Union Budget 2009-10 Highlights

The Finance Minister Mr. Pranab Mukherjee presented the much awaited Union Budget 2009-10 in Lok Sabha, the lower house of the parliament today. at the first glance, the budget lacks most of the expectations that common middle class as well as Corporate India wished for in the Union Budget 2009-10.

For example, it did not say much about Disinvestment. Was mute on raising FDI limits in Insurance and Retail. Did not provide additional tax sops for Housing Loans or investments in Infrastructure Bonds. But, it did abolished Fringe Benefit Tax, removed Tax Surcharge, increased minimum threshold of the tax slabs by Rs. 10,000 for Male and Female assesses and by Rs. 15,000 for Senior Citizens, withdrew commodity transaction tax (CTT).

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Finance Minister, however, has said in his speech that Union Budget is not the only document in which most of decisions are made. Although, markets knew this but they wanted atleast a hint of timelines to show conviction of Government. May be Finance Minister is waiting for an appropriate time post budget or for the next Union Budget which is scheduled in February 2010, less than eight months from now.

Bombay Stock Index, BSE Sensex gave a 870 points (around 5.83%) thumbs down to the Union Budget 2009-10.  The Sensex ranged between 15097.87 to 13959.44 points, a swing of around 1138.43 points which amounts to a w0ophing 7.63% with respect to the previous close of Sensex. National Stock Exchange’s Nifty was too down by 258.55 points.

Key Point of Union Budget 2009-10

Budget and Economy – Overview

• Policy target to revive agriculture and industrial growth
• Ensure 4% growth for Indian agriculture
• Focus to sustain momentum in exports
• Move towards providing energy security
• World facing unprecedented crisis, including India
• Move towards energy security via Integrated Energy Act
• Increase investment in infra to more than 9% of GDP by 2014
• Union Budget not the only instrument to bring changes
• Deepen and broaden agenda for ‘inclusive growth’
• Challenge is to lead economy to 9% growth
• GDP growth has dipped to 6.7%
• Share of goods and services at 37%
• Share of trade has doubled to 38.9%
• Private investment has been growth driver for economy
• Second challenge is to broaden agenda for inclusive development
• Foreign capital inflow has fallen significantly
• Sustaining high growth has become complex
• Fiscal deficit up from 2.7% to 6.2% of GDP in 2008-09
• Economic structure has changed rapidly in last 10 years
• Gross capital flows rose to 9% in 2008-09
• Further stimulus to economy is needed
• Uncertainties of global economy remain
• Signs of revival in domestic industry and foreign investment
• Share of trade has doubled to 38% of GDP in 2008-09
• Increase investment in infra to over 9% of GDP by 2014

Infrastructure

• IIFCL to refinance 60% of bank loans for PPP projects
• IIFCL to evolve a takeout financing scheme
• IIFCL to evolve a takeout financing scheme
• Fiscal stimulus was 3.5% of GDP or Rs 1.86 lakh cr
• Ensure flexibility to IIFCL; positive infra companies
• Allocation to NHAI up by 23%
• Signs of revival in domestic industry in last few months
• Current budget only first dose of stimulus
• IIFCL to refinance 60% of bank loans for PPP projects
• NHDP allotment increased by 23%
• JNNURM allocation stepped up by 87% to Rs 12,887 cr
• Allotment to national highway development programme up by 23%
• Outlay for APDRP increased
• National Gas Grid to be made to focus on petronet
• National Gas Grid to be made positive for Gujarat Gas, GAIL
• Outlay for APDRP increased
• Funds to Mumbai anti-flooding project upped to Rs 500Cr versus 200 Cr
• Allocation to railways raised from Rs 10800 cr to Rs 15800 cr
• Outlay for Assam Gas project raised
• Govt to develop blueprint for long-distance gas highway
• Gas distribution to help pipe cos
• JNNURM allocation stepped up
• Upped allocation to railways
• River conservation plan upped to Rs 526 crore versus Rs 335 crore
• Higher rural electrification scheme allocation

Petroleum

• To set up panel to review domestic fuel prices
• Expert group to look at pricing formula
• Domestic fuel prices need to be in sync with global prices

Agriculture

• Agri credit flow target Rs 3.25 lakh crore
• Interest subvention scheme for Rs 3 lakh at 7%
• Interest subvention scheme for Rs 3 lakh at 7%
• Effective interest rate at 6% for farmers who foreclose
• Export credit benefit extended to March 2010
• Irrigation programme allocation up 75%
• Higher allocation to accelerated irrigation
• Agriculture credit target at Rs 3.25 lakh cr
• Increased allocation to irrigation
• To return to FRBM target as soon as possible
• Additional subvention of 1% for crop loans paid on time
• Extend DEPB scheme for print
• Need to shift to direct fertilizer subsidy to farmer
• Upped allocation to irrigation programmes
• Plan to move towards nutrient-based subsidy regime for Fertilizer
• To move towards nutrient-based fertilizer pricing
• Nutrient-based pricing for fertilizer

