Manmohan shows Chidambaram the Budget 2006 trajectory

PM against levies, increase in taxes, but Wal-Mart may still have to wait for India foray. Expect investments in infrastructure.

15 February 2006
NEW DELHI, INDIA

India’s federal budget for the year 2006 promises to be a high-profile affair, with none other than Prime Minister Manmohan Singh, a noted economist himself, setting the ball rolling by making it clear that he would not prefer hiking taxes and bringing in levies.

It has been almost 20 months since India's United Progressive Alliance came to power and the Budget to be presented by Finance Minister Palaniappan Chidambaram comes ahead of the crucial State Assembly elections in the states of West Bengal and Kerala, where the Left parties form a prominent political force.

The Prime Minister’s office has made clear its Budget contours, reportedly hinting to Finance Ministry mandarins that when it comes to levies it’s a strict "no-no".

The economist Prime Minister also wants the Budget to focus on infrastructure building. Power, roads and air and sea ports are set to get a major thrust.

Also, the Health Ministry’s demand to introduce a cess to fund its National Rural Health Mission is likely to go for a toss, given the PM’s opposition to introduction of new levies.

The Prime Minister also seeks a pruning of government accounts to keep it to a bare minimum, in a bid to raise more resources for the string of social welfare measures announced by the United Progressive Alliance.

It is not clear if the government will allow more room for FDI in retail sector, considering the Left’s vehement opposition to entry of big players like Wal-Mart, Tesco, Metro and Carreour.

These giants have already started talks with local retailers anticipating a foray into India soon.

As of now 51% Foreign Direct Investment is allowed in single brand foreign retailers.

In the 2005 Budget, Finance Ministry provided subsidy to boost large investments from o-operative and private sector for agricultural markets. Also, import duty on fabrics was cut five per cent. The excise on polyester filament yarn was cut 8%. Import duty on textile machinery was slashed 10 per cent.
Capital subsidy for textile industry was increased to 10 per cent from 5 per cent.