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Budget: Pro-growth; Short On Reforms

The big event could not rise to the occasion even though it managed to sound the right notes on growth

Share Khan has analysed the Budget presented by the Finance Minister Pranab Mukherjee and it gives its views on how things will pan out in the economy.

Set against the background of fiscal constraints and recovering, but subdued, economic activity, the final Budget for FY2009-10 fell short of the expectations that had heightened after the decisive mandate in the general election.

While the finance minister opened his speech with emphasis on the need for additional stimulus as the real economy is not yet out of the woods, the widely expected major announcements on non-plan revenue generation (divestments/privatisation) were conspicuously missing from his budget statement.

Moreover, the budget was also silent over non-fiscal structural reforms such as a hike in the foreign direct investment (FDI) limits. Lastly, the minister left a huge gap between the intentions/wish-list expressed in this year’s Economic Survey and the announcements made in the budget.

Devil in the fine print

Mentioned below are a few crucial changes in the tax laws as emerging from the fine print

  • ESOPs and sweat equity made taxable in the hands of the employee: While the market cheered the abolition of the FBT, more so on the inference that ESOPs will not be taxed under the FBT, the budget fine print has revealed that the ESOPs and sweat equity shares will now be part of the taxable salary income of the employee. Thus, the tax burden has been shifted from the employer to the employee.
  • Retrospective addition of diminution in the value of asset for MAT calculation: The budget amendments stipulate that the provision for diminution in value of assets, which was allowed as a deduction in computing book profits for MAT calculation, should be added. More importantly, the addition should be carried with a retrospective effect from April 1, 2001. This means that companies will have to pay additional tax (MAT) after adding back the provision for diminution in the value of asset.

Gainers of Budget

  • FMCG --  ITC, Marico, Hindustan Unilever
  • Auto --  Mahindra & Mahindra, Hero Honda
  • IT services -- TCS, HCL Tech and mid-cap IT cos
  • Gas transportation -- GAIL, GSPL, Jindal Saw, Welspun Gujarat, Man Industries

Losers of Budget

  • MAT -- Bharti, Reliance Commnunication, Reliance Industries, Sun Pharma
  • HFCs/Banks -- All banks, HDFC, LIC Housing Finance