BUDGET 2009-10 :BUDGET 2009-10 Presentation at Gulberga for The Hindu – Business Line Management Education Series 11th July 2009


Know the Budget :yerramraju@prmia.org 2 Know the Budget The Economy – Survey 2008-09 What is Budget? How is budget formulated? Budget assumptions Budget Proposals – In nutshell


Slide 3:yerramraju@prmia.org 3 “ Democracy is the art and science of mobilising the entire physical, economic and spiritual resources of various sections of people in the service of the common good of all.” Arthasasthra, Kautilya quoted by the FM in Budget speech


Economic Survey :yerramraju@prmia.org 4 Economic Survey The Economy sees signs of revival Growth at 6.7% of GDP Predicted growth -7.75% subject to global economic recovery Agri growth 1.6% Industrial growth: 2.4% -Mfr: 2.3%; Mining:2.3%;Electricity:2.8% Credit – 17.3% Savings rate 37.8% of GDP (07-08) Investment rate 39.3% of GDP (07-08) Households covered under NREGP 4cr Dip in Private consumption Dip in Exports significantly. If the monsoon ditches, or there is delay in global recovery the growth could be down and under 6.25%


The Survey adds… :yerramraju@prmia.org 5 The Survey adds… Growth path takes a U-shape Tax structure may be simplified Support for commodity derivatives market Higher FDI in Insurance could be proposed PSU disinvestment may be pushed Fiscal Deficit 4.8% 1.4% of large projects ahead of schedule while 50.7% are delayed Power sector in Govt. growth was just 2.3% while in private sector 12.1% Reform subsidies Infrastructure sector holds the key for further economic growth


Financial Sector- Survey suggestions :yerramraju@prmia.org 6 Financial Sector- Survey suggestions Reform regulatory regimes: Bring all financial regulations under SEBI Passage of the Banking regulations Bill 2005 Liberalise and develop spot and futures currency markets ( exchange traded) Introduction of repos and derivative in corporate debt Introduce standardised credit default swaps tradable on exchanges Auction rights to commercial borrowing within already defined limits, with in-built preference for long term borrowing; auction of rights to invest in govt.securitiies by FIIs HNIs could be allowed to register and invest directly through authorised Indian Investment intermediaries Align voting rights in Banks with equity holdings Allow trading of direct credit obligations among banks and other financial institutions Link small savings rates of interest to government debt instruments or bank deposit rates of similar maturity. Global Financial Crisis has its impacts and Basel II regulations deepen and widen


What is a Budget? :yerramraju@prmia.org 7 What is a Budget? It is an estimate of future revenues and expenditure over a specific period. Budgets are usually prepared on annual basis for governments – both Centre and State and annual and monthly basis for business enterprises. It is convention to present it on the last day of February every year preceded by Economic Survey of the year. During the current year however it is presented this month because of the Government coming to power effectively after the elections in May 2009.


Budget Nomenclature :yerramraju@prmia.org 8 Budget Nomenclature Annual Financial Statement: Government’s receipts and expenditure presented to the Parliament – Consolidated Fund; Contingency Fund; and Public Account Consolidated Fund: Summation of all revenues, money borrowed and receipts from loans it has given. All State expenditure is given from this fund Contingency Fund: Any urgent and unforeseen expenditure is met from this Fund and is at the disposal of the President of India. Public Account: It is a collection of deposits like the Public Provident Fund. Consolidated Fund is split into revenue and capital budgets. Revenue Budget consists of all revenue account; Capital budget or capital account includes non-revenue receipts and expenditure. Revenue Account: All receipts like taxes and expenditure like salaries, subsidies, interest payments that does not involve creation of any assets Capital account: Receipts from liquidating (selling) assets or shares of a public sector company and spending to create assets and lending to receive interest.


Taxes :yerramraju@prmia.org 9 Taxes Direct Taxes: Taxes that you and I pay to the Government directly: income tax; wealth tax; Gift tax, Fringe Benefit tax (FBT), Securities Transaction Tax,etc Indirect Tax: It is essentially a tax on our expenditure; like customs, excise, and service tax Corporate tax is the tax that all companies pay on their profit Excise Tax: Tax levied on all manufactured goods Minimum Alternate Tax: (MAT) If a company pays less than 10% of its profits as income tax, it has to pay a minimum of 10% on book profits. (2009-10 Budget changed this percentage)] VAT and GST: Value added is a transparent form of tax on the sales based on the difference between the value of inputs used to produce particular goods and the output produced; Goods and Services Tax on the other hand, contains the entire element of tax borne by a good – including a Central and State level tax. There are also non-tax revenues: Dividends of the PSUs; revenues from the public services etc. Compliance of all Tax laws is a ‘must’ for all citizens and failure would entail severe penalties including imprisonment.


Expenditure :yerramraju@prmia.org 10 Expenditure A Central Plan is the Government’s expenditure that includes a five-year road map. This is met both from budget and non-budgetary sources (State owned enterprises) Government’s support to the Central Plan is known as Budget support. Plan expenditure: It is the amount the centre sets aside to States and UTs split into revenue and capital components in addition to the budget support. Non-Plan expenditure: All those bills the government has to pay under the ‘revenue expenditure’: interest payments, subsidies, salaries, defense and pension. Most of the capital expenditure goes for Defense.


