BUDGET EXPECTATIONS:

With general elections due in 2009, Union Budget 2008-09 to be presented on 29 February 2008 will be the last full-fledged budget of the Congress-led United Progressive Alliance government and it is therefore likely to be a populist budget. Thus, the Finance Minister (FM) is likely to provide higher allocations to several social initiatives like rural upliftment, employment, education, agricultural growth and public health.

Though populist measures will dominate the budget, FM is also expected to take steps to stimulate investment and consumption demand at a time when the economy is witnessing moderation from a solid growth last year. A reduction in personal income tax, if any, will result in increase in disposable incomes which in turn may boost demand for consumer goods.

Expectations are that the corporate income tax rate may be cut or the 10% surcharge on corporate tax may be abolished. The surcharge is 10% on a tax rate of 30%, making the

effective corporate tax rate 33%. Another possibility is that of a cut in dividend distribution tax from 15% to 12.5%.

Meanwhile, FM may raise the Securities Transaction Tax (STT) slightly. STT is currently at 0.125% on delivery trades. STT is 0.025% on non-delivery trades on sell transactions. STT is 0.017 % in futures & options segment on sell trasactions.

It is also expected that the FM would announce some relief packages for troubled export sensitive sectors like textiles, rubber, jewelry, leather and IT services. These sectors have been hit by rupee’s surge in the past one year.