• FEBRUARY 28, 2002

10 things on how the budget impacts you

  • Personal taxes: Personal tax slabs remain same, but Sec-88 benefits for individuals earning above Rs 500,000 go. For individuals earning between Rs 150,000 to Rs 500,000, the benefit is halved from 20% deduction to 10%. Though 2% earthquake surcharge was removed, a new 5% security surcharge has been added. Net, net salaried class shell out more taxes. So government mops up more tax, thereby trying to reduce its deficit. Come to think of it, what happened to the government’s own expenditure cutting drive?

  • Interest rates: Cut in most administered interest rates by 0.5% (by 50 basis points) from March 1, 2002. Administered interest rates will now be benchmarked to the average annual yields of government securities of equivalent maturities in the secondary market (to be reset once a year). RBI Relief Bonds will pay an interest rate of 8% from March 1, 2002. What’s more, one cannot invest more than Rs 200,000 in these bonds. So, deposit rates will fall, thus affecting individuals and retired personnel who have savings in NSCs, PPFs and other fixed income instruments henceforth.

  • Equity investments: Even equity market investments were not spared. From now on, dividend will be taxed in the hands of the recipient. That too, not at 10%, but at the individual’s tax bracket rate. These guidelines are also applicable for mutual fund dividends. Bottomline, 2002-03 is going to leave a big hole in one’s pocket and earning a decent return is not going to be easy. All the aforesaid measures may give a boost to housing development, as housing loan benefits will look attractive to individuals.

  • Excise duties: Excise duties were largely left unchanged. Only for tea excise was halved from Rs 2 per Kg to Re 1 per Kg. Excise duty on petrol was slashed from 90% to 32%. But the FM has given from one hand, and taken from the other. He put an additional Rs 6 per litre surcharge on petrol, largely negating the benefit. Apart from this the rationalisation of the duty structure continues.

  • Custom duties: The peak rate of custom duties was reduced from 35% to 30%. The domestic tea industry was doubly blessed in this year’s budget. Not only excise was halved, the government also doubled import duties on both tea and coffee to 100%. For pulses, peak customs duties were hiked to 80%.

  • Dismantling of APM post April 1, 2002: Means market determined rate for petroleum products. The immediate result is that diesel becomes cheaper by Rs 0.5 and petrol by Re 1. Signs of subsidies going. Kerosene subsidies cut to 1/3rd of previous level, to become costlier going forward. Housewives have to shell out an additional Rs 40 per cylinder of LPG.

  • Effect on Rural India: Upped plan outlay for rural road development and electrification. This is also likely to encourage private investments in setting up distribution and supply chains even in the rural hinterland. Penetration levels of consumer product companies are going to rise, thereby aiding volume growth. Also fertilizer de-control is on the cards. Fertiliser issue price has been raised by 5%. But all this is a long term process. But atleast a beginning has been made.

  • Power: The government focus has made a transition from generation to transmission & distribution. Accelerated Power Development and Reform Program (APDRP) will have an enhanced outlay of Rs 35 bn (up from Rs 15 bn). Agreement signed with states for corporatising SEBs and time bound rehabilitation of the SEBs recovery

  • Infrastructure focus: The government’s infrastructure development drive continues. Focus given to roads, power, telecom, hotels, airports and railways. The only grey area is the implementation of these plans.

  • Bottomline: Individuals have to chew a bitter pill. The industry will probably be satisfied as the cost of capital comes down and tax on distributed profit is done away with.

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