The Union Budget of India for fiscal year 2009-10 was presented on July 6th. The Budget aims to regain a growth momentum of 9% at the earliest and is aimed at inclusive growth for the economically weaker sections of the population. The Budget initiates the process of rationalizing the tax structure in the country and bringing it at par with international practices. It delays the date with fiscal prudence as the need of the hour is to boost domestic demand given the adversities in the external scenario which is expected to continue for some time more. Most of the policies are addressed to the twin benefits of boosting domestic demand and reducing inequality within the country’s population.
Following are the highlights of the pre-Budget Economic Survey 2008-09.
1. Economic growth decelerated in 2008-09 to 6.7 per cent. This represented a decline of 2.1 per cent from the average growth rate of 8.8 per cent in the previous five years (2003-04 to 2007-08).
2. Per capita GDP growth, a proxy for per capita income, which broadly reflects the improvement in the income of the average person, grew by an estimated 4.6 per cent in 2008-09.
3. Investment remained relatively buoyant, growing at a rate higher than that of GDP. The ratio of fixed investment to GDP consequently increased to 32.2 per cent of GDP in 2008-09 from 31.6 per cent in 2007-08, reflecting the resilience of Indian enterprise, in the face of a massive increase in global uncertainty and risk aversion and freezing of highly developed financial markets.
4. A decline in all major elements of private demand, including exports and consumption, necessitated a compensating widening of the fiscal deficit above the Fiscal Responsibility and Budget Management Act (FRBMA) target. The new, higher expenditures announced during the 2008-09 budget, had to be supplemented by an additional fiscal expansion, leading to an increase of 20.2 per cent in government final consumption expenditure during 2008-09. The effect of this and subsequent fiscal stimuli (e.g. excise and service tax reduction) on private demand would be expected to appear gradually with a lag.
5. The Budget for 2008-09, which marked the terminal year of the achievement of the targets under FRBMA, had envisaged fiscal deficit of the Centre at 2.5 per cent of GDP, which was lower than the 3 per cent mandated level; but the other key target, namely elimination of revenue deficit was put off by a year, with the level of deficit estimated at 1.0 per cent of GDP. As the year 2008-09 progressed, the Indian economy was seriously impacted by the twin global shocks – unprecedented increase in the global commodity prices in the first half of the year and the ripple effects of the deepening of the global financial crisis in the second half. As per the Revised Estimates (RE) for 2008-09, fiscal and revenue deficits of the Centre were placed at 6.1 per cent and 4.5 per cent of GDP, respectively.
6. Inflation, which was rising but which was in single digit up to end-May, reached double digits from June to mid-October , with the price of crude touching US$ 147 in July 2008, and remained above 8 per cent up to end-November. While overall inflation as at end-March 2009 registered merely 0.8 per cent, the group-wise inflation rates varied.
7. In 2008-09, the value of merchandise exports reached US$ 168.7 billion with a growth of 3.6 per cent despite global recession, thus achieving 96.4 per cent of the revised export target of US$ 175 billion. While export growth was robust till August 2008, it became low in September and turned negative from October 2008 to March 2009. The negative trend continued in April 2009 with export growth at -33.2 per cent.
8. The exchange rate was Rs.51.2 per US$ in March 2009, reflecting 21.9 per cent depreciation during the fiscal 2008-09. During fiscal 2008-09, out of the decline of US$ 57.8 billion in foreign currency assets (from US$ 299.2 billion on 31.3.2008 to US$ 241.4 billion on 31.3.2009), the fall of US$ 39.7 billion (69 per cent) was due to valuation change and only US$ 17.9 billion (31 per cent) was on account of net sale of dollars by the RBI.
Following are the highlights of the Indian Union Budget for FY2009-10:
>> Real and Nominal GDP growth assumed at 6.5 and 10.05 per cent respectively in 2009-10
The fiscal stimulus provided in 2008-09 at 3.5 per cent of GDP at current market prices amounted to Rs.1,86,000 crore
>> FRBM targets for the current year and for fiscal 2009-10 relaxed to provide much needed demand boost. However, medium term objective is to revert to fiscal consolidation at the earliest.
>> Total tax receipts expected at Rs 641079 crore.
>> Total budgetary allocation (expenditure) increased by 36 per cent over 2008-09 (BE) to Rs 1020838 crore; out of this Rs.6,95,689 crore is under Non-plan and Rs.3,25,149 crore under Plan; increase in plan expenditure is 34 %, while non-plan is 37 %.
