WHAT IS BUDGET Budget the statement of the estimated receipts and expenditure of the

Provincial Government for a fiscal year which the provincial government should lay before Assembly in every financial year;

OBJECTIVES OF BUDGET Employment generation Social Development, Such as increase in Literacy and health standard Regional Development Infrastructure Development Capital Formation Reduction Inequalities of Income Economic Development

SECTORS Growth in 2007-08

Growth in 2008-09

Agriculture 4.9% 1.6%

Industry 9% 2.3%

Trade Hotel And Rest.

10.1% 9%

Community services

6.8% 13.1%

Construction 10.1% 7.2%

Finance, Insurance, Real Estate And Business Services

11.7% 7.8%

Total GDP at Factor Cost

9.0% 6.7%

Net capital flows rose from a level of USD 45.2 billion in 2006-07 to USD 108 billion in 2007-08, indicating a growth of 139%, attributable to a significant rise in foreign investment in terms of direct and portfolio investment, large inflow of banking capital and a quantum jump in loans, particularly short term credit and external commercial borrowings. The net capital inflow from April to December 2008 was USD 15.3 billion. Foreign exchange reserves declined by USD 57.7 billion from USD 309.7 billion in 2007-08 to USD 252 billion in 2008-09.

Rupee appreciated from 46.57 per USD in Aug, 2006 to 39.37 per USD in Jan, 2008. However, the global financial reversed the appreciation which led the Rupee to decline from 40.36 per USD in March, 08 to 51.23 per USD in Mar, 09.

During 2008-09, the value of merchandise export reached US$168.7billion with growth of 3.6% despite global recession. The export was robust till August 2008. However, it became low in September and became negative from Oct. to March.

During 2008-09, import growth was subdued at 14.4%. The started declining from Oct and turned negative January to March,2009.

The trade deficit increased to USD 88.5 billion in 2007-08 to USD 119.1 billion in2008-09.

Fiscal deficit increased from 2.7% in 2007-08 to 6.2% of GDP in 2008-09. Primary deficit increased from -0.9% of GDP in 2007-08 to 2.6% of GDP in 2008-09. Revenue deficit is estimated to increase from 1.1% of GDP in 2007-08 to 4.6% of GDP in 2008-09

Rebate for farmers paying loan on time at a lower rate of 6 per cent proposed. Also, deadline for farmers to repay 75 % of the loan extended by 6 months to December 31, 2009.

Allocation under National Rural Employment Guarantee Scheme (NREGS) increased by 144 per cent to Rs 391billion in 2009-10 over 2008-09 (BE)

Allocation for Bharat Nirman increased by 45 per cent in 2009-10. Under it, allocation under Pradhan Mantri Gram Sadak Yojna (PMGSY) and Indira Awas Yojna increased by 59 per cent and 63 per cent, respectively

Allocation under National Rural Health Mission (NHRM) increased by Rs 20.57 billion over the allocation in Interim budget 2009-10 (Rs 120.7 billion)

The overall Plan budget for higher education is to be increased by Rs 20 billion over the Interim Budget

Unique Identification Authority of India (UIDAI) to set up online data base for Indian residents and provision of Rs 1.2 billion made for this in the budget

While retaining at least 51 per cent government equity stake in PSUs, disinvestment proceeds for B.E. 2009-10, estimated at 11.2 billion

Fringe benefit tax (FBT) to be abolished Minimum alternate tax (MAT) to be increased to 15 per cent of book profits.

UNION BUDGET HIDHLIGHTS

Commodity transaction tax (CTT) to be removed

Exemption limit in personal income tax raised by Rs 10,000 for all categories of individual taxpayers; by Rs 15,000for senior citizens. Surcharge of 10 per cent eliminated on personal income tax

Real and Nominal GDP growth assumed at 6.5 and 10.05 per cent respectively in 2009-10

Revenue deficit projected at 4.8 per cent of GDP in 2009-10

Fiscal deficit projected at 6.8 per cent of GDP

Total expenditure increased by 36 per cent to Rs 10,208.38 billion over 2008-09 (BE)

IIFCL to refinance 60 per cent of commercial bank loans for PPP projects in critical sectors over the next 15-18 months. Allocation to National Highways Authority of India (NHAI) for the National Highway Development Programme

(NHDP) increased by 23 per cent over 2008-09 (BE) in 2009-10

Allocation under Jawaharlal Nehru Urban Renewal Mission (JNNURM) stepped up by 87 per cent in 2009-10 over2008-09 (BE)

Target for agriculture credit flow set at Rs 3,250 billion for the year 2009-10 (credit flow had been at Rs 2,870 billion in 2008-09).

