Finance Minister Pranab Mukherjee presented his career’s fourth budget and second straight budget for the UPA government this afternoon in the Parliament with a clear signal that India has notched a respectable growth coming out of the global recession.
At the same time, he stressed that now India needs to get back to the basics and ensure that the fiscal deficit is tamed and rolled-back to 5.5% in 2010-2011 and 4.8% and 4.1% in 2011-12 and 2012-13 respectively.
In the budget, the FM announced 46% of the plan allocation to be set aside for the infrastructure, stressing the need for the economy to meet inclusive and broad based growth.
Important Announcements of Union Budget 2010:
1) Aam Aadmi is Top Priority
Contrary to expectations, the FM has announced a major relief in tax slabs for the Indian middle class public at large as follows:
- No tax limit up to income of Rs.1.6 lakh.
- For income between 1.6 lakh to 5 lakh, the tax liability will be 10%.
- For income between 5 lakh to 8 lakh, the tax liability will be 20%.
- Individuals with income of above 8 lakh will have tax liability of 30%.
The government would allow of up to Rs. 20000 for investments in long-term infrastructure bonds in addition to exemption under Section 80C of IT Act. This measure of tweaking direct taxes in favor of tax-payers will ensure increased funds in the hands of public consequently leading to increased spending towards various goods and services.
2) Further Disinvesting stake in PSU
The government has managed to accumulate a whooping Rs.35000 crore by the way of disinvestments in public sector companies in the current fiscal. Further, the government aims to accumulate another Rs.25000 crore in the upcoming financial year. Slowly but steadily the government is moving forwards towards its plans of disinvestment and unlocking value in favor of the country’s economy in meeting its various social-sector demands.
3) No Oil Deregulation Yet: Excise Duty on Fuels
The FM has levied an excise duty of Re.1 per litre on petrol and diesel both and partial roll-back of excise duty on fuels to 10%. There was no policy announcement as to government’s stance of deregulation of crude oil prices as discussed in Kirit Parikh report. However, FM said that a decision would be arrived on the same in due course.
Petrol prices to go up by Rs.2.71 per litre from tonight and Diesel prices to go up by Rs.2.55 per litre !
Interestingly, the news of fuel hike comes just within few hours of budget announcement by Finance minister Pranab Mukherjee. Was FM not willing to disclose all oil-related sensitive issues in front of the Parliament?
Why this Cat and Mouse Game??
4) Delay in Implementation of GST
The Government has promised the implementation of GST and Direct Tax code by April 2011. The earlier scheduled date of GST implementation was April 2010 which hints at a substantial delay for a major goods and service related reform which in turn would phase-out other major taxes like excise duty, VAT, service tax, etc.
5) Rise in Excise Duty
While FM retained the service tax at 10%, he raised the excise duty by 2% to 10% on all non-oil products as a part of the effort to withdraw stimulus and create sources of funds to bring down the extent of fiscal deficit situation. Consumers will have to spend more on products like fuels, cars, televisions, cigarettes, and tobacco on account of increased excise duty. Even precious metals like Gold and Silver were not spared by the proposal to hike import duty.
6) Banking Licensing for NBFC
RBI will issue more banking licenses for setting up banks in the country to Non-Banking Financial Companies which fulfill the eligibility criteria. Non-banking companies like Reliance Capital, IDFC, Indiabulls Finance, and IFCI are some of the non-banking companies which are likely to benefit by this big reformist initiative by the RBI and the government of India.
7) Nominal Hike in Defense Budget
The government hiked the allocation for defense budget from Rs.141703 crore to Rs.147344 crore. This nominal hike may not be enough with rising chances of terrorist threats over the country and infiltration from neighboring countries. Last year the government had allocated over 35% increase in funds allocation to defense industry.
8) Timely Aid to Exporters
The FM has proposed to extend the interest subvention of 2% for one more year for exports covering handicrafts, carpets and leather, handicrafts, hand-looms and SMEs. With the global economy witnessing a sharp recession recently and a subsequent stabilization signs, it may not be as bad an idea to give extended support to export oriented units for some more time to come.
