Transcript BUDGET 2009-10

WHAT IS BUDGET

Budget the statement of the estimated receipts and expenditure of the
Provincial Government for a fiscal year which the provincial government
should lay before Assembly in every financial year;
OBJECTIVES OF BUDGET



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Employment generation
Social Development, Such as increase in Literacy and health standard
Regional Development
Infrastructure Development
Capital Formation
Reduction Inequalities of Income
Economic Development
BUDGET
REVENUE
TAX REVENUE
DEFICIT
EXPENDITURE
REVENUE
DEFICIT=PE-RE
NON TAX
REVENUE
PLAN
EXPENDITURE
NON PLAN
EXPENDITURE
FISCAL
DEFECIT=
TE+NL-(RR+NDCR+EG)
PRIAMRY
DEFICIT=FD-Interest
Payment
SECTORS
Growth in
2007-08
Growth
in 200809
Agriculture
4.9%
1.6%
Industry
9%
2.3%
Trade Hotel
And Rest.
10.1%
9%
Community
services
6.8%
13.1%
Construction
10.1%
7.2%
Finance,
Insurance, Real
Estate And
Business
Services
11.7%
7.8%
Total GDP at
Factor Cost
9.0%
6.7%
 Net capital flows rose from a level of USD 45.2 billion in 2006-07 to USD 108 billion in
2007-08, indicating a growth of 139%, attributable to a significant rise in foreign investment
in terms of direct and portfolio investment, large inflow of banking capital and a quantum
jump in loans, particularly short term credit and external commercial borrowings. The net
capital inflow from April to December 2008 was USD 15.3 billion. Foreign exchange reserves
declined by USD 57.7 billion from USD 309.7 billion in 2007-08 to USD 252 billion in 200809.
 Rupee appreciated from 46.57 per USD in Aug, 2006 to 39.37 per USD in Jan, 2008.
However, the global financial reversed the appreciation which led the Rupee to decline from
40.36 per USD in March, 08 to 51.23 per USD in Mar, 09.
 During 2008-09, the value of merchandise export
reached US$168.7billion with growth of 3.6% despite
global recession. The export was robust till August
2008. However, it became low in September and
became negative from Oct. to March.
 During 2008-09, import growth was subdued at 14.4%.
The started declining from Oct and turned negative
January to March,2009.
 The trade deficit increased to USD 88.5 billion in 200708 to USD 119.1 billion in2008-09.
 Fiscal deficit increased from 2.7% in 2007-08 to 6.2% of GDP in 2008-09. Primary
deficit increased from -0.9% of GDP in 2007-08 to 2.6% of GDP in 2008-09. Revenue
deficit is estimated to increase from 1.1% of GDP in 2007-08 to 4.6% of GDP in 200809
UNION BUDGET HIDHLIGHTS
 Rebate for farmers paying loan on time at a lower rate of 6 per cent proposed. Also,
deadline for farmers to repay 75 % of the loan extended by 6 months to December 31, 2009.
 Allocation under National Rural Employment Guarantee Scheme (NREGS) increased by 144
per cent to Rs 391billion in 2009-10 over 2008-09 (BE)
 Allocation for Bharat Nirman increased by 45 per cent in 2009-10. Under it, allocation under
Pradhan Mantri Gram Sadak Yojna (PMGSY) and Indira Awas Yojna increased by 59 per cent
and 63 per cent, respectively
 Allocation under National Rural Health Mission (NHRM) increased by Rs 20.57 billion over
the allocation in Interim budget 2009-10 (Rs 120.7 billion)
 The overall Plan budget for higher education is to be increased by Rs 20 billion over the
Interim Budget
 Unique Identification Authority of India (UIDAI) to set up online data base for Indian
residents and provision of Rs 1.2 billion made for this in the budget
 While retaining at least 51 per cent government equity stake in PSUs, disinvestment
proceeds for B.E. 2009-10, estimated at 11.2 billion
 Fringe benefit tax (FBT) to be abolished Minimum alternate tax (MAT) to be increased to
15 per cent of book profits.
 Commodity transaction tax (CTT) to be removed
 Exemption limit in personal income tax raised by Rs 10,000 for all categories of individual
taxpayers; by Rs 15,000for senior citizens. Surcharge of 10 per cent eliminated on personal
income tax
 Real and Nominal GDP growth assumed at 6.5 and 10.05 per cent respectively in 2009-10
 Revenue deficit projected at 4.8 per cent of GDP in 2009-10
 Fiscal deficit projected at 6.8 per cent of GDP
 Total expenditure increased by 36 per cent to Rs 10,208.38 billion over 2008-09 (BE)
 IIFCL to refinance 60 per cent of commercial bank loans for PPP projects in critical sectors
over the next 15-18 months. Allocation to National Highways Authority of India (NHAI) for
the National Highway Development Programme
 (NHDP) increased by 23 per cent over 2008-09 (BE) in 2009-10
 Allocation under Jawaharlal Nehru Urban Renewal Mission (JNNURM) stepped up by 87 per
cent in 2009-10 over2008-09 (BE)
 Target for agriculture credit flow set at Rs 3,250 billion for the year 2009-10 (credit flow
had been at Rs 2,870 billion in 2008-09).
BUDGET FINANCIALS 2009-10
FY09BE
FY09RE
Variance(%) FY10BE
% Growth
Reduction in Excise Duty

