried class and the like. We can expect a downward revision of interest rates. The finance minister stands to gain as the macro indicator of bank deposits growth at over 29% and the slow down in the bank credit are good enough reasons to readjust the interest rates, look forward to cut down the budgetary deficit.

Tax Payers

We cannot expect deep cuts in tax rates or the taxation slabs. It is true that direct taxes have been growing at over 40% and this year it is expected to top the estimates by over 12%. When we realize that this might be the last of the budgets the FM is presenting, it is tempting to conclude that large vote bank can be appeased with marginal readjustment of the taxation slabs and tax rates. The highest rates at 33.60% may be touched marginally. If the government is listening to the left whose support is crucial we may well have a new slab to take care of neo rich. May be higher slabs could be located at Rs. 1 Million and above taxable income earners.

Industries

The industries are unlikely to get much out of the budget. At best finance minister may give them relief by compensating the export oriented industries by increasing the quantum of credit made available to them at lower interest rates. As usual we can hear more market and research development funds and nominating of the nodal agencies to hear the problems. Most likely expect a wide ranging policy announcement relaxing the market access to external borrowings. Also expect changes in the special economic zone policy. Cash rich industries and those who do not really need a large areas land to put up facilities are likely to weeded out of the SEZ. It is quite likely that new industries in the SEZ will start sharing with the local community, consisting of erstwhile land owners who are displaced due to SEZ being established their wealth. We can expect a popular orientation given to this policy where by such local governments that have allowed the SEZ’s to stay with them to get a part of taxes collected to improve the neighborhood.

Women

The tax exemption limit will be raised. Entrepreneurs, especially those located in the villages or semi-urban areas will receive benefits from specially formulated schemes addressing their needs and focusing on women entrepreneurship. Believe me they are a great vote bank. In an election year you can expect the budget to be soft on them. Therefore, the indirect taxes on the daily necessities will come down. More sops will be directed to the old aged pensioner amongst them. We can also expect a quota concept on the rural employment scheme that the finance minister had launched few budgets before.

Stock Markets

The stock price rises have not yielded much to the Indian budget barring the revenue collected through the securities transactions tax. Finance Minister in all probability will tap the futures and options contracts to get as much share to the budget as possible. The closely held companies may have to give up concessions they have been enjoying so far on the dividends received.

FIIs

Their route to Indian stock market through Mauritius may hit a road block. They will be encouraged to give a bullish push to the stock markets. Clearly the hedge funds might face a situation where they will be asked to share more information on their strategies and operations to make them more acceptable to other stake holders. Private equity deals will be encouraged especially in the capital hungry growth sectors needing investment in the research and development.

Prices

The prices of petroleum products have been increased. The economy is growing at 9% without hiccup especially from the infrastructure. The supply constraints do not pose problems except farm produce. Import of food grains and essentials will perhaps ease any threat from prices. Finance minister will be more than happy that the consecutive years of expanding economy has not given any serious challenge in the price front. It is time a signal is sent to financial markets to lend more and at reasonable rates to keep the momentum in the economic growth.

External trade

The only concern area for the finance minister is the appreciating external value of rupee besides the ever so widening current account deficit on account of petroleum prices. Subsidies may not provide answer. Expanding market access and encouraging brand India with assured services may hold the key. It is time for the finance minister to stimulate such efforts that will bring up innovations like Nano. The two wheeler industry is one where large capacities can make them world class players with some amount of governmental push.

Deficits, Agriculture and loan write offs

Do not expect much on any of this front. It is difficult not make any statements. Finance will pull out a scheme to write off the written offs. The crop insurance will further widened to address farmers’ suicides. Deficit will be justified as they have underpinned the economic growth. May be we can see bold loan waivers as far as this Finance Minister will go to woo the farmer class.

Summary

Indian Finance Minister could not have asked better environment than that is prevailing currently. In fact none of predecessors have enjoyed framing budget after budget when managing growth was their only challenge. The growth is steady and very good. There are no fears on the price front. Financial system is sound. Confidence of outsiders in the economy is upbeat. It is time to make a budget that will push the productivity to higher levels and make India competitive in the South East Asian region.