BUDGET FINANCIALS 2009-10

% GrowthFY10BEFY09RE Variance(%)FY09BE

Reduction in Excise Duty Reduction in AED Applicable to cars above 2000cc from 20000 to 15000. Reduction in excise duty on petrol driven trucks from 20% to 8% Reduction in Excise duty on Chassis from 20%+10000 to 8%+10000. Increase in Tax slab, Abolition of surcharge and rural development will increase disposable

income Increase in allocation under JNNURM by 87% will increase sales of buses. Increase in MAT rate from 10% to 15%. Abolishment of FBT.

BANKING The Budgeted fiscal deficit for 2009-10 is reported 6.8% as against 6.2%

reported for 2008-09= Deficit of Rs 4.01 Trillion Inclusion of other public sector bank under section 10(23D). Increase in Tax Slab.

Refinancing up to 60% for PPP infrastructure through IIFCL Increased allocation under NHDP 130bn to 160 bn and Bharat Nirman 313bn to

454bn. Removal of Excise duty on prefabricated bricks will boost margins. Focus on rural development through RGGVY 55bn to 10bn and Pradhan Mantri Gram

Sadak Yojna 120bn. Exclusion of works contract executed from 80IA

CONSTRUCTION

HOUSEHOLD APPLIANCE

Extension of STPI Sunset Clause to FY11 PPP initiatives like the UIDAI and Employment Exchange Excise duty exemption on part value of packaged or canned software Proportional profits from SEZ unit to be taxed, prospectively Abolishment of FBT. Increase in MAT rate from 10% to 15%.

MEDIA Stimulus package for print media extended Customs duty exemption on Set Top Boxes (STB) for TV broadcasting has been

withdrawn; 5% customs duty to be imposed.

OIL & GAS Extension of deduction u/s 80IB MAT credit extended from 7yrs to 10yrs. Hike in Mat from 10% to 15% 100% deduction on expenditure on pipeline Creation of National Gas Grid Specific excise duty on petrol and diesel. For branded petrol 14.5per ltr instead of

13+6% and diesel 4.75 per ltr instead of 3.25+6%.

Extension exemption of AED on parts and accessories of mobile handsets. Abolishment of FBT Hike in MAT

Current scenario Current share of GDP is 17.1% in 2008-08 form 17.8% in 2007-08. In FY 2008-09 the growth registered was only 1.6%. 52% of employment but share of overall Economy is decreasing.

Budget reforms Food subsidy. Fertilizer subsidy. Loan waive off Interest subvention Scheme.

Food securityCurrent Scenario Subsidies to BPL PDS Systems covering to 6.5 crores families, having near 5,00,000 fair prices shops.

Current expenditure on PDS is. 23,800 crores. Others are Buffer stock maintenance & National Food Security Mission etc

Benefits Protection to BPL. Minimum nutritional support to the poors at affordable prices. Attracting towards education

Budgetary Reforms National Food Security Act to be brought in to ensure entitlement of 25 kilo of rice

or wheat per month at Rs.3 per kilo to every family living below the poverty line in rural or urban areas.

Criticisms Actual Reach of PDS have been proven to 17% - 19% only. Not meeting the objective of stabilizing the Food prices.

Fertilizer SubsidyCurrent Scenario Subsidy is given to encourage the use the nutrient based fertilizer rather than to

depend heavily on traditional fertilizers like urea to increase the productivity.

Budget Reforms It is also intended to move to a system of direct transfer of subsidy to the farmers.

Reduced from Rs. 80,000 Crores to Rs 55,000 Crores

Criticisms Benefits are mostly availed by middlemen. Huge corruption declining response of agricultural productivity to increased fertilizer usage in the

country is a matter of concern.

Farm Loan WaiverCurrent Scenario The one-time bank loan waiver of nearly Rs.71,000 crore to cover an estimated 40

million farmers was one of the major highlights of the last Budget.

Budget Reforms farmers having more than two hectares of land were given time upto 30th June, 2009

to pay 75% of their overdues. Due to the late arrival of monsoon, proposal to extend this period by six months upto 31st December, 2009.

Continuation the interest subvention scheme for short term crop loans to farmers for loans upto Rs.3 lakh per farmer at the interest rate of 7% p.a..

An additional subvention of 1 per cent as an incentive to those farmers who repay their short term crop loans on schedule.