Deficits :yerramraju@prmia.org 11 Deficits Fiscal Deficit: Living beyond the means – Non-borrowed receipts-(revenue receipts+ loan repayments+ miscellaneous capital receipts, primarily disinvestment proceeds) falling short of expenditure. The excess of total expenditure over total non-borrowed receipts is called fiscal deficit. Revenue Deficit: Ideally all revenue expenditure must be met from revenue receipts. Where it falls short, it has to raise a debt from the public. Primary Deficit: Fiscal Deficit-Interest payments on earlier borrowings. If this is growing it means that our fiscal strength is bad. FRBM Act 2003 specifies that revenue expenditure shall be met fully out of revenue receipts only. Any borrowing should be done only to meet capital expenditure. The Act also mandates 3% fiscal deficit after 2008-09 in order to maintain fiscal stability. The global financial crisis and our economy’s melt down has forced to abandon this fiscal discipline in 2008-09. Now the Fiscal deficit is 4.8% and is expected to rise to beyond 6%.


Slide 12:yerramraju@prmia.org 12 This is a Rs.10lakh crores and above Budget, the largest since independence.


Rural and Agriculture Sectors :yerramraju@prmia.org 13 Rural and Agriculture Sectors Allocation under NREGP hiked to Rs.39100cr (144%) Target of Farm Credit Rs.3.25cr (up from 2.87cr) Allocation for PM Gram Sadak Yojana up by 59% to Rs.12000cr Direct transfer of fertiliser subsidy to farmers Accelerated irrigation benefit programme hiked from interim budget by Rs.1000cr. Rural Employment gets a boost


Banking: Focus on Inclusive Growth :yerramraju@prmia.org 14 Banking: Focus on Inclusive Growth Rs.100cr to expand rural branches No-frills accounts under Financial inclusion to expand SHG-Bank linkage programme to cover 50% of women in next five years Rs.4000cr to SIDBI from RIDF funds for giving boost to MSME sector. First time repayment culture is recognised by the Government when it extended 1 percent subvention to farmers who promptly repay their loans to Banks.


Infrastructure :yerramraju@prmia.org 15 Infrastructure 60% refinancing of PPP projects (financed by the commercial banks) by the IIFCL; 23% increase in National Highways Development Programme Allocation under JNNURM up by 87% to Rs.12,887cr 160%hike in allocation to Accelerated Power Development and Reform Programme REC to accelerate the Rural Gramin Vidyudikaran Yojana


Education and Health Sectors :yerramraju@prmia.org 16 Education and Health Sectors National Female Literacy Mission to be launched Student Loans to weaker sections: Over 5lakh students to benefit Grants in aid to minority education institutions and national fellowships for students from the minority community Allocation to Aligarh Muslim University to establish its branches in WB and Kerala Modernization of Employment Exchanges in PPP mode to ensure job seeker registration on-line National Rural Health Mission Interim Budget outlay of Rs.12070cr hiked by Rs 2057cr. National Action Plan on Climate Change would be launched. National Ganga River Basin Authority and National River and Lake authority allocated Rs.335cr.


Direct Tax Proposals :yerramraju@prmia.org 17 Direct Tax Proposals Personal IncomeTax(Individual; HUF Artificial Juridical Person) – Basic Tax Exemption Limit (in INR- Lacs) No Surcharge on Personal Income Tax (to be removed in phased manner) (persons covered: Firm and Local Authority also) (AY 2010-2011)


Other Taxes :yerramraju@prmia.org 18 Other Taxes MAT increased to 15% from 10%, carry forward expenditure to 10years Fringe Benefit Tax abolished Commodity Transaction Tax abolished Taxation on LLPs to be same as for Partnership companies Extension of benefits of sunset clause under Sec 10A and 10B for EOUs and those in Free Trade Zone Deduction in respect of contribution to political parties Tax benefits of New Pension policy available to private/public employees only Service tax coverage extended to Continental shelf of India and Export Economic Zones


Estimates :yerramraju@prmia.org 19 Estimates Fiscal Deficit to be 6.8% of GDP compared to 2.5% last fiscal Total expenditure goes up by 36% Food Security Act to be introduced: People below poverty line to be provided rice and wheat up to 25kg per month. Defence outlay hiked to Rs.1,41,703cr from Rs.1,05,600cr. Interest payments would be 36% of non-plan expenditure. (R.2.25lakh crores) Unique Identity Number to be issued to all citizens to improve access to citizenship services universally in the next two years. Allotted Rs.500cr.


Comments :yerramraju@prmia.org 20 Comments Budget is one of missed opportunities Fillip to investments lacking Direct input subsidy other than fertilisers not mentioned No strategy to achieve the budgeted agriculture growth of 4% p.a without which the 7.25-7.75 percent growth of economy cannot be ensured Steps for improving manufacturing sector growth are also found wanting The Rs.100 per day minimum wage under NREGS although welcome from the overall wage security angle, would increase the farmer’s wage bill No measures to contain the ever-rising food bill of the common man. No mention of Bankruptcy Law and other important Laws affecting the financial and corporate sector to give boost to reforms.


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