Reduction in AED Applicable to cars above 2000cc from 20000 to 15000.

Reduction in excise duty on petrol driven trucks from 20% to 8%

Reduction in Excise duty on Chassis from 20%+10000 to 8%+10000.

Increase in Tax slab, Abolition of surcharge and rural development will increase
disposable income

Increase in allocation under JNNURM by 87% will increase sales of buses.

Increase in MAT rate from 10% to 15%.
 Abolishment of FBT.

BANKING
 The Budgeted fiscal deficit for 2009-10 is reported 6.8% as against 6.2% reported
for 2008-09= Deficit of Rs 4.01 Trillion
 Inclusion of other public sector bank under section 10(23D).
 Increase in Tax Slab.
CONSTRUCTION
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Refinancing up to 60% for PPP infrastructure through IIFCL
Increased allocation under NHDP 130bn to 160 bn and Bharat Nirman 313bn to 454bn.
Removal of Excise duty on prefabricated bricks will boost margins.
Focus on rural development through RGGVY 55bn to 10bn and Pradhan Mantri Gram
Sadak Yojna 120bn.
Exclusion of works contract executed from 80IA
HOUSEHOLD APPLIANCE


Reduction in Custom duty on LCD panels from 10% to 5% which accounts for 45-70
percent of LCD price.
Increase in personal disposable income due to increase in Tax slab by Rs.10000
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Extension of STPI Sunset Clause to FY11
PPP initiatives like the UIDAI and Employment Exchange
Excise duty exemption on part value of packaged or canned software
Proportional profits from SEZ unit to be taxed, prospectively
Abolishment of FBT.
Increase in MAT rate from 10% to 15%.
MEDIA
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Stimulus package for print media extended
Customs duty exemption on Set Top Boxes (STB) for TV broadcasting has been
withdrawn; 5% customs duty to be imposed.
OIL & GAS
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Extension of deduction u/s 80IB
MAT credit extended from 7yrs to 10yrs.
Hike in Mat from 10% to 15%
100% deduction on expenditure on pipeline
Creation of National Gas Grid
Specific excise duty on petrol and diesel. For branded petrol 14.5per ltr instead of 13+6%
and diesel 4.75 per ltr instead of 3.25+6%.
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Extension exemption of AED on parts and accessories of mobile handsets.
Abolishment of FBT
Hike in MAT
Current scenario

Current share of GDP is 17.1% in 2008-08 form 17.8% in 2007-08.

In FY 2008-09 the growth registered was only 1.6%.