>> Interest payment consists of 36% of non-plan expenditure.
>> Net market borrowing seen at Rs 398000 crore.
>> IT exemption limit raised: Limit raised by Rs 15,000 for sr.citizens (65 yrs & above to Rs 2,40,000); Limit raised by Rs 10,000 for general tax payers to Rs 1,60,000 & women to Rs 1,90,000; 10% surcharge on personal income tax eliminated
>> Corporate Tax unchanged; Minimum Alternate Tax hiked from 10% to 15% of book profits.
>> Fringe benefit tax (FBT) to be abolished.
>> Commodity transaction tax (CTT) to be removed.
>> Goods and Services Tax (GST) to meet its deadline in April 2010 The goods and services tax (GST) is a comprehensive value-added tax (VAT) on goods and services. Internationally, GST is based on supplies of goods/ services, rather than on manufacture and sales, and there are fairly elaborate rules governing the time and place of supply. In India, a dual GST is being proposed wherein a central goods and services tax (CGST) and a state goods and services tax (SGST) will be levied on the taxable value of a transaction. This reduces the burden of multiplicity of customs, excise and some other taxes presently levied.
>> Direct tax proposal would be revenue neutral Govt to gain Rs 2000 crore from indirect tax proposals
>> While retaining at least 51 per cent government equity stake in PSUs, disinvestment proceeds for 2009-10 estimated at 1120 crore
>> PPP projects particularly in Infrastructure to be given priority: IIFCL to refinance 60 per cent of commercial bank loans for PPP projects in critical sectors involving total investment of Rs.1,00,000 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 2009 (BE); allocation to railways also increased over the Interim Budget allotment.
>> Allocation under Jawaharlal Nehru Urban Renewal Mission (JNNURM) stepped up by 87 per cent to Rs. 12,887 crore:
>> Allocation for housing and provision of basic amenities to urban poor enhanced to Rs.3,973 crore
>> Allocation under Accelerated Power Development and Reform Programme (APDRP) increased by 160 per cent to Rs.2,080 crore.
>> Target for agriculture credit flow set at Rs 3,25,000 crore for the year 2009-10 (actual credit flow had been at Rs 2,87,000 crore in 2008-09); interest subvention to be continued in 2009-10 to ensure that farmers get short term crop loans upto Rs.3 lakh at 7 per cent per annum; rebate for farmers paying loan on time at a lower of rate 6 per cent; 75% hike in allocation to irrigation projects.
>> Allocation under National Rural Employment Guarantee Scheme (NREGS) increased by 144 per cent to Rs 39100 crore.
>> Allocation for Bharat Nirman increased by 45 per cent Rs.40,900 crore: Allocation to rural housing (Indira Awaas Yojna) hiked by 63% to Rs 8,883 cr. ; Rs 7000 crores allocated for rural electrification scheme.
>> Allocation under National Rural Health Mission (NHRM) increased by Rs 2057 crore over the allocation in Interim Budget 2009-10 to Rs 12070 crore.
>> The overall Plan budget for higher education is to be increased by Rs 20 billion over the Interim Budget
>> Defence outlay up 34% to 104703 crore; grants for securing borders etc and for the State Polce forces enhanced over the Interim Budget allocations
>> A provision of Rs.120 crore in the Annual Plan 2009-10 made for Unique Identification Authority of India to set up online data base with identity and biometric details of Indian residents and provide enrolment and verification services across country.
>> Export Credit Guarantee scheme extended till March 2010 ; Market development assistance schemes allocation up by 180% to 124 crore ; 2% Interest subvention for exporters; interest subvention extended to March 2010 for employment extensive export sector; special fund for Small Industries Development Bank of Rs 4000 crore
>> Expert group to be set up petroleum product pricing to bring domestic oil prices in sync with global crude as 75% of our oil basket is imported.
>> Rs.100 crore set aside as one-time grant in-aid to ensure provision of at least one centre/Point of Sales (POS) for banking services in the unbanked blocks; Government to recapitalize the public sector banks over the next two years to enable them to maintain Capital to Risk Weighted Assets Ratio (CRAR) of 12 per cent.
For more data and updates on the Indian Economy please visit our website: http://www.ecofin-surge.co.in/