UNION BUDGET 2009-10

Pranav MukherjeeFinance MinisterIndia

First Budget

On Nov 26,1947 RK Shanmukham Chetty

presented the first budget of Independent

India.

Some Interesting Facts

Morarji Desai holds the record for presenting the maximum number of budgets.

He holds the unique distinction of presenting the budget twice on his birthday(1964 & 1968)-both leap years

Initially,budget papers were printed in Rashtrapati Bhawan.But in 1950,the budget papers were leaked

Now it is printed in the basement of a North Block

Budget at a glance

Total estimated Expenditure is Rs. 10,20,838 crore, 36 % more than prev.

Total estimated Income is Rs. 6,14,497 crore.

Sustain a growth rate of 9% p.a. over an extended time.

Taxation

Only two things in life are certain Death and Taxes, said Benjamin Franklin.

First Income tax in the world was levied in England in 1404 AD.

Comparison of Indian Tax system with other countriesCountries Min. Rate Max. Rate No. of

SlabsIndia 10% 30% 3Brazil 7.5% 27.5% 4China 5% 45% 9US 10% 35% 6UK 20% 50% 3

South Africa 18% 40% 6Malaysia 1% 28% 8Pakistan 0.25% 20% 20

Income (Rs Lakh)

Previous Rates

New Rates

Saving

Up to 1.50 Nil Nil 0

1.50 – 1.60 10% Nil 1,030

1.60 – 3.00 10% 10% 1,030

3.00 – 5.00 20% 20% 1,030

5.00 – 10.00 30% 30% 1,030

Above 10.00 30% (10% surcharge applicable)

30% (No surcharge)

22,145 + 3.09% of the Income >10lac

Tax Rates for AY – 2009-10For Men (Below

65 yrs)

There is a 3% education cess, so 10%become 10.3%, and saving Rs.1000

become Rs.1030

10% surcharge above Rs. 10 lakh scrapped. (National Calamity Contingency Fund )

Income (Rs Lakh)

Previous Rates New Rates Saving

Up to 1.80 Nil Nil 0

1.80 – 1.90 10% Nil 1,030

1.90 – 3.00 10% 10% 1,030

3.00 – 5.00 20% 20% 1,030

5.00 – 10.00 30% 30% 1,030

Above 10.00 30% (10% surcharge applicable)

30% (No surcharge)

21,836+ 3.09% of the Income >10lac

Tax Rates for AY – 2009-10For Women (Below

65 yrs)

There is a 3% education cess, so 10%become 10.3%, and saving Rs.1000

become Rs.1030

10% surcharge above Rs. 10 lakh scrapped.

Income (Rs Lakh)

Previous Rates

New Rates

Saving

Up to 2.25 Nil Nil 0

2.25 – 2.40 10% Nil 1,545

2.40 – 3.00 10% 10% 1,545

3.00 – 5.00 20% 20% 1,545

5.00 – 10.00 30% 30% 1,545

Above 10.00 30% (10% surcharge applicable)

30% (No surcharge)

21,888 + 3.09% of the Income >10lac

Tax Rates for AY – 2009-10For Senior Citizens (more than 65 yrs)

There is a 3% education cess, so 10%become 10.3%, and saving Rs.1000

become Rs.1030

10% surcharge above Rs. 10 lakh scrapped.

Other changes in the Tax Liability

Wealth tax now payable on taxable wealth over Rs. 30 lakh instead of Rs. 15 lakh.

Interest on loans for studies in any field after Class-10th now tax deductible.

Advance tax to be paid only if tax liability exceeds Rs 10,000 against Rs 5,000 earlier.

Most gifts in kind worth over Rs 50,000 to become taxable post October 1. Non cash gift to be taxed.

MAT (Minimum Alternative Tax) is paid by corporates on the profit declared in their balance sheet.

Rise in MAT by 5%. (10% to 15%)

Introduction of GST by April1, 2010. Sec. 80DD deduction limit increased from

Rs.75,000 to Rs.1 lakh.

Because of Increase in exemption limit of personal IT, the govt. will lose Rs. 3,500 crore.

The department is likely to earn Rs 7,804 crore from education cess.

Abolition in fringe benefit tax (FBT) will cost the govt. around Rs 10,500 crore.

Budget & Infrastructure

Budget and Infrastructure

China spends 11% of its GDP on infrastructure development.

Inadequate Infrastructure is responsible for pushing back India’s GDP by about 2%.

Budget and Infrastructure Cotd… 9% of the country’s GDP will be

spent on Infrastructure by 2014 from current 5%. One third of this investment would come from private companies.