52% of employment but share of overall Economy is decreasing.
Budget reforms

Food subsidy.
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Fertilizer subsidy.
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Loan waive off
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Interest subvention Scheme.
Food security
Current Scenario

Subsidies to BPL
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PDS Systems covering to 6.5 crores families, having near 5,00,000 fair prices shops.
Current expenditure on PDS is. 23,800 crores.

Others are Buffer stock maintenance & National Food Security Mission etc
Benefits

Protection to BPL.
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Minimum nutritional support to the poors at affordable prices.

Attracting towards education
Budgetary Reforms

National Food Security Act to be brought in to ensure entitlement of 25 kilo of rice or
wheat per month at Rs.3 per kilo to every family living below the poverty line in rural or
urban areas.
Criticisms

Actual Reach of PDS have been proven to 17% - 19% only.

Not meeting the objective of stabilizing the Food prices.
Fertilizer Subsidy
Current Scenario

Subsidy is given to encourage the use the nutrient based fertilizer rather than to depend
heavily on traditional fertilizers like urea to increase the productivity.
Budget Reforms

It is also intended to move to a system of direct transfer of subsidy to the farmers.
Reduced from Rs. 80,000 Crores to Rs 55,000 Crores
Criticisms

Benefits are mostly availed by middlemen.

Huge corruption

declining response of agricultural productivity to increased fertilizer usage in the
country is a matter of concern.
Farm Loan Waiver
Current Scenario

The one-time bank loan waiver of nearly Rs.71,000 crore to cover an estimated 40
million farmers was one of the major highlights of the last Budget.
Budget Reforms

farmers having more than two hectares of land were given time upto 30th June, 2009 to
pay 75% of their overdues. Due to the late arrival of monsoon, proposal to extend this
period by six months upto 31st December, 2009.

Continuation the interest subvention scheme for short term crop loans to farmers for
loans upto Rs.3 lakh per farmer at the interest rate of 7% p.a..
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An additional subvention of 1 per cent as an incentive to those farmers who repay their
short term crop loans on schedule.
Criticisms

Change the tendency

Beneficiaries

Temporary solutions.

A large number of farmers had taken loans from private money lenders and the loan
waiver scheme did not cover them.
Current scenario

52 on agreecultural,18% industry,30% services sector

Seasonal & underemployment

Schemes operating are TRYSEM, Swarna Jayanti Gram Swarojgar Yojna, Sampoorna
Garmin swaraj Yojna.
Budgetary Reform

1.2 crores new job opportunities per year.

Online exchange

An allocation of Rs.39,100 crore for the year 2009-10 for NREGA which marks an
increase of 144% over 2008-09 Budget Estimates.
NREGA
Origin

Originally started in Feb 2006, to provide with initial outlay of Rs 35,000-crore programme
that guarantees a 100 days of employment, every year, to adult members of any rural
household willing to do manual labour at the minimum wage.
Benefits

Less under-employment.

less exploitation of workers so the bargaining power of workers, especially women, has
gone up due to MSW

Reverse Immigration

Higher allocation to NREGA and increase in minimum wages to Rs 100 will improve the
disposable income to rural India which will boost the rural demand & expenditure of
goods.
Current Scenario

Wages paid in 2008-09: Rs 18,036 crore

Wages paid since inception: Rs 34,616 crore
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Districts covered: All 615, covering 6 lakh villages
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Households covered: 44 million (provisional)
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Beneficiaries: 48% are women; 55% are SC/ST
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Statutory minimum wage: The average rose from Rs 65 to Rs 84
Criticisms

Increase in minimum
Wages
Decrease in
productivity
No. of family covered
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4,42,848
(Apr 2009)
6,44,052
(May 2009)
8,52,527
(June 2009)
Sources: Business Standards
14th July 2009
Less productivity (employer say that there is
decrease in productivity of 15%-20%.
No worry for jobs and increase no of registrations.
‘The bolero Effect’
The Game Changer.
Rural tendency
Unproductive work & tending to more dependent on
NREGS.
Other Ground Realty problems.
Data are in terms of

At least one people of family

Figures are not Cumulative
HEALTH
Budgetary Reforms

Allocation under National rural health mission (NRHM) increased by Rs. 2,057 Crores
leading to Total allocation to Rs.14,127 Crores.

