Union Budget 2009-10 – An Overview
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Union Budget 2009-10 – An Overview Amit takes you through the salient highlights of the Budget 2009-10. Jain Amit Manraj IInd Year, PGDM |
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A Finance Minister’s primary task, in any democratic country, is to see that the financial resources are aptly allocated so as to achieve all-around development of the economy. Union Budget of India, also known as the Annual Financial Statement in Article 112 of the Constitution of India, is among the prime responsibilities of the finance minister. The budget is presented every year on the last working day of the February month. The budget is then discussed in the Parliament and then implemented from 1st April, the start of new fiscal year for India. Budget Trivia
This year’s budget was presented by Mr. Pranab Mukherjee on 6th July, 2009. This was his first budget after 25 years when he last presented budget in 1984-85. The year that was The previous fiscal year saw a dramatic shift in economic growth. The economy that was growing at a fierce pace of 9%, on an average, for previous three fiscal years slowed down to a growth of just 6.7% amidst the global slowdown. The Fiscal deficit rose to 6.2% of the total GDP from 2.7% in 2007-08, dismissing the FRBM (Fiscal Responsibility and Budget Management) rule of reduction to 3% of GDP by 2009. Also, the Wholesale Price Index (WPI) saw sharp swings between 13% (August 2008) and 0% (March 2009). The contribution of service sector to GDP rose above 50% in the previous fiscal year. The total revenue receipts for 2008-09 were estimated at Rs. 73, 0399.81 crore, of which tax revenues were Rs. 50, 8950 crore while non-tax revenues were estimated at Rs. 22, 1449.81 crore. Total revenue expenditure were estimated at Rs. 78, 5583.70 crore. The planned expenditure for the previous fiscal year’s budget estimate was Rs. 24, 3386 crore while the non-planned expenditure was Rs. 50, 7499 crore. While total capital expenses were estimated at Rs. 84,522.03 crore (excluding the Public Debt of Rs. 17, 45,574.44 crore), the estimated capital receipts were Rs. 19, 01,143.24 crore. Key announcements Infrastructure Development Infrastructure development has been a key focus area for the Indian Union Budgets. This year’s budget was no exception. The Finance Minister announced that IIFCL (Indian Infrastructure Finance Corporation Ltd.) will refinance 60% of commercial loans for PPP (Public Private Partnership) projects over next fifteen to eighteen months; which means an investment of around Rs. 1 lakh crore. National Highway Authority of India (NHAI) has been allotted Rs.15, 948.18 crore as against Rs. 12966 crore in the previous fiscal, year which translates to 23% growth over previous year’s budget estimate. Also, allocation towards Railways has increased to Rs. 15,800 crore as against Rs. 10,800 crore in the previous year. The Programs The global slowdown has led government increase its allocations towards its flagship programs like the JNNURM, NREGS, etc. The estimated increase in expenditure ranges between 20% and 150% under various programs. The allocation towards the JNNURM (Jawaharlal Nehru National Urban Renewal Mission) has been increased by 87% over previous year’s budget estimate, i.e. to Rs. 11, 842 crore from Rs. 6, 866 crore. The allocation under the NREGS (National Rural Employment Guarantee Scheme) is increased by 144% to Rs. 39100 crore over previous budget estimate of Rs. 16,000 crore. Also, provision to provide 25kgs of wheat/rice per month at Rs. 3 per kg for families living below poverty line has been made under the National Food Security Act. The Finance Minister has proposed to increase the allocation under Bharat Nirman by 45%. The allocations under PMGSY (Pradhan Mantri Gram Sadak Yojana) has also been increased by 59% to Rs. 12, 000 crore and RGGVY (Rajiv Gandhi Grameen Vidhyutikaran Yojana) has increased by 27% to Rs. 7, 000crore. Allocation under IAY (Indira Awaas Yojana) has been increased by 63% to Rs. 8,800 crore for 2009-10. Agricultural Development The agricultural credit has been increased to Rs. 325,000 crore from Rs. 287,000 crore. Also, the agriculture interest subvention scheme for short term crop loan upto Rs. 3lakh at 7% interest will be continued. Allocations towards AIBP (Accelerated Irrigation Benefit Program) and RKVY (Rashtriya Krishi Vikas Yojna) have been increased by 75% and 30% respectively above the previous year’s estimate. Also, the farmers have been given extra time, upto 31st December 2009 from 30th June 2009, to repay 75% of