The Union Budget 2007 was presented in the backdrop of what is now widely accepted as strong macroeconomic fundamentals, an impressive GDP growth rate exceeding 9% and a growing apprehension on the inflation front. The manufacturing sector, growing at an impressive 11.3% and the services sector quickly accelerating to an 11.2% rate, have been the main drivers of this growth. However, the inconsistent performance of the agricultural sector, averaging a mere 2.3% has been a cause for worry. The finance minister’s re-iteration that agriculture should top the agenda of the policy makers therefore comes as no surprise. Steps to increase farm credit, training of farmers, extending agricultural insurance and other measures have been announced with the intention of recreating a Green Revolution.

The Budget derives considerable thrust from the Eleventh Plan, with the stated aim of “putting the economy on a sustainable growth trajectory with a growth rate of approximately 10%”. Substantial funds have been set aside for health, education, rural employment and urban unemployment. Urban infrastructure continues cause for much heartache and the government’s token measures to increase budgetary allocations for National Highways does little to assuage the situation. The assertion that the government would continue to follow export-friendly policies does not, however, appear to find place in his tax proposals. Amongst the highest contributors to India’s exports, tax holiday software companies will now have to pay Minimum Alternate Tax. A solution to the SEZ conundrum remains elusive, with the proposals in the Budget limiting themselves to denying income-tax benefits on reconstruction and splitting of existing units.

Much awaited reforms to the transfer pricing legislation and introduction of an Advance Pricing Agreement or a safe harbor have been sidestepped. However, the fact that the Assessing Authority will now have to pass orders in conformity with the arm's length price adjudicated by the Transfer Pricing Officer, provides a breather to the tax payer.

—The writer is managing partner, PricewaterhouseCoopers