Banking and Financial Sector

• Banks and insurance to remain in public sector
• Banking network to be expanded substantially
• Non-public promoter shareholding threshold to be raised
• To ensure one banking centre in every block in next 3 years
• Re-capitalization of PSU banks
• Spl fund of Rs 4,000 cr to boost bank lending to SMEs

Disinvestment

• Encourage public participation in divestment of PSUs
• Govt to divest stake in RITES, Cochin Shipyard, TCIL
• See Rs 1120 cr divestment proceeds in FY10

Social Sector

• NREGA provided jobs for 4.47 cr households
• NREGA allocation up by 144%
• Indira Awaaz Yojana allocation up 63%
• 45% more allocation for Bharat Nirman
• Allocation of Rs 100 cr for poverty alleviation pilot project
• FM to allocate Rs 7,000 cr to Rural Electrification Scheme
• Interest subsidy for home loans upto Rs 1 lakh
• NREGA Rs 39100 crore allocation
• Allocation for rural road scheme up 60%
• National mission for female literacy launched
• Interest subsidy on bank loans for higher education
• FM to launch employment exchange under PPP project
• To add powerloom cluster in Rajasthan
• To add handloom cluster in West Bengal & Tamil Naduand
• Gram Sadak Yojana allocation up 59% to Rs 12,000 cr
• More Rajiv Gandhi Grameen Vidyutikaran Yojana allocation
• UID project to set up online database of Indian residents
• UID project allocated Rs 120 crore
• Committed to provide Rs 100 per day under the NREGA
• Rs 2,000 cr allocated to Rural Housing Fund
• All BPL families to be brought under biometric smart cards

Budget Estimates

• Reforms needed to control fiscal deficit
• FY10 total Budget expenditure at Rs 10.21 lakh crore
• FY10 plan expenditure up 34%
• To encourage PSU divestment but maintain 51% government stake
• FY10 interest payment at Rs 2.26 lakh cr
• FY10 plan expenditure for social sector at Rs 3.75 lakh cr
• Subsidy outlay at Rs 1.11 lakh crore in FY10
• FY10 defence spend at Rs 1.41 lakh cr
• FY10 revenue deficit at 4.8% of GDP
• Fiscal expansion to go a long way in reviving growth
• FY10 fiscal deficit at 6.8% of GDP vs target of 5.5%
• FY10 non-tax rev expected higher at Rs 1.4 lakh cr
• Non-tax rev expected to be higher at Rs 140279 crore in FY10
• FY10 tax receipts seen at Rs 6.42 lakh cr
• FY10 interim budget fiscal deficit target was 6.2%
• FY10 government net market borrowing estimated at Rs 3.98 lakh cr

Tax Proposals

• Proposes Saral 2 form to simplify tax payment
• Tax to GDP ratio at 11.5%
• New direct tax code to be released in 45 days
• Goods and service tax from April 1, 2010
• States agree for basic strucutre of GST

Direct Taxes

• No change in corporate tax
• Increase in personal income tax limit by 15,000 for senior citizens
• Personal income tax exemption hiked by Rs 10,000
• Tax holiday for exporters extended until 2011
• Withdraws fringe benefit tax
• Eliminate surcharge of 10% on personal income tax
• Surcharge of 10% on personal income tax removed
• Minimum alternate tax increased to 15% from 10% of book profit
• Section 80DD to be hiked to Rs 1 lakh
• Sunset clause for Software Technology Parks of India (STPIs) extended by 1 year
• Carry forward tax credit on minimum alternate tax (MAT) to 10 years vs 7 years
• Investment-linked tax benefits for gas pipelines, cold chains
• Commodities transaction tax (CTT) to be abolished
• To create separate department for transfer pricing disputes
• SEC 80IB benefit extended to natural gas

Indirect Taxes

• To maintain overall customs and excise duty strucutre
• 5% customs duty on set up boxes:FM
• Customs duty on LCD panels cut from 10% to 5%
• Cuts customs duty on wind power equipment by 2.5%
• Duty on gold reimposed
• Cuts custom duty on medical equipments
• Excise duty on manmade fibre and yarn to be maintained
• To scrap excise on petrol, diesel blended with bio-diesel
• Customs duty on bio-fuel diesel cut to 2.5% vs 7.5%
• Cuts customs duty on some life saving drugs
• Duty on paper, paperboard retained at 4%
• Customs duty hike on gold & silver
• Rs 2000 cr gain via indirect tax proposals
• Unified excise duty for cars

Miscleneous

• Print media stimulus extended till Dec 31, 09
• Unique identification (UID) project a major step towards corporate governance
• UID project rollout in 12-18 months
• Unique identification (UID) project a major step towards corporate governance
• Allocation for Commonwealth Games up to Rs 3472 cr