There was no change seen in the peak rate of customs duty. The budget was one of the best budgets ever seen by individual taxpayers. The special feature of this budget has obviously been the hike in basic exemption limit to Rs. 1,50,000. For women the exemption limit has increased to Rs. 1,80,000 and for senior citizens to Rs. 2,25,000. The new slab rates will bring in a lot of saving for the individual taxpayers. On the other hand, the corporates did not have much to look up to in this year's budget. The finance minister kept both corporate tax and surcharge rates unchanged.

In the eleventh five year plan, the government has taken some concrete steps towards illiteracy, education, rural development including agriculture, infrastructure, health, employment, drinking water facility and sanitation. Major concern that the government would be facing in the coming year is inflation. A rise in the disposable income of the citizens due to reduction in the tax slab and cut in the excise duty of various items might lead to a rise in the disposable income. This would cause the demand to rise further leading to inflation. The finance minister said that the Indian government will have to collaborate with the Reserve Bank of India in order to combat the inflationary pressures to be faced in the near future.

Economy

The economy has recorded a growth rate of over 8% in 12 successive quarters upto December 31, 2007. In the current year too, according to the Advance Estimates by the Central Statistical Organisation (CSO), the growth rate will be 8.7%. The drivers of growth continue to be services & manufacturing which are estimated to grow at 10.7% & 9.4% respectively. The growth rate for the whole year in agriculture is estimated at 2.6% despite a fine start in the first half of FY08. However, the Ministry of Agriculture has estimated the total output of food grains in FY08 to be 219.32 million tonnes, an all time record. So far, FY08 has been the most challenging year out of the last four years due to considerable turbulence that was witnessed in the developed countries and still continues. Other external risks are surging oil & commodity prices and heavy capital inflows, in excess of current account deficit, that poses a challenge to monetary management. However, the government was able to keep inflation under control. The inflation that measured by the wholesale price index (WPI), year-on-year stood remained below 4% since mid-August 2007 for 23 consecutive weeks, before inching up to 4.1% in the last 3 weeks.

Industry Wish-list

FIIs and DFIs should be allowed to participate in commodity derivative. This will not only give the much-needed depth to market but also facilitate wider participation and development of the commodity market in India. Development of warehouse is essential for the development of the spot market and will bring more transparency and liquidity in the market. Thus, warehouse development should be given infrastructure status. Ban on futures trading of wheat, rice, tur and urad dals (cereals) should be lifted. Penal provisions against hoarders and black marketers should be made stricter. Client-wise limits in both agri and metals are too small and the same should be increased, so that the real producers and consumers can hedge effectively. Further, clients should also be allowed to offset profit and loss against normal business income.

Budget Measures

A new tax called Commodities Transaction Tax (CTT) is proposed to be levied on taxable commodities transactions entered in a recognized association.



Impact

Commodities Transaction Tax (CTT) will bring about a lot of changes in the commodities future trading. It will put pressure on profit margins of market participants and thus, may result in fall of volumes.

Foreign Investment
Foreign Institutional Investments (FII):

Larger inflows from Foreign Institutional Investors (FIIs) in the secondary market segment has largely contributed to BSE and NSE indices scaling new peaks of 21,000 and 6,300, respectively, in January 2008. The number of registered FIIs has increased from 993 by the end of December 2006 to 1219 by the end of December 2007, registering a growth of 22.76% y-o-y. An analysis of the monthly data on net FII inflows released by the Securities and Exchange Board of India (SEBI) indicates volatility. The standard deviation of the net inflows under FII was very high (USD 2,423.4 million) in the 12 months ending December 2007. The same measure for 24 months ending December 2007 yielded a somewhat lower (USD 1,882.8 million) dispersion. This increased volatility has affected the flow of portfolio investment. Net portfolio investment inflow was USD 18.3 bn in April-September 2007, more than double the inflow during 2006-07. Underlying these were gross inflows of USD 83.4 bn and outflows of USD 65 bn. Increase of short term capital gain tax to 15% may discourage the FIIs ti invest for short term as it adds to their cost.

Foreign Direct Investment (FDI):

During April-November 2007, FDI equity inflows stood at Rs.45,098 crore (US$ 11.14 billion) against Rs.33,030 crore (US$ 7.23 billion) during April-September 2006, signifying a growth of 36% in terms of rupee and 54% in terms of US dollar.
Of the total FDI received, about 53.57% came through the automatic route of the RBI, while 20.15% came through the Government approval route and the rest in the form of acquisition of existing shares. Among the destinations of FDI inflows, Mumbai, New Delhi, Bangalore and Chennai maintained the first four positions in that order. During August 1991 to November 2007, India received 7,898 approvals for foreign technology transfer, of which 81 were obtained during 2006-07 and 52 during April-November 2007.

FDI Policy

Several steps have been initiated to facilitate FDI inflows which, among other things, include: raising the equity cap in civil aviation; organizing Destination India events in association with CII and FICCI with a view to attract investments; activating the Foreign Investment Implementation Authority (FIIA) towards speedy resolution of investment-related problems; setting up of National Manufacturing Competitiveness Council (NMCC) to provide a continuing forum for policy dialogue to energize the growth of manufacturing; regular interactions with foreign investors through bilateral/regional/ international meets and meetings with individual investors; and making the website of the Department of Industrial Policy & Promotion (www.dipp.nic.in) more user-friendly with online chat facility. About 4,500 investment-related queries have been replied during 2007-08.