The Finance Minister , Pranab Mukherjee presented GOI’s budget for the fiscal 2009-10 in the parliament on 6th July.
In view of the new political realignments at the Centre after the recent general elections everyone expected that the budget will be strongly pro-reform. The Finance Minister ,however, surprised all & sundry. To quote from his opening remarks in the budget speech ” the mandate ( i.e the general election result ) is for continuity , stability ,and prosperity. It is a mandate for inclusive growth and equitable development “. The budget is , therefore , packed with measures that will help GOI achieve these laudable objectives. There was another first as well – He had pre-budget discussions with all the State Finance Ministers.
In the interim budget for fiscal 2009-10 presented in Feb 09 , he had targeted as his main thrust areas amongst a host of areas, the following :
* GDP growth rate of 9 % over an extended period of time
* Strengthen mechanisms for inclusive growth by creating 12 million new work opportunities per year.
* Reduce people living in BPL to less than half by 2014 compared to current levels.
* Ensure agriculture growth at 4%.
* Increase spending on infrastructure to more than 9 % of GDP by 2014.
The Budget has to be understood in the light of his opening remarks in the budget speech and the priorities laid out in the interim budget of Feb 09.Let us now look at some of the salient features :
A. MACRO NUMBERS :
* Projected GDP in absolute terms : Rs 60,500,00 crores
* Projected GDP growth rate : 6 % to 7 %
* Total revenue receipts : Rs.609551 crores.
* Total expenditure : Rs1020838 crores.
* Fiscal deficit : Rs.411287 crores ( 6.8 % of GDP )
* Revenue deficit : Rs.2,41,273 crore ( 4.4 % of GDP )
* Primary deficit : Rs. 1,75,485 crores (3 % oGDP ).
B..DIRECT TAXES ;
* Taxation rates for individuals and corporates unchanged.
* Income tax exemption limit raised to Rs.1.6 lacs per annum.For women 1.9 lacs and for senior citizens 2.4 lacs
* FBT abolished. But perks will be taxable in the hands of the employee. In other words onus shifted from employer to employee.
* Surcharge on individual income above Rs.10 lacs annually abolished.
* MAT increased to 15 %. This is the minimum alternate tax payable by Corporates whose tax liability is less than 10% of their book profits. In such a situation they have now to pay 15 % of book profits as MAT as against 10 % previously. India Inc is up in arms regarding this.
C. INDIRECT TAXES :
* General CENVAT rates retained at 8 %. Those attracting rates at 12 % earlier have been reduced to 8 % while those attraction rates at 4 % earlier have been increased to 8 %.This has implications for the consumer. If the manufacture decides to pass on tax increases to the consumer , prices will go up and if he wants to pass on the tax decreases to the consumer prices will go down. Because of the rationalization of CENVAT to 8 % , some of the items of common consumption where prices can go up are ( Not a comprehensive list ) :
* Paper.
* Textiles ( Some varities )
* LPG Gas stoves.
* Contact lenses.
* Playing cards.
D. SPECIFIC SCHEMES FOR INCLUSIVE GROWTH :
* National rural employment guarantee scheme( NREGS )-Rs.39100 crores – increase of 144 % over previous year
* National Food Security Act ( NFSA )-To provide 25 kgs of rice or wheat per month to those living below BPL at Rs.3/- per kg.
* Bharat Nirman Schemes for bridging the gap between Rural and Urban India.
* Schemes for empowerment of weaker sections of society including women , child development, literacy improvement etc.
* GOI intends to move to a nutrient based subsidy instead of product price based subsidy in respect of fertilizers which is a move in the right direction.
E. IMPORTANT SECTORAL ALLOCATIONS :
* Highways & Railways increased by 23 % over previous year.
* Rs.1,00,000 crores on infrastructural development to be picked up by IIFCL as take out financing.. Take out financing is an age-old financing method whereby another agency ( in this case IIFCL ) picks up Bank debt on infrastructure projects.
* Increase in JNURM & NREGS allocation..
* Increase in Defense expenditure.
F. EXPECTIONS AND CONCERNS ( SOME OF THEM ) :
– EXPECTATIONS :
* GOI spending with a 6.8 % fiscal deficit may stimulate a sagging economy.
* Schemes aimed at inclusive growth/equitable distribution can promote social equality.
– CONCERNS :
* High fiscal deficit can lead to GOI borrowing in the market resulting in higher interest rates for borrowers like individuals & corporates , inflation , weakening of currency etc.If State borrowing is also included the gap could be as high as 12 %. Financial stimulus cited as one of the reasons for the high deficit
* Allocated receipts from disinvestment is Rs.1120 crores, one of the lowest in 5 years. Aggressive disinvestment was expected with the UPA not being shackled in terms of numbers in the Parliament this time around.
* Off Budget expenditure items like arrears of 6th pay commission , oil bonds , funds required for implementation of National Food Security Act etc which have not been included in the calculation of fiscal deficit.The actual fiscal deficit is higher.
* Is provisioning for the development schemes like inclusive growth , infrastructure development enough to complete the schemes. Mr Kamal Nath , Union Minister for surface transport has stated that his target is 20 kms of National Highway every day.
* Delivery systems in India still subject to loopholes & leaks. Benefits do not reach the intended target group.
* India’s total debt as on 31st Dec 08 was Rs.31,00,000 crores which is equal to half our projected GDP. Is total debt spiraling out of control ? Government debt is the accumulation of fiscal deficits over the years.
* Will increase in CEVAT from 4 % to 8 % result in increase in prices which may run counter to GOI budget objectives of inclusive growth.
* The Budget seems to be paying scant attention to FRBM Act which pegged fiscal deficit at 2.5 % for fiscal 2008-09.
* The general consensus is that the Government has met the expectations of the infrastructure sector , the social sector and common man to keep the engine of inclusive growth going forward strongly. To quote from the Finance Minister,s speech ” While we are determined to convert our words into deeds , members would appreciate that a single Budget speech cannot solve our problems , nor is the Union Budget the only instrument to do so.”. Clearly many more policy reforms will follow in due course gradually.