their overdue under the Debt Waiver & Debt Relief Scheme. Government intends to move to nutrient-based fertilizers subsidy regime to include more fertilizers under the subsidy. Financial Sector The SIDBI (Small Industries Development Bank of India) has been allotted Rs. 4,000 crore for RIDF (Rural Infrastructure Development Fund) to incentivize MSEs (Micro and Small Enterprises) lending and refinancing. A team of experts is to be set up, to advice about concept of marking to market of petrol and diesel prices, to help oil importing companies to reduce their losses. Also, disinvestment programs, though not explicitly stated, are on its way. We can expect to see government raising funds by disinvesting its stake in the PSUs. However, it has been made clear that stake in PSU Banks won’t be diluted and full support will be given for capital infusion. It is proposed to raise the threshold for non-promoter public shareholdings in listed company. This will give investors more chances for investments and hence increase the money flow in markets. Also, a sub-committee of SLBC (State Level Bankers Committee) will be established to identify areas where banking facilities are required. Rs. 100 crore has been allocated for one-time grant in-aid to establish at least one POS in unbanked areas. Building Accountable Institutions Provision of Rs.120 crore has been made for the much awaited Unique Identification Program under the UIDAI (Unique Identification Authority of India). The program is set to start its operations in next 12 to 18 months. Additional amounts of Rs. 430 crore and Rs. 2,284 crore have been allotted for modernizing the police service and improving international border protection infrastructure. Rs.2, 100 crore extra will be expended annually over pensions for the retired defence personnel. Rs. 2, 113 crore is set aside for IITs and NITs which includes the much needed Rs. 450 crore for new IITs and NITs. An overall increase of Rs. 2, 000 crore is seen in the education sector. Outlays for Commonwealth Games has been increased to Rs. 3, 472 crore and allocation of Rs. 500 crore has been made for Srilankan displaced Tamilians. Tax proposals As in every budget, tax proposals formed a very important part in this budget also. Tax revenues play very crucial role in the revenue receipts of the Indian government. The Tax-GDP ratio has increased to 11.5% in 2008-09 of which 56% comes from direct taxes. A new Direct Taxes Code will be in commission shortly while the new GST (Goods & Services Tax) will come in effect from 1st April 2010. Direct Tax The Finance Minister understands the current economic situation and rightly increased the exemption limit for individual tax-payers by Rs. 10,000 at Rs. 1.9 lakh for women, Rs. 15,000 at Rs. 2.40 lakh for Senior Citizens and Rs. 10,000 at Rs. 1.6 lakh for other individual taxpayers. Also, no changes have been made in the Corporate Tax. Surcharge on personal income tax will be phased out. Abolition of FBT (Fringe Benefit Tax) is welcomed by the employers and the employees. These changes are expected to increase the money available in the hands of the tax payers thus increase its spending capabilities. Abolition of CTT (Commodity Transaction Cost) is aimed at increasing liquidity and transactions in the commodity market. Deduction under section 80E will now cover interest paid for education loans for any field of studies pursued after schooling. The anonymous donations received by charitable organizations of upto Rs. 1 lakh or 5% of total income whichever is higher will be exempted from tax. However, surprisingly MAT (Minimum Alternate Tax) has been increased to 15% thus increasing the tax liability of companies who earlier were better off at 10% rate. From 2010-11 the presumptive tax will be levied on all the small businesses with a turnover of up to Rs. 40lakhs. However, they will be exempted from paying advance tax and will be allowed to pay it at the time of filing return. Tax Holiday under section 80IB (9) will now be extended to profits arrived from commercial production or refining of mineral oil as well as natural gas. Indirect Tax Customs Duty: Duty on manufacturing of LCD TVs, 10 life saving drugs/vaccine and bulk drugs will be reduced to 5% from 10%. Additional items will be included in the list of exempted raw materials for manufacturer-exporter of sports goods, leather goods, textile products & footwear industry. The duty on bio-diesel is now lowered to 2.5% from 7.5% giving boost to less polluting form of energy. Duty on gold coins, bars and other forms of gold and silver has increased by 100%. Central Excise Duty: Excise