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Govt Eyes Growth Through Spending

The Budget indicated the government will raise spending on infrastructure, farmers and the poor even though it will drive fiscal deficit higher

Finance Minister Pranab Mukherjee presented a Budget that may be termed as popular, but it did not go down well with corporates and stock markets, which crashed phenomenally almost as soon as the trading community realised there was not going to be any big-bang pro-market reforms unveiled.

The focus was on farmers and the poor, aside from infrastructure.

However, there was a bit of cheer for the individual tax payers. The FM announced tax sops, abolished surcharges and indicated his intent of providing cheap loans to farmers, but also held out incentives for the infrastructure sector and exports.

Aside from abolishing the much-maligned Fringe Benefit Tax, the FM also gave an additional Rs 15,000 exemption to senior citizens on income tax, while for others it was Rs 10,000. The personal income tax exemption limit, for senior citizens, has been raised from Rs 2.25 lakh to Rs 2.40 lakh. For women the exemption limit was up by Rs 10,000 from Rs 1.80 lakh to Rs 1.90 lakh. The limit was upped by Rs 10,000 also for men, from Rs 1.50 lakh to Rs 1.60 lakh. Another positive stems from the increase in the deduction under section 80-DD for medical treatment of a dependent afflicted with severe disability. The increase is from Rs 75,000 to Rs 1 lakh.

On expected lines, although he did not go as far as most pundits were predicting, was the stress on infrastructure. The FM has allowed banks and government financial institutions to finance projects.

Among the infrastructure-boosting steps that the government has taken is its allocation on urban development, via the Jawaharlal Nehru National Urban Renewal Mission (JNNURM), that has been raised by 87 per cent to Rs 12,887 crore in 2009-10.
Another step in this direction was taken by enhancing the allocation to Rs 3,973 crore to better the condition of the urban poor. This would include housing and basic amenities through, among others, schemes like the recently-announced Rajiv Awaas Yojana.

The Accelerated Power Development and Reform Programmes outlay has been increased by 160 per cent to Rs 2,080 crore.

The allocation for the National Highway Authority of India for its National Highway Development Programme was raised by 23 per cent. Rural roads upkeep has got Rs 12,000 crore and just about 10 per cent of that is to go to the North-Eastern part of the country. Rural roads development falls under the aegis of the Bharat Nirman flagship programme. Under the programme the total road length to be constructed in 2009 is 1,46,185 kms. Farmers are set to benefit under Bharat Nirman too. The Budget has set aside Rs 48,000 crore to upgrade 1,94,132 km of existing routes to ensure a full farm-to-market connectivity. Under the Pradhan Mantri Gram Sadak Yojana an allocation has been made of Rs 6,500 crore.

To ensure that the city of Mumbai does not get deluged again, a sum of Rs 500 crore has been set for the completion of the Brihan Mumbai Storm Water Drainage Project. This was set at Rs 200 crore in the Interim Budget.

Among the biggies, the allocation for Railways jumped to Rs 15,800 crore.

To ensure there are no financing hurdles faced by these money-hungry infrastructure projects, the government has given greater power to IIFCL. IIFCL would have the power to refinance 60 per cent of commercial bank loans. This would apply to public-private-partnership (PPP) projects. The IIFCL along with banks have been allowed to finance projects with a total investment of Rs 1,00,000 crore.

However, fiscal prudence was ignored. The FM, blaming the global financial crisis, said that fiscal deficit would go as high as 6.8 per cent from 6.2 per cent in the previous year. He said that this was needed to boost the Indian economy out of the slowdown. In effect the government is saying it will continue its borrowing and spend policy, rather than stick to a greater fiscal rectitude programme. The current financial year will therefore, see a gross market borrowing of Rs 4.50 trillion. In fact the FM said that spending would increase by 36 per cent.

There were indications that there would be less of government control in certain areas in the future. Disinvestment prospects have received a boost with the FM announcing that additional revenue would be sought to be raised by diluting the government's stake in public sector undertakings.

But for those who had indicated a government exit from the insurance and banking sector, or at least for it to give up its stranglehold on it, were disappointed. The FM said that while disinvestment in these sectors would be encouraged, yet the government would retain its majority in the various PSUs.

Other areas that many expected a more activist governmental stance, like securities transaction tax (STT), increased foreign direct investment (FDI) in banking and insurance and raising foreign institutional investor (FII) limit for various other sectors, did not materialise. He has also left unchanged the corporate tax regime as well as customs rates, service tax and excise.