Criticisms Change the tendency Beneficiaries Temporary solutions. A large number of farmers had taken loans from private money lenders and the loan

waiver scheme did not cover them.

Current scenario 52 on agreecultural,18% industry,30% services sector Seasonal & underemployment Schemes operating are TRYSEM, Swarna Jayanti Gram Swarojgar Yojna, Sampoorna

Garmin swaraj Yojna.

Budgetary Reform 1.2 crores new job opportunities per year. Online exchange An allocation of Rs.39,100 crore for the year 2009-10 for NREGA which marks an

increase of 144% over 2008-09 Budget Estimates.

NREGAOrigin Originally started in Feb 2006, to provide with initial outlay of Rs 35,000-crore

programme that guarantees a 100 days of employment, every year, to adult members of any rural household willing to do manual labour at the minimum wage.

Benefits Less under-employment. less exploitation of workers so the bargaining power of workers, especially women,

has gone up due to MSW Reverse Immigration Higher allocation to NREGA and increase in minimum wages to Rs 100 will improve the

disposable income to rural India which will boost the rural demand & expenditure of goods.

Current Scenario Wages paid in 2008-09: Rs 18,036 crore Wages paid since inception: Rs 34,616 crore Districts covered: All 615, covering 6 lakh villages Households covered: 44 million (provisional) Beneficiaries: 48% are women; 55% are SC/ST Statutory minimum wage: The average rose from Rs 65 to Rs 84

Criticisms Less productivity (employer say that there is

decrease in productivity of 15%-20%. No worry for jobs and increase no of registrations. ‘The bolero Effect’ The Game Changer. Rural tendency Unproductive work & tending to more dependent

on NREGS. Other Ground Realty problems.

No. of family covered

Sources: Business Standards 14th July 2009

Data are in terms of At least one people of family Figures are not Cumulative

HEALTHBudgetary Reforms Allocation under National rural health mission (NRHM) increased by Rs. 2,057 Crores

leading to Total allocation to Rs.14,127 Crores. All BPL families to be covered under RASHTRIYA SWASTHYA BIMA YOJANA (RSBY).

Allocation under RSBY increased by 40 per cent over previous allocation to Rs.350 crore in B.E. 2009-10.

NATIONAL SECURITYCurrent Scenario Currently the total expenditure on the defence is of Rs 1,14,600 Crores and for police it

is Rs. 20,710 Crores

Budget Reforms Additional amount of Rs.430 crore provided over Interim B.E. 2009-10 to modernize

police machinery in the States. Additional amount of Rs.2,284 crore proposed over Interim B.E. 2009-10 for

construction of fences, roads, flood lights on the international borders. Programme for housing to create 1 lakh dwelling units for Central Para-military

Criticism

Not able to tackle the problems of terrorists.

Naxal problems.

EDUCATIONCurrent scenario Surva Shiksha Abhiyan a large percentage of young population needs to be converted into a dynamic

economic advantage by providing them the right education and skills.

Budgetary reforms Rs.827 crore allocated for opening one Central University in each uncovered State. Rs.2,113 crore allocated for IITs and NITs which includes a provision of Rs.450 crore

for new IITs and NITs. The overall Plan budget for higher education has been increased by Rs.2,000 crore

over Interim B.E. 2009-10.

In The process The presentation The Right of Children to Free and Compulsory Education Bill, 2008 Bill allowing Foreign Universities to set up in India.

TAXATIONCurrent Scenario Less Revenue Low tax base. Compliance problem Corruption For some taxes, Admin cost is higher than revenue

Budget Reforms Roadmap for Goods & Services tax. FBT abolition MAT increase from 10% to 15% with simultaneous increase in the period of benefits Personal income tax relief including surcharge removal. Custom & excise duty cuts on various goods More service brought to the net

Criticisms STT non removal. Implementation of GST. Revenue decreasing

OTHERSFemale Literacy launch a National Mission for Female Literacy, with focus on minorities, SC, ST and

other marginalized groups. The aim will be to reduce by half, the current level of female illiteracy, in three years.

Welfare of worker of unorganized Sector Unorganized Workers Social Security Bill, 2007 Social Security Schemes to unorganized sectors like weavers, fishermen and women,

leather and handicraft workers, plantation labour, construction labour, mine workers, bidi workers and rickshaw pullers.

Commonwealth Games, 2010 The Commonwealth Games present the country with an opportunity to showcase our

potential as an emerging Asian Power. Outlays to be stepped up from Rs.2,112 crore in Interim Budget to Rs.3,472 crore in

regular Budget 2009-10.