All BPL families to be covered under RASHTRIYA SWASTHYA BIMA YOJANA (RSBY).
Allocation under RSBY increased by 40 per cent over previous allocation to Rs.350 crore in
B.E. 2009-10.
NATIONAL SECURITY
Current Scenario

Currently the total expenditure on the defence is of Rs 1,14,600 Crores and for police it is
Rs. 20,710 Crores
Budget Reforms

Additional amount of Rs.430 crore provided over Interim B.E. 2009-10 to modernize
police machinery in the States.

Additional amount of Rs.2,284 crore proposed over Interim B.E. 2009-10 for construction
of fences, roads, flood lights on the international borders.

Programme for housing to create 1 lakh dwelling units for Central Para-military
Criticism
Not able to tackle the problems of terrorists.
Naxal problems.
EDUCATION
Current scenario

Surva Shiksha Abhiyan

a large percentage of young population needs to be converted into a dynamic economic
advantage by providing them the right education and skills.
Budgetary reforms

Rs.827 crore allocated for opening one Central University in each uncovered State.

Rs.2,113 crore allocated for IITs and NITs which includes a provision of Rs.450 crore for
new IITs and NITs.

The overall Plan budget for higher education has been increased by Rs.2,000 crore over
Interim B.E. 2009-10.
In The process

The presentation The Right of Children to Free and Compulsory Education Bill, 2008

Bill allowing Foreign Universities to set up in India.
TAXATION
Current Scenario

Less Revenue

Low tax base.

Compliance problem

Corruption

For some taxes, Admin cost is higher than revenue
Budget Reforms

Roadmap for Goods & Services tax.
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FBT abolition
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MAT increase from 10% to 15% with simultaneous increase in the period of benefits

Personal income tax relief including surcharge removal.

Custom & excise duty cuts on various goods

More service brought to the net
Criticisms

STT non removal.

Implementation of GST.

Revenue decreasing
OTHERS
Female Literacy

launch a National Mission for Female Literacy, with focus on minorities, SC, ST and other
marginalized groups. The aim will be to reduce by half, the current level of female
illiteracy, in three years.
Welfare of worker of unorganized Sector

Unorganized Workers Social Security Bill, 2007

Social Security Schemes to unorganized sectors like weavers, fishermen and women,
leather and handicraft workers, plantation labour, construction labour, mine workers, bidi
workers and rickshaw pullers.
Commonwealth Games, 2010

The Commonwealth Games present the country with an opportunity to showcase our
potential as an emerging Asian Power.

Outlays to be stepped up from Rs.2,112 crore in Interim Budget to Rs.3,472 crore in
regular Budget 2009-10.
Unique Identification Cards

The UIDAI will set up an online data base. The first set of unique identity numbers will be
rolled out in 12 to 18 months.

provision of Rs.120 crore for this project.
Current Scenario

Economic crisis in all over the world , the export has been srinked to as against of Rs
in 2007-80.

Balance of trade situation

An adjustment assistance scheme to provide enhanced Export Credit and Guarantee
Corporation (ECGC) cover at 95 per cent to badly hit sectors had been initiated in
December 2008
Budget Reforms

extend the benefits of this scheme up to March 2010.

insulating the employment - oriented export sectors Government had provided an
interest subvention of 2 per cent on pre-shipment credit for seven such sectors i.e.
textile. extend the interest subvention to March 31, 2010.

by providing a special fund out of Rural Infrastructure Development Fund (RIDF) to
Small Industries Development Bank (SIDBI). This fund of Rs.4,000 crore will incentivize
Banks and State Finance Corporations (SFCs) to lend to Micro and Small Enterprises
(MSEs)
Criticism

As the customer countries are in economic depression
themselves and emphasizing on domestic consumption,
any measure won’t be much helpful
I.