duty has been raised from 4% to 8% on biscuits, cakes, pastries, drugs under Chapter 30, papers, power driven pumps for water, pressure cooker, CFL and vacuum-filled bulbs, cars for physically handicapped, man-made fibre and yarn and polyester chips. Component taxes on vehicle with engine of 2000cc and above is reduced to Rs. 15,000 from Rs. 20,000. High speed diesel blended with 20% bio-diesel has been exempted from duty. The reduction of excise duty on petrol driven trucks is reduced to 8% from 20%. Excise duty on petrol and diesel intended for sale on brand name will be converted to specific rates of Rs. 14.5 and Rs. 4.75 per litre respectively. These measures show government’s conscious efforts to reduce pollution levels and hence, help maintain environment stability. Excise duty on branded articles of jewellery has been exempted. Service Tax: Services like transport of goods by rail, coastal cargo and inland waterways, advice, consultancy or technical assistance in the field of law (excluding individual service provider or receiver) and cosmetic plastic surgery are now covered under the tax net. Exemption from service tax is extended to inter-state and intra-state transportation of passengers in a vehicle bearing ‘Contract Carriage Permit’ and inter-bank purchase and sale of foreign currency between scheduled banks. The services of ‘transport of goods through road’ and ‘commission paid to foreign agents’ is also exempted if the exporter has to pay tax based on reverse charge basis. Membership fees collected by Export Promotion Council & FIEO (Federation of Indian Export Organisations) will be exempted till 31st March, 2010. Tax Proposals under direct taxes are expected to remain revenue neutral while the indirect taxes are expected to increase the revenue by Rs.2000 crore for a full year. In a Nutshell To sum it all, the estimated revenue deficit will stand at 4.8% of GDP compared to 1% in the previous budget estimate; whereas the fiscal deficit will be at 6.8% compared to previous year’s estimate of 2.5%. The estimated tax revenues for the coming year is at Rs. 64, 1079 crore while non-tax revenues at Rs.14, 0279 crore as compared to Rs. 6, 87,715 crore and Rs. 95, 785 crore respectively in the previous budget. The total budget estimate provides for an expenditure of Rs. 10, 20,838 crore which is a staggering 36% higher than the budget estimate for 2008-09. The plan expenditure stands at Rs. 32, 5149 crore and non-plan expenditure at Rs. 6, 95,686 crore; which is a mammoth 34% and 37% higher than the previous year’s budget estimate respectively. However such a massive increase over the previous year’s budget is explainable under the given circumstances of uncertainty in economy. The government – by providing various incentives like increasing outlays for the flagship program, outlay for defence, implementation of the Sixth Pay Commission recommendations, increased subsidies, lower taxes and excessive borrowing over the FRBM target – is trying to give a boost to the economy and thus bring it out of slowdown and move towards achieving the targeted growth of 9% over the coming years. However, how fruitful these activities become will only be seen in the next Economic survey of the country. Budget lacked any clear-cut announcements regarding disinvestments and borrowing plans. Nevertheless, abolition of FBT and surcharge, investment in infrastructure, flagship programs has been welcome by the corporate family. However, the Stock markets reacted sharply. The BSE SENSEX and the NSE NIFTY each lost 5.8% compared to their previous close. Mr. Deepak Parekh, Chairman, HDFC said, “The market does not seem to have understood the Budget well….It is overall a good, development oriented budget…” Mr. Uday Kotak, Executive Vice-Chairman & MD Kotak Mahindra Bank said, “I do believe that this budget is good for domestic economy; it is good for domestic investment, domestic savings and domestic consumption.” Montek Singh Ahluwalia, Deputy Commissioner of the Planning Commission, said that investors should not judge the Budget by what was said in the speech as the high fiscal deficit this year was justified. He said that it is impossible for the government to cut tax and reduce deficit at same time. CII appreciated the increase in expense for NREGA, JNNURM and Bharat Nirman. However, the India Inc. believes that the Finance Minister has done a good job in the short time that was available to him. They expect many announcements after the budget regarding the disinvestments, expenditures, etc. The budget is believed to be strategically packaged to not to make huge announcements as of now. |