Investment in Infra

2007 -2012 = $500 bn

2012 -2017 = $1.5 tn

Infrastructure

60% of Public Private Partnership (PPP) projects by Indian Infrastructure Finance Company Limited (IIFCL); ‘takeout financing’.

Urban & Power

Allocation under Jawaharlal Nehru National Urban Renewal Mission (JNNURM) up 87% from Rs. 6,891 to Rs12,887 crore.

160% hike i.e. Rs. 2080 Crore in allocation of Accelerated Power Development & Reform Program.

Housing Subsidy of 1% on home loan upto Rs 10 lac.

House should not cost more than Rs. 20 lac.

Govt has tightened the regulations of section 80 IB (under this section developers get total tax concessions for residential units of 1,000 sq ft in big cities and 1,500 sq ft in smaller ones.

Transport

23% increase in National Highways Development Program (NHDP) from Rs 12,966 crore to 15948.18 crore.

Allocation in railways increased from Rs. 10,800 crore to 15,800 crore.

Sports

Commonwealth Games 2010

The allocation raised from Rs 2,112 crore to Rs 3,472 crore.

With more than Rs. 30,000 Crore directed towards this sector & provisions for Rs. 1 lac Crore of budgetary support,infrastructure development appears to be heart of union budget.

AGRICULTURAL SECTOR

Agriculture has been the mainstay of our economy with 60 per cent of our population deriving their sustenance from it.

In the recent past, the sector has recorded a growth of about 4 per cent per annum with substantial increase in plan allocations and capital formation in the sector.

Our Finance minister Mr. Pranab Mukherjee has announced different schemes for the development of agricultural sector in the Union Budget 2009-2010.

This includes schemes like –

Financial support on interest available for short term crop loans.

Increase in allocation for Rastriya Krishi Vikas Yojns (RKVY).

Food Security Bill,

Fertilizer Subsidy etc

AGRICULTURE DEVELOPMENT

Target for agriculture credit flow set at Rs.3,25,000 crore for the year 2009-10.

In 2008-09 agriculture credit flow was at Rs.2,87,000 crore.

Interest subvention scheme for short term crop loans up to Rs.3 lakh per farmer at the interest rate of 7 per cent per annum to be continued.

Additional subvention of 1 per cent to be paid from this year, as incentive to those farmers who repay short term crop loans on schedule.

DEBT RELIEF FOR FARMERS

Under the Agricultural Debt Waiver and Debt Relief Scheme (2008), 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 this period is extented by six months upto 31st December, 2009 .

Taskforce to be set up to examine the issue of debt taken by a large number of farmers in some regions of Maharashtra from private money lenders who were not covered by the loan waiver scheme announced last year.

ACCELERATED IRRIGATION BENEFIT PROGRAMME

Allocation under Accelerated Irrigation Benefit Programme (AIBP) increased by 75 per cent over B.E. 2008-09 because of an additional Rs.1,000 crore over Interim B.E.

Allocation under Rashtriya Krishi Vikas Yojana (RKVY) stepped up by 30 percent in B.E. 2009-10 over B.E. 2008-09.

FOOD SECURITY BILL

The FM announced that the draft Food Security Bill will soon be put on the net for public debate and consultations.

The proposed National Food Security act will ensure that every family living below the poverty line (BPL) in rural or urban areas will be entitled by law to 25 kilos of rice or wheat per month at Rs. 3/kg.

FERTILIZER SUBSIDY

To ensure balanced application of fertilizers for increasing agricultural productivity,Government intends to move towards a nutrient based subsidy regime so as to cover larger basket of fertilizers with innovative fertilizer products available in the market at reasonable prices.

It is intended to move to a system of direct transfer of subsidy to the farmers in due course.

IMPACT

Higher liquidity in the hands of indian farmers will benefit companies providing direct or indirect inputs to the agriculture industry such as-

Seeds, Fertilizer, Agrochemicals, Pumps and pipes for irrigation, Warehousing infrastructure and Transportation.

The government has to support the small farmer. This budget has allocated a lot of money for irrigation, but has not said anything about small irrigation schemes, which benefit small farmers.

Big and medium irrigation projects, on the other hand, displace small farmers and should be stopped.

We need a separate budget for agriculture just like we have it for railways.

Outmost importance has to be given to agriculture to –

Promote usage high tech technology,

Increase land ownership,

Help conserve water and

Connect indian farmers with national as well as global markets to know price movements and demand of every agricultural commodities

Banking & Financial Sector

BANKING & FINANCE SECTOR The average public float in Indian listed

companies is less than 15 percent.

