Union finance minister P Chidambaram attempted to kill two birds with one stone in the interim budget he presented on Monday.
By reducing excise duty, what he has attempted is this: give a fillip to the wilting manufacturing sector and win over the country's middle class, which has largely drifted against the Congress.
The middle class will now find it easier to buy automobiles, mobile phones, and consumer durables.
The excise duty on SUVs has been cut from 30% to 24%. For small cars, two-wheelers and commercial vehicles, it has been brought down to 8% from 12%.
Duties on mobile handsets have also been restructured to bring prices down.
In yet another move to woo the middle class, Chidambaram announced that interest subsidy on educational loans will be applicable on all loans taken before March 31, 2009.
"I propose a moratorium for all education loans taken up to March 31, 2009, and outstanding on December 31, 2013," said Chidambaram. Nine lakh students will benefit from this.
While announcing the proposals, Chidambaram said, "The current economic situation demands some interventions that cannot wait for the regular budget. In particular, the manufacturing sector needs an immediate boost."
While Chidambaram projected a healthy fiscal deficit, he is on shaky ground as far as revenues are concerned.
Against the budgeted revenues of Rs 12,35,870 crore, the government expects to get Rs 11,58,906 crore. Barring wealth tax, realisations on corporation tax, income tax, customs, excise and service tax are all down.
Also, analysts believe the measures taken by Chidambaram are too late as the fear of low growth has already taken its toll.
"Fear of low growth has clearly translated into lower revenues from all taxes. The steps taken to rejuvenate the economy are very late. The tinkering on excise duty is an eyewash and insignificant," said Rakesh Nangia, managing partner, Nangia and Co, a tax consultancy firm based in New Delhi.
Chidambaram is still hopeful of curtailing the fiscal deficit below the 4.8% mark targeted last year and plans to end the current year at 4.6%. On several occasions, he maintained that the target of 4.8% is the red line, which will not be breached at any cost.
For the next financial year, he has accounted for a fiscal deficit of 4.1%. The GDP growth for the last two quarters of the current fiscal is expected to be 5.2% and it is projected to grow 4.9% in the full year.
On the Plan Expenditure front – which reflects the spending on the social sector schemes – the finance ministry has cut at least Rs 80,000 crore from the current year's budgeted Rs 5,55,322 crore.
Interestingly, for 2014-15 also, the Plan spend have been kept at Rs 5,55,322 crore only. The finance ministry has also provided a whopping Rs 88,500 crore for the implementation of the Food Security Act.
The BJP, meanwhile, has given a thumbs down to Chidambaram's interim budget. BJP spokesperson Prakash Jawdekar said, "This is a budget by an outgoing government, which has lost energy and steam way back. Nothing can be expected from them now."