Unique Identification Cards The UIDAI will set up an online data base. The first set of unique identity numbers will

be rolled out in 12 to 18 months. provision of Rs.120 crore for this project.

Current Scenario Economic crisis in all over the world , the export has been srinked to as against of

Rs in 2007-80. Balance of trade situation An adjustment assistance scheme to provide enhanced Export Credit and

Guarantee Corporation (ECGC) cover at 95 per cent to badly hit sectors had been initiated in December 2008

Budget Reforms extend the benefits of this scheme up to March 2010. insulating the employment - oriented export sectors Government had provided an

interest subvention of 2 per cent on pre-shipment credit for seven such sectors i.e. textile. extend the interest subvention to March 31, 2010.

by providing a special fund out of Rural Infrastructure Development Fund (RIDF) to Small Industries Development Bank (SIDBI). This fund of Rs.4,000 crore will incentivize Banks and State Finance Corporations (SFCs) to lend to Micro and Small Enterprises (MSEs)

CriticismAs the customer countries are in economic depression themselves and emphasizing on domestic consumption, any measure won’t be much helpful

I. Budgetary Deficits The budgetary Deficit was 6.8% of GDP i.e. for Rs. 4,02,800 Crores,

which is worry some Fiscal Deficit target at 6.8% which was expected.. But the Big Idea to

raise resources to bridge this gap was missing Excessive borrowing to meet fiscal challenges will bring serious pain to

economy.

If state deficit limits has been hiked to 4%of GDP which put the total Govt. Deficit to 10.8%of GDP. Incremental slippage in the both central and state borrowing along with increase in subsidy would lead to deficit close around 12% of GDP.

Increase in the Tax revenue source From Rs. 8,200 Crores and non tax Revenue From Rs. 44,100 Crores whereas the total Expenditure increases from Rs. 119,800 Crores.

Contents 2008-09 Rs. (In Crores)

Farm Loan Waiver

15,000

Salary Hike 28,000

NREGA 25,000

Oil Subsidy 13,500

Food Subsidy 11,500

Fertilizer Subsidy

75,850

Defense 19,300

Stimulus Packages

100,000

Interest Cost 21,700

Admin & Social Others

13,065

Total Deficit 3,26,515

Expenditure Side Reasons for Budgetary Deficit.

Sources: Business Today, Mar 09 issue

budget for higher education is to be increased by Rs.2,000 crore over Interim B.E. 2009-10.

In the Union Budget 2009-10 the Borrowing Expected to be Rs 4,51,000 Crores (Gross) i.e. Rs. 1235 Crores per Day.

Even in the best times, the Govt. is the largest Borrower in the market. What, is more worrisome is that the Govt. is least risky –and therefore the most preferred borrower for banks so most of the liquidity will be sucked by Govt. resulting to

Impactsless fund availability to Corporate. Higher interest on which debate is already started

Sources: Business Today, March 09 issue

Interest Cost As the borrowing is never reduced consistently resulted to 4% of GDP Internal debt is more than Rs. 20,00,000 crores and external debt is

26.2% of GDP .

Sources: Budget Documents

Rs. In 100 Crores Impact1.Leading to Debt trap2.Opportunity cost

DISINVESTMENTCurrent scenario More autonomy and better management. Expected scope of Rs 35,000 Cores.

Budgetary Reforms Approval of only Rs.1100 Crores (no mentioned in the Budget)

Criticism Finance minister did not lay out a roadmap for reforms, as was widely expected. On reform, FM has played very politic game and left it to the individual ministry to

implement and announced the proposed reform

Govt. Excuse The Information is not available right now on the list of companies, the valuation and

the amount they will fetch. The proceeds will got o to National Investible Fund(NIF) and cannot be put down as

capital receipts

On the budget day the market dropped by 5.8% i.e. around 900 points. The drop reflects a possible mix of:

1. Expectations (and stocks) running well ahead of reality, 2. A real problem on the fiscal deficit, 3. Questions on the government's will to address head-on market friendly

issues – divestment, FDI, broad-based reform, and 4. Some sector policy and tax pain. 5. The near 6% fall in the market following the Budget speech to me

reflects the unwinding of inflated6. budget expectations.

SECTORAL REFORMS

AWAITED THING KEPT AWAITING The long-anticipated decision to increase the Foreign Direct Investment

(FDI) limit in the insurance sector from 49% was avoided. Expanding structural liquidity in the financial sector and divert resources

towards real sector. Expand the exemption limit for housing loan. Improve the ecosystem to attract the FDI rather than debating the actual

percentages.

