Finance minister P Chidambaram?s pinch-hitting in the slog overs of the UPA government?s term to virtually every section of the population has given it a formidable start in the ballot ties.

The Rs 60,000-crore farm loan waiver package was the doosra that is expected to cost commercial banks about Rs 13,000 crore over the next three years. But in his fifth innings as finance minister, Chidambaram also offered a mega income-tax relief package, pushing up the maximum marginal rate of 30% to annual income of over Rs 5 lakh, from the current Rs 2.5 lakh, and the threshold level to Rs 1.5 lakh from Rs 1.10 lakh.

The minister has also made small cars cheaper for the middle-class by at least Rs 8,000, on the back of a 4% reduction in excise duty on the auto sector from 16% to 12%. Down the ladder, motorcycles and scooters will also be cheaper by Rs 1,500. Against expectations, he has not hiked the service tax rate and, despite sluggish growth in excise collections, brought down the Cenvat rate to 14%. He has also made industry happy by keeping peak customs duty unchanged at 10%.

In Budget 2008-09, Chidambaram has tweaked all the taxes he introduced during his tenure, including the securities transaction tax and fringe-benefit tax. In a rejig of dividend distribution tax, the finance minister allowed the parent company to set off its dividends against that received from its subsidiary, which is expected to give a fillip to the formation of holding companies. The minister said the step had been on the corporate wish list for a long time.

The securities transaction tax will now be restricted to only the options portion of a stock market deal, while expenditure on the maintenance of guest-houses and festival expenditure has been clipped from the FBT. The giveaways on income-tax of approximately Rs 4,000 crore will be balanced by the higher collections from STT, the hike in short-term capital gains tax, and the new transaction tax on commodity futures.

While the stock markets initially reacted adversely to the hike in the tax, the minister said he has protected the interests of long-term investors. ?I am only charging a tax on the profits earned,? he said in an interview to FE.

Of far reaching consequence will, however, be the finance minister?s belated decision to take on board the RH Patil committee recommendations on the bond markets. ?I propose to take measures to develop the bond currency and derivative markets that will include launching exchange-traded currency and interest rate futures and developing a transparent credit derivatives market,? he said. Giving a tax deducted at source benefit to corporate bonds and development of a market-based system for classifying financial instruments on their risk weight are expected to give a major push to capital markets.

The minister said he would end 2007-08 with a fiscal deficit of 3.1% and a revenue deficit of 1.4%. But the cost of the giveaways will be felt in the next fiscal. The fiscal deficit will be contained at 2.5% of GDP, but the goal of eliminating the revenue deficit will have to be pushed back by one year. But on a positive note he has decided to show the government?s budget liability of Rs 1,33,287 crore in 2008-09 with the budget papers, without factoring them in the Budget calculations.