9) Rise in MAT
While exporters benefited from interest subventions scheme announced by the FM, the IT industry remains negatively impacted export-oriented outsourcing firms as the much anticipated extension of STPI benefits did not come through. That apart, the rise in MAT from 15% to 18% will more so impact the small and mid-size IT companies.
10) Beyond the Realty
FM announced concessions to developers for seeking tax concessions on existing projects and relaxed norms for built-up area. I feel rather than allowing real estate players in sustaining the high property prices by allowing concessions, the government should ask them to bring down property prices and increase their sales in the bid to clear-up over-supply in real estate market.
11) Healthy Allocation
The government allocated Rs.22, 300 crore for the health sector for the upcoming financial year 2010-11, a 13.5% hike since last year’s allocation to the growing needs of fast emerging health sector. The FM said that the country was set to conduct a national health survey next fiscal.
12) Rise in Education Funding
Pranab Mukherjee announced a rise of about 15% in allocation to the expenses related to Education at Rs.31, 036 crore as against Rs.26, 800 crore previous year. However, the minister confirmed that a major part of this funding would go in to implementation of the Right to Education Act.
13) Allocation towards Developmental Plans
Centre has allocated Rs.40, 100 crore towards spending on National Rural Employment Guarantee Scheme which finds only a nominal rise from allocation in the previous year. Allocation for urban development has been upped 75% from Rs.3062 crore to Rs.5400 crore. Allocation for Bharat Nirman is announced at Rs.48000 crore.
Thus, a subdued effort by the government in upping the incremental spending in social sector programs (except urban development and power utility) shows FM’s concern towards high fiscal deficit which needs to be tamed at the cost of social sector schemes.
14) Service Tax Exemption for News Agencies
Finance minister announced the exemption of service tax for the specific news agencies like for instance the accredited news agencies which provides news feed online thus providing yeoman services of disseminating news. This will give a boost in the arm for genuine news agencies involved in loyal news distribution.
Other Important Highlights of Union Budget 2010
- UID authority given Rs.1900 crore.
- Funds for power allocation raised from Rs.2232 crore to Rs.5132 crore
- Government to facilitate 20000 MMW of solar power by 2022
- Government to provide Rs.300 crore for agriculture impetus.
- Nutrient based fertilizer subsidy scheme to come into force from April 1.
- Five mega food parks to be set up.
- Rs.500 crore for Clean Ganga mission.
What got Expensive & what’s Cheaper Now?
Imposition & Roll-back of Excise duty has made certain products expensive while leaving others products cheaper than before. Let’s have a glance at the products which have been hit and benefited by measures announced by FM:
Cheaper than Before:
- Mobile Phones
- Agricultural Equipments
- Set Top boxes
- Medical Equipment
- CFL Bulbs
- Compact Disc (CD)
Dearer than Before:
- Consumer products like TV and AC.
- Large Cars, SUVs and MUVs.
- Petrol and Diesel
- Cigarettes and Non-smoking Tobacco
- Gold and Silver
- Flying by Air
Union Budget and Stock Markets
The FM has managed to allay fears of the stock markets & Foreign Institutional Investors on account of rising fiscal deficit at 6.8% of GDP (add off-budget subsidies) by announcing that the deficit would be brought down to 5.5% next fiscal and further lower to 4.8% and 4.1% in couple of years following there after.
The equity markets gave a standing ovation to the government in seeking to address the long term concerns of the economy with transparent targets and measures needed for next few years. The BSE Sensex recorded a smart 175 points rally on the bourses today, to close at 16430, up 1.08% as compared to yesterday’s price.
- Reliance Capital, IFCI (Up 8%) – NBFC looking for banking license
- Moser Baer (Up 7%) – Compact Discs getting less expensive
- Hanung Toys (Up 3.5%) – Toys getting cheaper
- Bata India (Up 13%) – Leather products to get cheaper
- REC (Up 5%) – Doubled power sector allocation with rural bias.
- LIC Housing Finance (Up 4%)– Governmental thrust on housing finance.
- GMR Infra, L&T (Up 2-3%) – Governmental thrust on Infra Spending.
- Suzlon Energy, Websol Energy (Up 5-7%) –Budget’s thrust on renewable energy.
- All 2 and 4 Wheelers (Up 4-6%) – Increased spending capacity in hands of consumers
What’s your take on Finance minister’s Budget proposal?