Union Budget 2010-11

Finally this non-event has brought me to ad nauseam boredom & I decided not to follow it so rigorously anymore. Just one bit of good news for the working class is the new tax structure proposed

Income	Tax %
0-160000	0%
160001-500000	10%
500001-800000	20%
800001-above	30%

One angle to look at this is if you earned more, it’s more beneficial to you. Just look at table below. You tell me qui bono?

Income Rs.	Previous tax	New Tax	You save
350000	24000	19000	5000
500000	54000	34000	20000
750000	129000	104000	25000
1100000	234000	114000	120000

And this came at a time when the consumer is pissed off with the level on food item inflation. This is 4^th year I have been crying out loud that the government is playing plain dumb. We have so called “some of the best economists” sitting at the top viz. Manmohan Singh, P. Chidambaram, Montek Singh Ahaluwalia. And yet the government is not able to understand a simple problem for years, that we are not making any moves to tackle the supply side problems. That’s the main reason of the inflation. If you studied economics even for a year in your curriculum, you’d understand what I’m taking about. And these people have been in the field of economic for years & yet they do not seem to heed for this.

This whole façade is simply ridiculous & there seems no sense in making a hue & cry about it. So I better shut up & leave the country for the able leaders to ruin. I better spend my time in getting self-exiled like our dear old artist M. F. Hussain.

Union Budget 2009-10

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.

Review - Union Budget 2008-09

This year’s budget was expected to be populist one as we are going into election before the next budget. And to certain extent the FM Mr. P. Chidambaram has lived up to it. The Highlights of the expenditure planning are as follows.

• National Rural Health Mission 15% increase in allocation

• Outlay of Rs. 16534cr for health care

• Initial allocation of NREGS Rs. 16000cr for all 596 rural districts; may be increased if necessary.

• Bharat Nirman allocation Rs. 31280cr

• LIC to cover woman SHG’s (Self Help Groups) linked to banks.

• Irrigation outlay Rs. 20000cr vs. Rs. 11000cr

• Waiver of debt schemes – for marginal & small farmers: complete waiver of loans – could be reimbursement to PSU banks – it would amount to 4% of all loans of banks: positive for PSU banks as some written of losses due to prudential norms will recover & NPA’s could be reduced by 0.5 – 1% – Amount of Rs. 60000cr total agri-loan waiver – needs to be done by June 08

• Addressing the demands of Anganwadi workers the basic pay to teaching staff increased from Rs. 1000 to Rs. 1500 & cleaning staff from Rs. 500 to Rs. 750

• 5 more UMPP bidding to be opened

• Exchange traded FOREX derivatives to be introduced

• Defence allocation Rs. 1.05 lakh cr up 10% from Rs. 96000cr

• Rs. 55000cr revenue deficit 1.4% vs. 1.5% previous year

• Fiscal deficit 3.1% vs. 3.3% previous year

Lot of emphasise is laid on expenditure to bring social justice just as was expected. But not much is being said about capital expenditure on infrastructure & to improve quality of education. 3 additional IIT’s & few IISc’s are planned but nothing about Management Schools.

The revenue side has been a boost as there was record collection on Direct as well as Indirect tax receipts. So little was done to tamper with the same.

Customs

• No change in peak rate

There was lot of hue & cry about possible custom duty & CVD cut to boost the supply side to reduce the cost push inflationary pressures but the budget has turned out to be total failure from that perspective. Same mistake is being repeated from last year. Also there was expectation that duty on crude would be reduced to cope up with fuel price pressure but that also did not come. So no relief for inflation from fiscal policy point of view. Monetary policy alone would not be enough to curb it, so it’s a failure on control of inflation parameter.

Excise

• Cut in excise for Buses, chassis, small car, 2/3 wheeler to 12% from 16%

• Cut in excise on Pharma products 8% from 16%

• Bulk Cement 400/ton

• CST 2% from 3%

Attempt is made to give a fillip to lagging auto industry. Also to cover the price limits put on pharma products. This move will surely achieve that.