Deep non-manipulable markets require larger and diversified public shareholdings. This requirement should be uniformly applied to the private sector as well as listed public sector companies.

The threshold for non-promoter public shareholding for all listed companies to be raised in a phased manner.

Scheduled commercial banks allowed to set up off-site ATMs without prior approval subject to reporting.

A sub-committee of State Level Bankers Committee (SLBC) to identify and formulate an action plan for providing banking facilities in under-banked/unbanked areas in the next three years.

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 each of the unbanked blocks.

Government has established Competition Commission of India, an autonomous regulatory body to promote and sustain competition in markets, protect interests of consumers and to prevent practices having adverse effect on competition .

An Appellate body headed by a retired judge of Supreme Court also constituted.

IMPACT

The overall impact of the budget on the banking and finance sector was positive, though not up to the expectations of the industry.

The budget specified that public sector banks would remain in the public sector.

The government reiterated its commitment towards providing capital support to banks to retain growth and competitiveness.

Observing that the industry has made significant strides towards financial inclusion in the past few years, the budget made ambitious plans with respect to financial inclusion in the next three years.

Emphasis has been laid on priority sector lending. Refinance schemes of Rs 40 billion and Rs 20 billion will enhance credit flow to micro and small enterprises and

rural housing, respectively.

For 2009-10, banks have been directed to lend Rs 3,250 billion to the farm sector - a 13 per cent increase over the previous year.

The reduction in targeted growth rate, over the previous year, will give banks a breather to consolidate their origination systems for farm credit

The addition to the Debt Waiver and Debt Relief Scheme continued, with the increase in the time allowance to repay 75% of the debt.

The scheme also influenced the introduction of an interest subvention of 1 percent for farmers repaying loans on time. It might impact the banks’ profitability.

Most of the announcements made in the budget were aimed at increasing the credit flow to needy sectors, and not at directly facilitating the banking industry.

Rural Development

National Rural Health Mission

Increase of Rs.2,057 cr

Rs.12,070 cr was provided in Interim budget

Weaker Sections

Plan outlay of ministry of minority affairs has been increased from Rs.1000 cr in 2008-09 to Rs.1740 cr in 2009-10.

Provide full interest subsidy on education loan during the period of moratorium.

YOJNAS

Pradhan Mantri Adarsh gram yojna has been initiated for integrated development of 1000 villages.

Allocation-Rs.100 cr.

Allocation under Rajiv gandhi Gram Vidyutikaran yojna is up by 27% to Rs.7000 cr.

YOJNAS Contd….

Allocations under Pradhan Mantri Gram Sadak Yojna increased by 59% to Rs.12,000 cr.

Expenditure on Indira Awas Yojna by 63% to Rs.8,800 cr.

National Rural Employment Guarantee Act

It was started by former P.M Mr. Atal Bihari Vajpayee in Feb 2006.

Opportunities for more than 4.47 cr. Households during 2008-09

Real wage of Rs.100 a day as an entitlement under the NREGA

NREGA Contd…

32% or 24.3 mn household fall in BPL.

NREGA to benefit by Rs.4450 to each household family get work for for 44.5 men days

Allocation increased by 144% to Rs.13,100 cr

EDUCATION SECTOR

Overall Plan expenditure for Education sector in Budget 2009-10 is 3.25 lakh crore.

This is 34% up from the previous year.

Higher education Over all plan allocations have increased by RS.2000

crore(26%) previous Year’s Budget amount of Rs.7600 crore.

Among initiatives in Higher education, proposed RS.2,113 crore for IITs,and NITS, which includes a provision of 450 crore for the new IITS and NITS.

Allocations in primary and secondary

education, government has increased allocation

in higher education by 26%.

Central Plan Outlay by ministries/departments

Central Plan Outlay by ministries/departments In Rs. crore 2008-09

Budget estimates

2009-10Interim budgetestimate

2009-10Final budget estimate

Ministry of HRD

34,400 34,400 36,400

Department of school, education and literacy

26,800 26,800 26,800

Department of higher education

7,600 7,600 9,600

CENTRAL UNIVERSITY

The Government plan to establish one central

university in each Uncovered State and proposed for

this plan is Rs. 827 crore.

EDUCATION LOAN FOR THE POOR

Finance minister has announced a full interest subsidy for poor students for higher education.

National mission for female literacy

Focus on minorities, SC,ST,and other marginalised groups.

Main Aim of this mission is, in next 3 years reducing

by half the current of female Illiteracy that stands

about 50%.