The Real Cost of Populism

UPA NDA CPM

Promise: A food law guaranteeing 25kg of rice or wheat p.m. at Rs. 3 per K.G. to rural & urban BPL Families.

Cost: 31,500 Crores per year

Consequence: Food subsidy rise by 70% from Rs 43627 Crores.

Promise: A food law guaranteeing 25kg of rice or wheat p.m. at Rs. 3 per K.G. to rural & urban BPL Families.

Cost: 31,500 Crores per year

Consequence: Food subsidy rise by 70% from Rs 43627 Crores.

Promise: waive all agricultural loans; Max ceiling of 4% on interest for all Agricultural loan to farmers.

Cost: Rs. 2,50,000 Crores for waiver & Rs. 15,000 Crores for interest subsidy.

Promise: waive all agricultural loans; Max ceiling of 4% on interest for all Agricultural loan to farmers.

Cost: Rs. 2,50,000 Crores for waiver & Rs. 15,000 Crores for interest subsidy.

Promise: Extension Of NREGS to adults in Urban Areas.

Cost: Rs 3,83,921 Crores per year

Consequence: Higer Urban wages could trigger migration and purpose of NREGS will be defeated.

Promise: Extension Of NREGS to adults in Urban Areas.

Cost: Rs 3,83,921 Crores per year

Consequence: Higer Urban wages could trigger migration and purpose of NREGS will be defeated.

Promise: interest Relief to all farmers who repay bank loan on schedule.

Cost: Rs. 19,700Crores per year

Consequence: will raise the Debt-waiver subsidy by 78% from the current Rs. 25,000 Crores.

Promise: interest Relief to all farmers who repay bank loan on schedule.

Cost: Rs. 19,700Crores per year

Consequence: will raise the Debt-waiver subsidy by 78% from the current Rs. 25,000 Crores.

Promise: Exempt income upto Rs 3 lakhs from IT; additional benefits of Rs. 50000 for Women and Sr. Citizen.

Cost: 60000 Crores per year

Consequence: Personal Income tax Revenue will fall to half at a time when the Fiscal deficit is high and rising.

Promise: Exempt income upto Rs 3 lakhs from IT; additional benefits of Rs. 50000 for Women and Sr. Citizen.

Cost: 60000 Crores per year

Consequence: Personal Income tax Revenue will fall to half at a time when the Fiscal deficit is high and rising.

OTHER CRITICISMSInflation Wholesale price index (WPI) rose to nearly 13% in August, 2008 and had

an equally sharp fall to zero% in March, 2009. When WPI was zero, Consumer Price Index (CPI) was hovering at more than 10%. Currently it is at 8%.

Tax increment Increased in MAT to 15% from the current 10% is the biggest negative of

the budget; it will hit hard most to the Telecom, IT, Oil & Gas and Power & Capital goods companies

Tax Base Expanding the Taxable population.

Background FRBM (amended act become effective from July 5, 2004

Importance This is essential for maintaining a stable balance of payments, moderate

interest rates and steady flow of external capital for corporate investment.

Targets & Current scenario Fiscal Deficit reduced by 0.5% each and 3% till mar 2009 Revenue Deficit 0.5% reduction and Nil till 2009.

Criticism Neglect the development needs, Need to increase revenue Wrong assumption of lower Fiscal Deficit leads to higher economic growth.

“The budget is a sort of vision document at a macro level.”-Kumar Birla, ABG

“It was a good budget considering the current global economic situation and the Government’s immediate priority of sustaining the growth momentum.

-Sunil Mittal, Bharti Group

“Till now, most of the total consumption Demand was based on top eight cities accounting for 40% of total demand, the proposal of increased spending on rural India could boost private consumption in the countryside.”

Kishor Biyani, Future Group

“The kind of boldness that is needed for reforms is somehow missing.”-Rakesh Jhunjunwala, Rare Enterprises

“The step taken in the budget would be positive for personal Consumption as well as investment activity.”

-Chanda Kochher, ICICI Bank

Budget Overall Opinion

69%

28%

3%

Sales

Good Satisfactory Bad

PRADEEP GUPTA The Budget was Good one,

mainly focused on the inclusive growth to some extent can be populist because

Lease Reform policy NREGS Social Expenditure were more

Exactly as per promises made in party manifesto, even being worried for sources.

Tax exemptions. No major disinvestments