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Last Updated: Tuesday, 27 February 2007, 15:59 GMT
India's budget: a tricky balancing act
By Karishma Vaswani
Business correspondent, BBC News, Mumbai

Khurshid Dhurrani
Khurshid Dhurrani wants lower taxes
Every weekday, tens of thousands of Indian professionals arrive at the crowded Chhatrapati Sivaji railway station in Mumbai (Bombay), on their way to the office after an early morning train ride.

It is one of Mumbai's busiest train stations, and passengers have to jostle and fight to get a seat on the trains.

Many of these workers have seen their salaries rise thanks to the boom in the Indian economy.

But higher prices are also burning holes in their pockets.

Inflation is at its highest level in more than two years, and for many middle class Indians weekly grocery shopping is getting much pricier.

Khurshid Dhurrani is just one of millions of Mumbai's professionals who feel they bear the brunt of higher prices in India. She blames the problem in part on taxes on professionals which she says are much higher than those in other nations.

"I want lower taxes from this year's budget," she says, as she heads for her office in town from the station.

"As professionals, we are the worst hit by the higher prices, and the taxes here are so high.

"Prices just keep going higher and higher and more of our salary is seen spent on taxes, groceries and transport charges, than actually in our hands for our savings."

Tax dodgers

In comparison to their counterparts in Singapore and Hong Kong, who pay about 20% income tax, Indian professionals can see almost a third of their salary deducted.

Mr Patel
Factory owner Patel says it is hard to find skilled staff

They are the ones who are mainly responsible for India's sharply-increasing tax take.

Their taxes are deducted at source - which the vast majority of India's working class fails to declare some or all of their income.

That, some analysts say, is the main reason for India's high rate of personal income tax.

Lack of education

Lower taxes are also on the minds of Indian businessmen like Nayan Patel, who runs a factory in Mumbai that manufactures aluminium tubes and bottles for the pharmaceutical industry.

Aventis, Bayer and Cipla are some of his global clients.

Mr Patel is looking to expand his business and believes a benign corporate tax environment could help him to do that.

Higher tax collections have also been aided by more contributions from corporate India.

But lower taxes are not the only things on Mr. Patel's list.

Indian business sees education as crucial

His factory employs more than 1,400 people, but he is finding it harder and harder to hire new staff.

Education is at the top of his budget list.

"I think there are five important criteria for hiring new staff: education, experience, exposure, e-literacy and entrepreneurial skills," Mr Patel says during a tour of his factory in Mumbai.

"I call them the five Es, but it's very hard to find people who have all five of these skills.

The problem, he argues, is that the education lacks any sense of ownership.

"Children are taught by rote - and rather than understanding concepts, they memorise them," he says.

"That's not real learning, and this is the fate of children who go to school."

Still, those children are the lucky ones, Mr Patel says, in contrast with the many who never get the opportunity to learn in school.

"We need more investment in education, or we'll leave millions of our youngsters directionless in the future," he says.

Soaring spending

In a village in Raigad, on the outskirts of Mumbai, one teacher lecturing to more than 50 students illustrates an important point: arguably, children in rural India are most in need of more investment in education.

Last year India spent a little more than $1bn on education, a fraction of what other nations spend.

The government has committed to spending $50bn on education and healthcare over the next few years.

Powerful farmers

Agriculture is also in dire need of more investment.

Farmers in the village of Raigad are hard at work: preparing their land for cultivation ahead of the monsoon, hoping that this year the rains will be strong and they will reap a good harvest.

Neera Pandit Rai says the government should do more

That is because more than two thirds of India's farmland is not irrigated.

Farmers here depend on the monsoon to survive.

"We can't work if there's no rain," says Neera Pandit Rai, who has farmed the land for more than 25 years.

"We don't have normal jobs. We don't know how to do anything else. We live off the land.

"How are we supposed to eat if the rains don't come. We want more attention from the government. They don't care about us. They ignore us."

Two thirds of India's population makes its living from the land and make up a vital vote bank in the country.

Ignoring them could prove a dangerous mistake for this government.

It was one that cost the previous administration dear. In the general elections of 2004, the then government claimed that India was shining.

For millions of India's impoverished, it most certainly was not.

The Indian budget is affectionately called the Great Indian Hope trick here.

Against a backdrop of soaring prices and higher economic growth, India's finance minister P Chidambaram will have a tough job on his hands to balance the needs of all sections of Indian society.

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