Budget & Oil & Gas

Oil & Gas (Budget measure) Tax holiday u/s 80-IB (9) OF THE IT Act

on the profits from the production or refining of mineral oil, has been extended to natural gas.

Tax incentives will be provided on capital expenditure on the laying and operating of cross country natural gas, crude or oil pipeline networks for Excise duty on naphtha reduced to 14%

Oil & Gas (cont.)

Scope of Service Tax has been widened to include all offshore activities within 200 nautical miles from India baseline which will increase the impact of service tax cost on the upstream players.

Diesel blended with up to 20% bio-diesel fully exempted from excise duty.

Budget & POWER SECTOR

Announcements

There were no major announcements with respect to the power sector.

Allocation under Accelerated Power Development and Reform Programme (APDRP) increased by 160 per cent to Rs.2,080 crore in B.E. 2009-10 over B.E. 2008-09.

IIFCL has been given greater flexibility to re-finance infrastructure projects.

Impact on renewal energy front Customs duty on permanent

magnets for PM synchronous generator above 500 KW used in wind operated electricity generators to be reduced from 7.5% to 5%.

Customs duty on bio-diesel has been reduced from 7.5% to 2.5%.

Finance Minister’s speech on Power Sector

The Accelerated Power Development and Reform Programme (APDRP) is an important scheme for reducing the gap between power demand and supply. I propose to increase the allocation for this scheme to Rs.2,080 crore, a steep increase of 160 per cent above the allocation in the BE of 2008-09.

OTHER INDUSTRIES

CEMENT INDUSTRY

The Union Budget 2009-10 is not expected to have any major impact on the cement sector. Cement prices are not expected to be affected as excise and customs duties for cement and clinker have remained unchanged.

Similarly, duties on key inputs such as coal, limestone and gypsum have not been changed.

Measures to spur infrastructure investments will have a marginally positive impact on demand for cement.

HOUSEHOLD APPLIANCES

The reduction in customs duty on LCD panels from 10 per cent to 5 per cent is likely to have a marginally positive impact on the industry.

This cut in duty would also boost domestic assembling of LCD TVs. The marginal rise in disposable income

due to the increase in personal tax exemption limit by Rs 10,000 per annum is likely to boost demand.

MEDIA AND ENTERTAINMENT

It will have neutral impact. The hike in customs duty on set top boxes - from nil to 5 per cent - is expected to incentivize its domestic production. However, the move will also increase the subsidies borne by digital pay-tv operators, and hence, will marginally impact their margins.

A 15 per cent waiver of agency commission and 10 per cent increase in the rates of DAVP advertisements in print media, and exemption of customs duty on newsprint have been retained till December 2009.

STEEL

No change in the customs or Central Value Added Tax duty related to steel products, the prices are not to be impacted.

However, with the provision of higher investment in infrastructure segments such as roads, railways and urban infrastructure under Jawaharlal Nehru National Urban Renewal Mission (JNNURM), the demand for steel is likely to improve marginally.

FMCG Sector

Budget & FMCG Sector

Rural focus, employment generation and infrastructure spending will improve rural income.

Exemption on the personal income tax would increase the income in the hands of the consumers.

FMCG sector will benefit with the removal of the FBT as it adds to the costs unnecessarily.

For Customers (Good News) Cuts in customs duties for some life-saving drugs

& medical equipment. LCD TV’s may be cheaper due to reduction in

custom duty by 5% on LCD panels. Branded jewellary exempted from excise.

(Bad News)

Excise on several household items to rise from 4 % to 8%. These include contact lenses, tooth brushes and man-made fabrics.

Customs duty doubled on import of gold $ silver bars, 5% duty on se-top boxes.

Where the Rs. Comes From(In %)

Where the Rs. Goes(In %)

Borrowing & other liabilities

34 Non-Plan Assistance to state & UTs

4

Corporation Tax 22 State & UT Plan Assistance 7Income tax 9 Central Plan 20Customs 8 Interest 19Excise 9 Defence 12Service Tax & other taxes 5 Subsidies 10Non-tax Revenue 12 Other Non-plan expenditure 14Non-debt Capital 1 States Share of Taxes &

Duties14

Overview of the economy

Growth rate of GDP dipped from an avg of over 9% in the prev. year to 6.7% during 2008-09

Whole sale price index rose to nearly 13% in August, 2008 and had an equally sharp fall to 0% in Mar. 2009.

The structure of India’s economy changed over the last ten years with contribution of the service sector to GDP at well over 50%.