Direct tax

• Slab changed till Rs. 1.50 lakh - nil, Rs. 1.5 – 3 lakh – 10%, Rs. 3 – 5 lakh – 20%, above Rs. 5 lakh – 30% & above 10 lakh add surcharge

• Women Rs. 1.8 lakh threshold

• Senior citizen Rs. 2.25 lakh threshold

• Corp rate surcharge unchanged

• Section 80D applicable for expense on policies of parent/s Rs. 15000

• Section 80IB – construction of Hospitals – 5 years haven, Construction of Hotels in Heritage sites recognised by UNESCO

• Short term capital gains tax increased to 15% from 10%

• Commodities transaction tax introduced

• DDT (Dividend Distribution Tax) 15% unchanged

• DDT waiver for subsidy passing profits to parent co. to avoid double taxation provided the parent is not subsidy to any other co.

• Bank transaction tax withdrawn

• STT (Securities Transaction Tax) unchanged

• STT on options premium only

Direct tax part lives up to populist budget. This would again put a demand pull inflationary pressure on economy as there will be more disposable income in the hands of individual which is boost to consumeristic tendency of the young generation.

There are many negative factors for the capital markets though. STT was expected to be reduced which was not. STT should have been removed from Options & Futures which not exactly materialized. DDT still not removed which still is sort of double taxation. There was expectation that the FM will try to boost the dull capital market condition but there was little he added to it. Few things are good as no DDT chargeable to earnings transferred from subsidy to parent company, with not enough clarity on additional clause. The banking transaction tax is removed, which was not fair in the first place; so correction of mistake. Scrap of TDS on debt instruments: this move is a boost to debt markets in the country.

In all, this budget could be termed as populist neutral budget which is precursor to elections. The FM is living up his wish to keep the budget as a non event. Wait for the year when you are not much concerned of this article.

Review - Union Budget 2007-08

The much talked about union budget 07-08 for India was delivered yesterday 28-02-07. As expressed in the Indian Express this budget is just politically correct. Many execs believe that people will easily forget this budget within a few days, as there are very few changes in the overall condition for a common man. Due to many reasons including current levels of inflation, this budget was supposed to remove the fallacies in the economy including taxation reforms, viz. double taxation, removing futile exemptions. So on the front of public and corporate expectation this budget was a failure.

For your own referral here are some of the niceties of the budget, courtesy CNBC-TV-18 and moneycontrol.com.

Direct taxes: -

• Tax exemption limit extended by Rs. 10000/- reducing tax liability of an individual by Rs. 1000/- irrespective of age or sex. Pittance!
• Adding education cess of 1% on all sorts of tax liabilities, which will be spent on development of secondary education, making total cess 3%. Taking away the pittance, too!
• PAN will be compulsory and the sole identification number for capital market transactions. Lesser but compulsory complications!
• Tax exemption under section 80D is extended to Rs. 15000/- for normal individual and for senior citizen it’s Rs. 20000/-, little relief!
• Tax concessions under section 80IB for construction are scrapped which were beneficial for the buying of houses of area till 1000 sq. ft. in metros and 1500 sq. ft. in secondary cities. Unaffordable houses for middle class in cities.
• Cash transaction tax exemption raised from Rs. 25000/- a day to Rs. 50000/-. Still a pain… you know where!
• Investments in liquid/money market funds are taxed higher under Dividend Distribution Tax. Rose from 20% to 25%. DDT for companies’ declared dividend also rose from 12.5% to 15%. Absolutely uncalled for and baffling!
• ESOPs are now under FBT, rates fro which are not determined. Wasn’t FM supposed to clarify or even scrap FBT?
• The 10% surcharge has been removed for Corporates whose taxable income is less than Rs 1 crore. Expected to benefit SMEs!
• 11.22% MAT is now applicable to IT industry also. Wasn’t IT supposed to enjoy the tax holidays till 2009?

Indirect taxes: -

• Biggest story is the Excise duty on cement. For the companies that sell cement below Rs. 190/- a bag excise is reduced to Rs. 300/- from current Rs. 400/- a tonne, while for those that sell cement above Rs. 190/- a bag, it will be Rs. 600/- a tonne. Attempt is to bring cement prices below Rs. 190/- but unlikely to be taken by cement companies as welcome change!

Service Tax

• Service tax exemption for tech business incubators. Little relief!
• Drug testing clinical trials exempt from service tax. Big boost for research!
• Service tax on rental of property for commercial use. What’s the idea? Hitting business profit! Adding problem to already overblown real estate bubble!
• Service tax on works' contract service. Extending service tax net!

