BUDGET 2010-11

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BUDGET 2010-11 : 

BUDGET 2010-11 Presentation at Warangal for The Hindu – Business Line Management Education Series 30th March 2010

Know the Budget : 

yerramraju@prmia.org 2 3/30/2010 Know the Budget The Economy – Survey 2009-10 What is Budget? How is budget formulated? Budget assumptions Budget Proposals – In nutshell

Economic Survey- An Enabling Government : 

yerramraju@prmia.org 3 3/30/2010 Economic Survey- An Enabling Government The Economy sees growth amidst despair Growth at 7.2% of GDP Predicted growth -8.5% in 2013-14subject to global economic recovery Agri growth negative (-0.2%) Industrial growth: 8.6% in 2009-10 (CSO’s Advanced estimates) as against 3.9% in 2008-09- Mfg at 9.2%; Electricity, gas-7.4%;Construction-6.5%-; Trade, Transport & Communications-8.3%; Financial services-9.9% Per Capita Income Rs.40745 (growth 5.3%) Per capita Consumption Rs.23626 (growth 2.7%) Non-food Credit – 8.7% down from 17% previous year. Savings rate of 32.5% of GDP (08-09) Investment rate (Gross Capital Formation) 34.9% of GDP (08-09) Gross fixed capital formation: 25.5% in 2009-10 Consumption: Govt-13.9%; Private-36% Employment of net addition of 1.5lakh jobs Households covered under NREGP 4.34cr Net Exports 20.4% of GDP . All at 2004-05 Constant prices. India is now a part of world’s fastest growing economies

Food Grain Production : 

yerramraju@prmia.org 4 3/30/2010 Food Grain Production Select Kharif Crops Estimates (mn tons)

The Survey adds… : 

yerramraju@prmia.org 5 3/30/2010 The Survey adds… Growth path takes a U-shape Support for commodity derivatives market Higher FDI in Insurance could be proposed PSU disinvestment increase likely We lag in Health and Education Infrastructure projects delays ubiquitous – Project overruns: 60.78% in power; 79.67% petroleum; 95.08% shipping and ports; 98.36% Railways; 100% in health and family welfare. 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

Major concern : 

yerramraju@prmia.org 6 3/30/2010 Major concern Inflation during 2009-10 Food Inflation rose to the peak Food Sector interventions Achieving Growth and abating inflation are challenges of the Budget.

Financial Sector- Survey suggestions : 

yerramraju@prmia.org 7 3/30/2010 Financial Sector- Survey suggestions Reform regulatory regimes: To become efficient and effective Passage of the Banking regulations Bill 2005 Development of electronic spot exchanges Deeper penetration of Insurance Pension Funds to make a better impact. 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. Making Credit rating transparent Credit Information Agencies should reduce information asymmetry. Global Financial Crisis has its impacts and Basel II regulations deepen and widen

What is a Budget? : 

yerramraju@prmia.org 8 3/30/2010 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.

Budget Nomenclature : 

yerramraju@prmia.org 9 3/30/2010 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 10 3/30/2010 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. (2010-11 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 11 3/30/2010 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 12 3/30/2010 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. Fiscal Deficit 5.5% - a fall from the estimated 6.7% of GDP.

Slide 13: 

yerramraju@prmia.org 13 3/30/2010 GDP – Rs.6164178 crores at Market prices -- Rs.4453064 cr at 2004-05 constant prices

Key Budget Announcements : 

yerramraju@prmia.org 14 3/30/2010 Key Budget Announcements Four pronged strategy for agriculture: Increase agricultural production Reduction in wastage of produce Credit support to farmers Thrust to the food processing sector 60000 pulses and oil seed villages in rain-fed areas Green revolution to eastern sector at Rs400cr Integrated water and soil health management –Rs.300cr Climate resilient agriculture: Rs.200cr. Farm Credit – Rs.3,75000cr (up by Rs.50000cr) Interest incentive for prompt payment at 2% per annum This is no way to reach 4% per annum growth rate in AGRICULTURE Strategies and allocations are far distant from each other

