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Budget 2009-10: Disappointing Show

BRICS Securities takes a look at the Budget 2009-10 and gives its view on the consequences

BRICS Securities takes a look at the Budget 2009-10 presented by Finance Minister Pranab Mukherjee and gives its views on the consequences

No major policy shift, no decisive or new moves on fiscal discipline, FDI, infrastructure, divestment, targeting of subsidies or social spend.

Noises made about reducing promoter holding in government-held companies, but no announcement or roadmap for specific companies.

MAT rate increased from 10% to 15% should hurt cash flows for companies that have efficient tax planning, in spite of extension of MAT credit window to 10 years.

Receipts Overestimated?

Total tax receipts budgeted to rise ~2% to Rs 4.74 tn, in spite of fall in customs and personal income tax.

Rise in corporate income tax collection of ~ 16% seems like a pipedream, notwithstanding increase in MAT.

100%+ rise in ‘other non-tax revenues’ from Rs 339 bn to Rs 685 bn unlikely, even if 3G divestment are accounted for in this item.

9 per cent rise in total revenue receipts (Rs 5.62 to Rs 6.15tn) seems overambitious.

Spend Underestimated?

On the other hand, a 17 per cent rise in interest payments to Rs 2.25 tn and 24 per cent hike in defence to Rs 1.42tn are the two big items pulling up the spend. We doubt if total spend will be contained at +13% (Rs 10.2 tn).

Hence the budgeted value of the fiscal deficit at Rs 4.0 tn (already 23% higher than FY09 revised estimates) is likely to slip further. Of this, Rs 3.97 tn additional borrowing is planned by government. This is unlikely to be met via deposit-accretion driven (statutory) SLR buying by banks this year.

Expect government to be an increasingly ‘desperate’ borrower. Implication: rise in interest rates.

Our ‘SELL’ call across banks stands vindicated.

A Few Good Things...

Relief spend aimed at helping vulnerable sections was increased across various schemes.

Infrastructure spend increased for roads, electrification, urban infra

Tax relief for individuals (removal of surcharge, mild increase in tax slab limits), but none for corporates (except for FBT removal) is POSITIVE on consumption (FMCG, retail, housing).

Simplifiation of tax procedures for small businesses. Tax relief for blending bio-diesel with petro-diesel.
NHAI, rural road spend, irrigation, electrification, railways spend increased.