Budget 2013: P Chidambaram hopes to claw back some gains, leaving nothing to chance

In a year when growth slowed to around 5 per cent, Finance Minister P Chidambaram saw tax revenues fall off a cliff. Corporate income tax, the largest contributor to the exchequer, fell nearly 4 per cent short of the target set by his predecessor Pranab Mukherjee.

That looks small, till you remember that the shortfall actually amounted to Rs 14,353 crore. Other levies, such as wealth tax, customs and excise also fell short of target. What saved things to an extent were taxes on individual incomes and services, which narrowly crossed targets.

To hit his fiscal deficit target, the FM had to cut deep into Plan spending, worsening the quality of the deficit. In the budget, Chidambaram is taking no chances. He hopes to claw back some gains, with a surcharge on corporate income and on the incomes of wealthy folk, whose taxable income crosses Rs 1 crore.

This is expected to affect only 42,800 Indians, who claim to earn Rs 1 crore or more. Nobody can crib with this politically: soaking the rich to help the poor is an age-old Robin Hood strategy.

But economists will point out that higher taxes on the rich, who have armies of tax planners to dodge taxes, might not enrich the exchequer by as much as the finance minister hopes for.

To boost investment, the FM has dealt out an investment allowance of 15 per cent. This is welcome, but the short two-year time frame could blunt its effectiveness to an extent.