Key Budget Announcements : 

yerramraju@prmia.org 15 3/30/2010 Infrastructure like roads, ports, airports, roads and railways – a big boost with 46% of the total plan allocations Coal Regulatory Authority to be set up. Financial Stability and Development Council would be set up as Super Regulatory Authority in Financial Sector. Clean Energy Fund to be set up. Backward Region Grant Fund Rs.7300cr Food Security Bill would be introduced in the Budget session Annual Health Survey would be taken up for preparing District Health profiles Banking facilities to reach all villages with population of 2000 and above as part of FINANCIAL INCLUSION effort. User friendly FDI Policy Key Budget Announcements

Key Budget Highlights : 

yerramraju@prmia.org 16 3/30/2010 Key Budget Highlights Gross Tax Receipts are estimated at Rs 7,46,651 Crs Non Tax Revenue Receipts are estimated at Rs 1,48,118 Crs The Plan and Non Plan expenditures in BE 2010-11 are estimated at Rs 3,73,092 Crs and Rs 7,35,657 Crs respectively. While there is 15 per cent increase in Plan expenditure, the increase in Non Plan expenditure is only 6 per cent over the BE of previous year. Fiscal deficit for FY11 is projected to be 5.5% of GDP, however this is mainly on account of only 6% increase projected in non-plan expenditure. CAGR of non-plan expenditure from FY04 to FY10 is 12.5%, thus there could be chances of slippage on this account. The rolling targets for fiscal deficit are pegged at 4.8 per cent and 4.1 per cent for FY12e and FY13e, respectively. Defense allocations reach Rs.1,47344cr. Net borrowing for FY11e is projected at Rs 3,45,000 Crs which is lower than Rs 3,98,000 for FY10. However in the absence of support from RBI and MSS de-sequestering, net supply to the market would be higher by around Rs 82,000 Crs New Direct Tax Code to be introduced from April 2011

Direct Tax Proposals : 

yerramraju@prmia.org 17 3/30/2010 Direct Tax Proposals Old

Direct Tax Proposals : 

yerramraju@prmia.org 18 3/30/2010 Direct Tax Proposals Personal Income Tax Major tax savings of up to Rs 50,000 for individuals by introduction New Slabs for Personal Income Tax Additional Deduction of Rs 20,000 for investments in Infrastructure bonds – both public sector and private sector under section 80C. Corporate Tax Reduction in surcharge paid by the domestic companies from 10% to 7.5% Increase in MAT rate from 15% to 18% Implementation of GST deferred by one year to 2011-12

Indirect Tax Proposals : 

yerramraju@prmia.org 19 3/30/2010 Indirect Tax Proposals Standard rate of excise duty hiked from 8% to 10% Duty on large cars, MUVs and SUVs hiked to 22% Excise duty on diesel and petrol hiked by Re1.per litre, Customs duty on crude oil reintroduced at 5%. Cigarettes to cost more. Customs duty on Gold and platinum hiked to Rs.300 from Rs.200 per 10gm. Select mobile phones exempt from import duties

Sectoral Allocations : 

yerramraju@prmia.org 20 3/30/2010 Sectoral Allocations Agriculture & Allied Activities- Rs.12308cr -+Rs.2185cr Rural Development:Rs.55190cr up from Rs.51560cr MNREGS: Rs.40100cr and Bharat Nirman Rs.48000cr Irrigation & flood control: Rs.526cr (+122cr) General Services: Rs.1535cr (+182cr) Social services: Rs.127570cr(+26200cr) General Economic services: Rs.7554cr (+2108cr) Energy Rs.146579cr (+36894cr) Industry & Minerals: Rs 39019cr (+8315cr) Transport: Rs.101997cr (+13049cr) Communications:Rs.18529cr (+2430cr) Science & Environment: Rs.13677cr (+4369cr) Total Rs.5,24484cr (+98894cr)

Banking: Focus on Inclusive Growth : 

yerramraju@prmia.org 21 3/30/2010 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 additional 1 percent subvention to farmers who promptly repay their loans to Banks.

Comments : 

yerramraju@prmia.org 22 3/30/2010 Comments FM has fooled all experts. Handsome and Inclusive Budget Mature show A khas budget for aam admi – But little to rein in food inflation. Home buyers cheer up This time Pranab plays ‘good cop-bad cop with India Inc Mood sombre at brokerage houses- budget a non-event for the market Balanced and well designed A tough job well done

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