Budgetary Deficits
The budgetary Deficit was 6.8% of GDP i.e. for Rs. 4,02,800 Crores,
which is worry some
Fiscal Deficit target at 6.8% which was expected.. But the Big Idea to raise
resources to bridge this gap was missing
Excessive borrowing to meet fiscal challenges will bring serious pain to
economy.
If state deficit limits has been hiked to 4%of
GDP which put the total Govt. Deficit to
10.8%of GDP. Incremental slippage in the
both central and state borrowing along with
increase in subsidy would lead to deficit
close around 12% of GDP.

Increase in the Tax revenue source From Rs. 8,200 Crores and non tax
Revenue From Rs. 44,100 Crores whereas the total Expenditure increases
from Rs. 119,800 Crores.
Lower Tax Revenue
Budget Deficit
Lower income,
Custom & Excise Duty
Cut, Stimulus
packages
Economic Pressure
Less Export, less
turnover, Salary
cut,
Unemployment
Expenditure Side Reasons for Budgetary Deficit.
budget for higher education is to be increased by Rs.2,000 crore over Interim
B.E. 2009-10.
Budgetary Deficit F.Y. 2008-09(RE)(6.2%)
Adm. &
Farm Loan
Social Others
Contents
Waiver
7%
5%
Interest Cost
7%
Farm Loan
Waiver
15,000
Salary Hike
28,000
NREGA
25,000
Oil Subsidy
13,500
Food Subsidy
11,500
5%
Fertilizer
Subsidy
75,850
Food
Defense
19,300
Stimulus
Packages
100,000
Salary Hike
10%
NREGA
8%
Oil Subsidy
Stimulas
Packages
32%
Subsidy
Fertiliser
Subsidy
23%
Sources: Business Today, Mar 09 issue
2008-09
Rs. (In Crores)
3%
Interest Cost
21,700
Admin & Social
Others
13,065
Total Deficit
3,26,515


In the Union Budget 2009-10 the Borrowing Expected to be Rs 4,51,000 Crores (Gross) i.e.
Rs. 1235 Crores per Day.
Even in the best times, the Govt. is the largest Borrower in the market. What, is more
worrisome is that the Govt. is least risky –and therefore the most preferred borrower for
banks so most of the liquidity will be sucked by Govt. resulting to
2008-09
(Original Estimated)
2008-09
(Revised Estimates in
Interim Budget)
Impacts


Sources: Business Today, March
09 issue
less fund availability to Corporate.
Higher interest on which debate is already
started
Interest Cost


As the borrowing is never reduced consistently resulted to 4% of GDP
Internal debt is more than Rs. 20,00,000 crores and external debt is
26.2% of GDP .
Rs. In 100 Crores
Sources: Budget Documents
Impact
1. Leading to Debt trap
2. Opportunity cost
DISINVESTMENT
Current scenario

More autonomy and better management.

Expected scope of Rs 35,000 Cores.
Budgetary Reforms

Approval of only Rs.1100 Crores (no mentioned in the Budget)
Criticism

Finance minister did not lay out a roadmap for reforms, as was widely expected.

On reform, FM has played very politic game and left it to the individual ministry to
implement and announced the proposed reform
Govt. Excuse

The Information is not available right now on the list of companies, the valuation and the
amount they will fetch.