Excise

• Excise duty on pan masala without tobacco cut to 40%. Minor change!
• Excise duty on pan masala without tobacco cut to 40%. Minor change!
• Non-electric water filters fully exempt from excise. Save power!
• Umbrella, footwear excise duty cut to 8% vs. 16%. Get ready for monsoon!
• Bio diesel, food processing exempted from excise duty. Fuel alternatives and cheaper food products!
• SSI excise exemption raised to Rs. 15 mn vs. Rs. 10 mn. Benefit for Small Scale Industries!
• Excise on plywood cut to 8% from 16%. Supply support!
• Petrol, diesel ad valorem excise duty cut to 6% vs 8%. Expected and delivered!

Customs duty

• General customs duty on medical equipment 5%. Caring for health at last!
• Customs duty on animal feed cut to 20% vs. 30%. Be happy if you’re a dog or a cat! Can poor be fed with dog or cat food if the grains and pulses become more expensive?
• Customs duty on watch dials, umbrella cut to 5% vs. 12.5%. Care for time! Again Monsoon will hurt!
• Coking coal exempt from customs duty. Not a great solution for fuel alternative!
• Customs duty on cut, polished gems cut to 3% from 5%. Boost for Gems business!
• Customs duty on PFY cut to 7.5% from 10%. Little change!
• Crude, refined edible oils to be exempt from customs duty. Supply support!
• Customs duty on steel cut to 12% vs. 20%. The Tata effect!
• Customs duty on drip irrigation cut to 5% vs 7.5%. Caring for Agriculture! Supply support!
• Customs duty on polyester fibre yarn cut to 7.5% vs. 10%. Boost for textile industry!
• To cut peak rate for non-farm products to 10% vs. 12.5%. Supply support!

The explanation for such a budget would be that our FM stuck to his promise of making budget a non event. But at what point of time and at what cost? At this point economy is poised between high growth and high inflation. FM says that the inflation can be controlled with 3 points, viz. Money supply (this part is well taken care of by RBI with 4 increases in Repo rate and CRR each), Fiscal policy and Supply crunch. FM proposed few measures on fiscal side but they are all on mid term level, nothing to control inflation in short term! Agricultural sector is offered with many benefits to check on the supply side in course of 1/2 seasons, but it seems inflation would not have mattered after 1/2 seasons anyway. So nothing on offer for controlling the inflation!

On the other hand what seems is that in effect FM might add to the current level of inflation. Cement industry is in no mood of lowering the prices. Construction companies are out of tax haven, so the cost of construction goes up, in effect the prices of houses will increase by 15-20% in opinion of some builders. Interest rates for housing loans are already touching 13%. 4% short of pathetic socialistic rates of 17%. So it’s now impossible for middle class to buy a house. It was costing already Rs. 25 lakh for 500 sq. ft. now it will cost Rs. 30 lakh. Where the sense in the prices is and what calculations did the FM make to come up with these arrangements in budget.

There were many tax reforms expected to clear the regressive methods of double taxation like the DDT, which is over and after a company pays corporate tax. Instead what we get is increase in DDT. Thank god he didn’t decide to take the service tax to 15% i.e. to the level of global GST. He was supposed to bring down the duties to the level of SAFTA which did not happen at all. I believe that might have taken care of supply side in short term. He could have reduced the double taxes which should have been phased out after the introduction of VAT. He could have thrown light on Capital gains tax which still is a huge conundrum for many Corporates also. Thank god he did not tinker with STT. He just banned Wheat and Rice from MCX futures trading. That surely will come back once the inflation comes down. He should have shifted the tax slabs by at least Rs. 50000/- on higher side (optimistically Rs. 100000/-). That would have taken care of the pinch of the prices common man feels. He should have increased the tax rebate for housing loans under section 24 to Rs. 200000/- which went nowhere.

The FM has tried to be Robin Hood but in the end he has just become a marauder who’ll end up taking the money away from each and everyone. The budget is typical congress style which used to be from year 1947 to1991; it means lot of scope for MPs, MLAs and bureaucrats to launder money under many schemes announced by central government. It is all right for advanced polities to make budget a non event but for polity like India when poised at such a delicate manoeuvre which could make or break the backbone of our economy, to make the best opportunity into a non event is the most pathetic decisions ever taken by Mr. P. Chidambaram. This was 10^th time he was presenting budget and he too had an opportunity to go into Indian history like our respected PM did in 1991, but he decided otherwise.

There seriously is lapse in the performance of FM in this budget which could have simplified many things that were begging for it. On a scale of expectation FM’s attempt should be rated -3 on a scale of 0 to 10. I know this sounds as ridiculous as this budget itself!