Congress & UPA may have changed the Finance Minister but they haven’t changed the policy of the budget being a ‘non-event’ (a word personified by previous FM P Chidambaram) & the only concern the budget carries is ‘Inclusive Growth’ (Something the market has got fed up of since the Nehruvian Socialist India – the concept that still hasn’t quite worked; to UPA’s credit NREGA has got some favourable results including winning the election with clear mandate for Congress & UPA, without a pejorative external support of the Leftist, Communist parties). So in all, the budget had all the ingredients to make a rotten stew & that is what it made. Here’s the list of the ingredients & a small procedure of how to spoil the party.
The basic plan of this government is keep the wheels of growth spinning fast enough so that the wobble created by global financial turmoil does not derail the engine of growth. So the basic target is to maintain the GDP growth above 9% for the whole term, which includes maintaining the Agricultural growth above 4%. There has been lot of ruckus between the state & Central government regarding the collection & utilization of taxes since the introduction of VAT. So the FM has proposed the annual dialogue between the State Finance Ministers & the central government for resolving this issue & to ensure that the state government do no fall short of necessary funds.
Some significant points in expenditure for this year are as follows,
- The budget estimate for expenditure is set to cross the RS. 10 lakh crore for the first time. Total BE is Rs.10,21,000 crore out if which Rs.3,75,000 crore is planned expenditure.
- There is a proposal to set IIFCL as SPV for infrastructure growth.
- The Central Government to refinance 60% infra projects in critical infra sectors, amount estimated for the same is Rs.1,00,000 crore
- Funds allocated for JNNURM to be increased by 87% over last year.
- Also there is 23% increase in funds allocated for NHDP/NHAI.
- There is proposal of providing the farmers with loans up to Rs. 3,00,000 with special low interest of 7%. & further 1% reduction in interest rate to 6% for farmers who repay their loans on time.
- There is emphasis on irrigation with 75% increase in funds allocated.
- Micro, Small & Medium Enterprises are given a boost of 4000 crore for refinancing loans given by banks to these industries.
- A great positive as expected by market for the Petroleum Producing & Marketing industries is that the new mechanism to be introduced for Petroleum pricing policy which will try to decontrol the petroleum prices & put more in line with global crude prices to minimise losses of these industries & also it is bound to reduce the deficit burden on the government.
- To extend the Public involvement in the growth story of India Inc. there is proposal to expand Non promoter shareholding, as currently many of the listed companies have 10 – 15% general public (retail) holding only.
- An amount of Rs.39,100 crore for NREGA in this budget which is astounding 144% higher than last year due to the success witnessed in last year.
- Allocation for Bharat Nirman is up 45% from last year.
- Indira Awas Yojana is given 63% more funds than last year.
- Allocation of Rs.7000 crore for rural electrification.
- FM also proposed a plan of bringing the Employment exchange online to facilitate the jobseekers get into the right jobs & also to create a pool of talent for the India Inc. to choose from.
- There is boost for ex servicemen by increasing the Pension paid to them.
- The all centre of attention UID scheme which is now lead by Nandan Nilekani will be allotted Rs.120 crore & expected to be completed within 12 – 18 months.
Now something about the receipts
- The total Revenue Deficit for this year is set to be 4.8% of GDP.
- The Fiscal Deficit is revised to 6.8% of GDP but FM promised to bring it back within FRBM range at the earliest possible.
- The total Tax receipt for the year are budgeted to be Rs.6,42,000 crore
- Tax to GDP ratio is 11.5%.
- The only positive surprise in the budget that no one expected is that the GST is set to be introduced on previous target of April 1, 2010 without any delays.
- FM proposed to make the returns filing process simple yet again so the Saral 2 forms will be introduced soon.
- There will be New direct tax code prepared within 45 days
- Biggest negative that spooked market was that there was no change in Corporate tax. India Inc. was hoping for some reduction on that front.
- The individual tax exemption limits are changed to
- Senior citizen Rs.2,40,000
- Women Rs.1,90,000
- All others Rs.1,60,000
- Exemption under section 80DD Rs.100000
- Surcharge eliminated.
- Exemption under sections 10A 10B will be extended till FY09-10 end.
- One boost for the working class & a little to Corporates is the FBT is abolished as expected.
- Disappointment on individual level is the maximum deduction allowed under section 24(b) for the interest on borrowed capital for the purpose of purchase of home should have been increased to Rs.2,00,000 or even more sensible Rs.2,50,000, which was left unchanged to Rs.1,50,000.
- Another expected change is the STPI tax holidays are extended by 1 year.
- Tax holiday for exporters extended till FY10-11 end.
- All capital expenditure for the Corporates is allowed for deduction.
- Commodities Transaction Tax is abolished.
- MAT is raised to 15% from 10 %. This is supposed to cover up for the Surcharge & FBT abolition. In return to that the period to carry the loss for MAT is increased to 10 years from current 7 years.
- STT is tweaked to boost retail involvement.
- Exemption under section 80G will be 100% from current 50%.
- Exemption under 80E will be extended to all fields of education including vocational courses.
- Exemption under Section 80IB extended to natural gas
- Section 2(15) extended to organizations that work on improving environment.
Indirect taxes were left largely untouched. Few of the significant changes are as follows.
- Electronic sector customs duty benefits
- Set top box will attract duty of 5%.
- Duty on Wind mill magnets is cut to 5% from 7.5%.
I don’t need to say it differently than the overall market that this budget was disgusting & again a lost opportunity just to keep the promise of letting it be a ‘non-event’. I have been saying it for last 3 years now, since I started blogging this non-event that the Congress & UPA government have just not got the fundamentals of Economics right. This is astonishing & more disgusting because the best economist in the country is the PM. The reason I am saying it because for last 3 years there has been nearly no attention to the supply side of the economy, same is the case this year. All the efforts are targeted towards reviving & pushing the demand side up & thereby driving the growth. Should I remind you that similar thing was attempted by the great Alan Greenspan when he was heading Federal Bank & we all know where it ended. I fear we are just walking down the same path blindly & not ready to learn from the mistakes of predecessors. This is the same reason we witnessed the sky high inflation to the tune of 12.7% & my bet is it will be back again until the supply side is addressed on priority. The biggest thumb down was given to this budget because there was no roadmap for the all talked about & rather necessary reforms for the economy viz. disinvestment, financial reforms, view on FDI & FII. The uncertainty was maintained on it & market hates uncertainty. See where Nifty & Sensex are going, I need not say anything more.