The proceeds will got o to National Investible Fund(NIF) and cannot be put down as
capital receipts
On the budget day the market dropped by 5.8% i.e. around 900 points.
The drop reflects a possible mix of:

1.
2.
3.
4.
5.
6.
Expectations (and stocks) running well ahead of reality,
A real problem on the fiscal deficit,
Questions on the government's will to address head-on market
friendly issues – divestment, FDI, broad-based reform, and
Some sector policy and tax pain.
The near 6% fall in the market following the Budget speech to me
reflects the unwinding of inflated
budget expectations.
SECTORAL REFORMS
AWAITED THING KEPT AWAITING
 The long-anticipated decision to increase the Foreign Direct Investment (FDI)
limit in the insurance sector from 49% was avoided.
 Expanding structural liquidity in the financial sector and divert resources
towards real sector.
 Expand the exemption limit for housing loan.
 Improve the ecosystem to attract the FDI rather than debating the actual
percentages.
The Real Cost of Populism
UPA
Promise: A food law
guaranteeing 25kg of
rice or wheat p.m. at
Rs. 3 per K.G. to rural
& urban BPL Families.
Cost: 31,500 Crores per
year
Consequence: Food
subsidy rise by 70%
from Rs 43627
Crores.
Promise: interest Relief
to all farmers who
repay bank loan on
schedule.
Cost: Rs. 19,700Crores
per year
Consequence: will raise
the Debt-waiver
subsidy by 78% from
the current Rs.
25,000 Crores.
NDA
CPM
Promise: waive all
agricultural loans; Max
ceiling of 4% on
interest for all
Agricultural loan to
farmers.
Promise: Extension Of
NREGS to adults in
Urban Areas.
Cost: Rs. 2,50,000 Crores
for waiver & Rs. 15,000
Crores for interest
subsidy.
Consequence: Higer Urban
wages could trigger
migration and purpose
of NREGS will be
defeated.
Promise: Exempt income
upto Rs 3 lakhs from IT;
additional benefits of
Rs. 50000 for Women
and Sr. Citizen.
Cost: 60000 Crores per year
Consequence: Personal
Income tax Revenue will
fall to half at a time
when the Fiscal deficit is
high and rising.
Cost: Rs 3,83,921 Crores
per year
OTHER CRITICISMS
Inflation

Wholesale price index (WPI) rose to nearly 13% in August, 2008 and had an
equally sharp fall to zero% in March, 2009. When WPI was zero, Consumer
Price Index (CPI) was hovering at more than 10%. Currently it is at 8%.
Tax increment

Increased in MAT to 15% from the current 10% is the biggest negative of the
budget; it will hit hard most to the Telecom, IT, Oil & Gas and Power &
Capital goods companies
Tax Base

Expanding the Taxable population.
Background
 FRBM (amended act become effective from July 5, 2004
Importance
 This is essential for maintaining a stable balance of payments, moderate
interest rates and steady flow of external capital for corporate investment.
Targets & Current scenario
 Fiscal Deficit reduced by 0.5% each and 3% till mar 2009
 Revenue Deficit 0.5% reduction and Nil till 2009.
Criticism
 Neglect the development needs,
 Need to increase revenue
 Wrong assumption of lower Fiscal Deficit leads to higher economic growth.
“The budget is a sort of vision document at a macro level.”
-Kumar Birla, ABG
“It was a good budget considering the current global economic situation and the
Government’s immediate priority of sustaining the growth momentum.
-Sunil Mittal, Bharti Group
“Till now, most of the total consumption Demand was based on top eight cities
accounting for 40% of total demand, the proposal of increased spending on
rural India could boost private consumption in the countryside.”
Kishor Biyani, Future Group
“The kind of boldness that is needed for reforms is somehow missing.”
-Rakesh Jhunjunwala, Rare Enterprises
“The step taken in the budget would be positive for personal Consumption as
well as investment activity.”
-Chanda Kochher, ICICI Bank

Budget Overall Opinion
Sales
Good
Satisfactory
3%
28%
69%
Bad
PRADEEP GUPTA
 The Budget was Good one,
mainly focused on the
inclusive growth to some
extent can be populist
because





Lease Reform policy
NREGS
Social Expenditure were more
Exactly as per promises made in
party manifesto, even being
worried for sources.
Tax exemptions.
No major disinvestments