On February 29, 2008, Chidambaram presented his budget in Parliament amidst galloping oil and gold prices, increasing inflation, appreciating rupee, increasing growth rate in the Gross Domestic Product (GDP), downtrend in stock markets and a slowdown in the US economy. Under these complex conditions, his fiscal policy tried to bring a trade-off between inflation and growth.
The main focus of his budget was on the welfare measures and sustainable growth.On the day of the budget, the Sensex experienced a fall of 500 points and closed with a marginal loss of 1%. Owing to the reduction in excise duty on automobiles, the auto index moved upwards. In contrast to this, the IT stocks, capital goods index and reality index were the major losers.
As against the expectations of a cut in the corporate tax rate and surcharge, the Finance Minister kept it unchanged which impacted the sentiment of the market.
When asked about this issue, Chidambaram commented that there was no need to cut the corporate tax rate when the corporate sectors had sufficient cash with them.
On the positive side, the proposal to increase the short-term capital gains tax to 15% from 10% can enable the investors to invest for long-term thereby reducing speculation, providing liquidity and depth to the markets and bringing efficient price discovery. However, investors have to pay 50% more by the way of short-term capital gains tax. |