Among the other sops that he announced were aimed at boosting employment via the NREGA and other similar schemes. In NREGA the hike in allocation was by 144 per cent at Rs 39,100 crore. The minimum wages to be paid under the scheme would be Rs 100 a day. Aside from work, the government also looked to fill the belies of the poor and the destitute. It proposed to enact a Food Security Act that will provide 25 kg of rice or wheat per month at Rs 3 per kg.

Corporates were disappointed at the raising of the Minimum Alternate Tax from the earlier 10 per cent to 15 per cent rate.

The FM has called for a total spend of Rs 10,28,838 crore. However, almost 70 per cent of this amount will be through non-plan expenditure on Sixth Pay Commission, subsidies on food and fertiliser, interest and defence.

The FM indicated his vision behind the Budget: The Budget indicates our commitment to the well-being of the poor. It is a Budget intended for the development of rural the community."

Before the Budget could be presented the Union Cabinet today gave its stamp of approval to it as is the custom.

The Cabinet had met before the Budget was presented in the Lok Sabha.

The markets today opened on a positive note with the Bombay Stock Exchange sensitive index Sensex crossing the 15,000 mark prior to the announcement of the budget by Finance Minister Pranab Mukherjee. The 30-share index rose to a high of 15,097 and the 50-share index, Nifty on the NSE, rose to 4,479 points.

But after the commencement of the Budget presentation, the markets have taken a U-turn. The Sensex has fallen by 880.16 points to touch a low of 14,032.89 points, a fall of  5.90 per cent, and the Nifty has fallen by 277.65 points to touch a low of 4,146.60 points, a fall of 6.28 per cent.

Although there was a bit of a recovery at the end of the day, Sensex had fallen to an intra-day low of 1,3959.44 points, yet it could not prevent the index from closing down by as much as 877.38 points or 5.88 per cent at 14,035.67 points.

At the National Stock Exchange, Nifty closed down by 261.45 points or 5.91 per cent at 4,162.80 points -- its intra-day low was 4,133.70 points.

Among the other BSE indices, BSE Midcap index closed down 5.15 per cent, BSE Smallcap index fell 4.41 per cent, BSE Realty Index was down by 7.92 per cent, BSE Bankex by 7.72 per cent and BSE Metal by 7.22 per cent.
Among the biggest losers were, Reliance Infrastructure (-13.11%), Jaiprakash Associates (-11.26%), Tata Steel (-10.56%), ICICI Bank (-9.85%) and DLF (-9.82%). Not surprisingly, the situation was encouraging for the defensive stocks and the only two gainers on the Sensex were ITC (3.44%) and Hindustan Unilever (1.35%).

Here are highlights of the Budget:

  • The focus of all government schemes is the Aam admi
  • Income Tax returns to be made simpler
  • NREGA wages at Rs 100 a day
  • NREGA outlay hiked by 144 per cent to Rs 39,100 crore in 2009-10
  • Work has started on the National Food Security scheme that aims to provide food at cheaper rates to the poor
  • The number of households to be covered by NREGA hiked to 4.74 crore households in 2008-09, from 3.39 crore households in 2007-08
  • Bharat Nirman progamme outlay being raised by 45 per cent
  • SARAL II to be unveiled
  • Senior citizens exemption limit set at Rs 2.4 lakh
  • Income tax exemption limit for women raised by Rs 10,000; Rs 10,000 up from Rs 1,50,000 for all others
  • Surcharge on personal income tax (10%) abolished
  • Fringe Benefit Tax abolished
  • Total budget expenditure for 2009-10 crossed Rs 10 lakh crore mark for the first time; put at Rs 10,28,032 crore
  • Unique Identification Card that covers all citizens to be unveiled in 12-18 months; project outlay set at Rs 120 crore
  • Commonwealth Games outlay increased to Rs 3,472 crore
  • Sri Lanka Tamils displaced by the internecine war to get Rs 500 crore for rehabilitation purposes
  • Defence gets a 34 per cent hike, outlay at Rs 1,41,703 crore for 2009-10; in 2008-09 its was Rs 1,05,600 crore
  • Centre plus States plan expenditure hiked by Rs 61,000 crore over the Interim Budget
  • Fiscal deficit in 2009-10 announced at 6.8 per cent of GDP
  • Direct taxes share jumps to  56 per cent in 2008-09; it was 41 per cent in 2007-08
  • Investment linked tax benefits in areas of agriculture and national grid, to incentivise business, to be started
  • 45-day target set for release of Direct Tax code
  • Tax base to be expanded; two authorities for advance ruling to be set up to improve the efficiency of tax system; distortions in tax system to be ironed out
  • Minimum Alternate Tax on book profits hiked from 10 per cent to 15 per cent
  • Corporate tax to remain as earlier
  • Customs duty on gold and silver imports hiked; on drugs for heart treatment reduced
  • Excise duty on fibre for cheap cloth decreased
  • Excise duty reduced to 10 per cent on petrol-driven small trucks
  • Exporters exempted from service tax on select services
  • Lawyers to fall under Service Tax ambit for providing technical advice
  • ‘Aila’ cyclone damage relief in West Bengal allocated Rs 1,000 crore
  • Businesses with turnover of up to Rs 40 lakh to pay presumptive Taxation of 8 per cent
  • Donations to electoral funds to get 100 per cent tax deduction
    Education loans for vocational studies after schooling to get income tax incentives
  • Manufacturing growth may be turning around, after being negative during last year till March this year
  • Small businesses exempted from filing advance tax returns (up to Rs 40 lakh turnover)
  • Import of set-top boxes used under Conditional Access System (CAS) to be charged customs duty of 5 per cent
  • 12 lakh jawans and Junior Commissioned Officers to get new pension benefits from July
  • Eight national missions to be launched Under National Action Plan on climate change. Among them is the National Ganga Project, the allocation for which has been increased to Rs 562 crore
  • Allocation on Indira Awas Yojana hiked by 63 per cent in 2009-10 to Rs 8,800 crore
  • Rural housing fund under National Housing Bank set at Rs 2,000 crore
  • Outlay on Rashtriya Mahila Kosh hiked from Rs 100 crore to Rs 500 crore
  • National Mission for Female Literacy to be unveiled. It will lay emphasis on minorities, Scheduled Castes and Scheduled Tribes
  • Self-help group programmes to cover 50 per cent of all rural women
  • 500,000 students to benefit from a full interest subsidy. This will apply to students undertaking courses in approved institutions
  • Unorganised sector workers to get social security
  • National Rural Health Mission allocation raised by Rs 257 crore
  • Fertiliser subsidy regime to be worked out on a nutrient- based basis and not price-based
  • Fiscal discipline eyed; FRBM target to be adhered to
  • Viable and sustainable pricing system for imported petroleum products to be worked out; an expert committee to be set up
  • No privatisation of banks and insurance firms; they will remain PSUs
  • One-time-grant-in-aid of Rs 100 cr to expand banks in bank-less areas allocated
  • Intent of government is to bring the economy back to the high 9 per cent GDP growth rate  as soon as possible
  • GDP growth fell to 6.7 per cent in 2008-09 -- from an average 9 per cent in the previous three fiscal years
  • State finance ministers will be made a part of the pre-Budget consultations on an annual basis
  • Fiscal deficit put at 6.8 per cent of GDP – earlier it was 2.7 per cent
  • Rs 1,86,000 crore worth of fiscal stimulus was unveiled in 2008-09
  • Infrastructure projects to get financing fillip via Indian Infrastructure Financial Corporation Limited (IIFCL)
  • Highways allocation raised by 23 per cent
  • Outlays on urban poor on housing and amenities raised to Rs 3,973 crore
  • IIFCL to re-finance commercial bank loans up to 60 per cent in critical projects through public private partnership (PPP) to the extent of Rs 1,00,000 crore
  • Outlay on Jawaharlal Nehru Urban Renewal Mission hiked Rs 12,887 crore (up by 87%)
  • Agriculture credit target raised from Rs 2,87,000 crore to Rs 3,25,000 crore in 2009-10
  • Farmers to get incentives in terms of interest rates in order to pay agriculture loans in time
  • To accelerate irrigation project an additional outlay of Rs 1,000 crore was granted
  • Export Credit Guarantee scheme has been extended till March 2010
  • Market development assistance scheme allocation hiked by 148 per cent
  • Stimulus package for print media has been extended by six months

Also read:

Interim Budget 2009: Market Disappointed
Tax Windfall Unveiled by Budget 2008
UPA Will Woo Aam Admi
2008: Senior Citizens and Investments
2008: A Low-Impact Budget
2008: Budgetary Expectations