What the Budget holds for the coming year

The budget frenzy is starting to ebb now with newspapers and media buzzing with analysts and columnists doing their final rounds of analysis of what the finance minister should have done and what he did and where he was right and where he was wrong and so on and so forth.

Here is a quick round up of what budget 09-10 is expected to hold for the Indians this coming year.

Basic theme of the Budget

Finance Minister Pranab Mukerjee's fourth budget (two full budgets and two interim budgets, a record in itself) concentrates on these three aspects:

a. To get the GDP growth rate to 9% as soon as possible.

b. More focus towards rural India.

c. Reduce the difference between income and expenditure; the Fiscal deficit. It has risen to 6.2%.

The plan and how it is expected to help the aam aadmi

Infrastructure:  Provisions have been made for improving the allocation for infrastructure and improve the Public Private Partnerships in critical sectors. This includes a 23% higher allocation to highways and over 45% higher allocation to the railways. To up the infrastructural growth of cities to conform to world class standards the allocation for Urban Renewal has been raised by over 87%. Power development allocation has been increased by 160 percent. Those power cuts could be story of the past soon! Or will it?

For the gaon ka aadmi

To ensure the rural people of India become an integral part of growth the allocation to the National Rural Employment Guarantee Scheme (NREGS) has been increased to Rs 39,100 crore (Rs 391 billion). And to improve the efficiency of the NREGS it has been decided to converge other sectors like forests, water resources etc. which can assist NREGS.

Giving more time for our farmers to get benefits from debt waivers and also providing them with easier credit to invest in the farms will be made a priority this year. This is expected to ensure food sustainability in the long run.

Rural Housing Fund has been allocated Rs 2,000 crore (Rs 20 billion). However, on another front nothing has been done to impact the housing loan industry.

About divestment and financial markets

Participation in divestment programs are currently only at the discussion stage.  A clear picture of how and when and what would be part of the divestment is yet to be frozen. Analysts had earlier declared that around 25,000 crore (Rs 250 billion) could result in the sale of  government companies.

The finance ministry will take more time on this to decide a suitable course of action.

Considering the mess the financial world has put itself into across the world it has been indicated by the Finance Ministry that the banks and insurance sectors will not be part of any divestment program and rather more funds will be pumped in to improve stability and growth.

For students and job seekers

Full interest subsidy to cover loans to pursue ANY approved courses of technical/professional study after schooling has been provided. Also to help the student community get jobs, it has been decided to modernize the Employment Exchange and facilitate online registration.

The focus on Rural India would also provide many opportunities for Entrepreneurship ventures in Agriculture and Rural infrastructure. Assistance for such projects has been promised.

Over 900 crore (Rs 9 billion) has been allocated to setup more polytechnics, Rs 897 crore (Rs 8.97 billion) to open new central universities and Rs 450 crore (Rs 4.50 billion) to start more IITs and NITs.

Pensioners and senior citizens.

Although no great value addition has been provided to the senior citizens, there is some benefit for retired ex-servicemen. Pension would be given in terms of rank rather than year of retirement to ensure evenness.

The exemption limit for their personal income tax has been raised by Rs 15,000. Amendments have been made to the National Pension Scheme to make it more profitable.

On the taxation front

There is a marginal difference in the tax slabs this year. Personal income tax exemption has been raised by Rs 10,000/- to Rs 1.60 lakh (Rs 160,000)  for men and Rs 1.9 lakh (Rs 190,000)  for women.

Regarding efforts to simplify the taxation process and the direct tax code is under way. The code will be open for inputs from the public and a bill will be tabled in the winter session.

Much against expectations the corporate tax rates remain untouched. Among the fancy taxes, the FBT and CTT alone have been abolished while STT remains. GST implementation too is expected to be accelerated. Surcharges too would soon go.

Small and medium businesses generating revenue under Rs.40L can declare income at a flat 8% of their turnover and avoid maintaining books of accounts, also advance tax has been done away with.

For the rest of us

Some commodities like gold bars, bulbs costing above Rs 20, high-end footwear and many food items (excluding biscuits, cakes, sherbets etc) would be costlier on account of the hike in Excise duty to 8% form 4%.

At the same time LCD TVs, branded gold jewellery, life saving drugs and medical equipment will be cheaper on account of reduction in customs duty. Water sports would become affordable with the full exemption to accessories used for water sports like skis and other equipment from customs duty.

ATM penetration would be higher with the allowing of banks to set up off-site ATMs without approval.

Price hikes in petrol and diesel will not be very steep hence forth. This is because of a fixed excise duty of Rs 14.5 per liter of petrol and Rs 4.75 per liter of diesel instead of 6% of the price. 

Closing lines

From the way that the bond, currency and equities markets tumbled on July 6, 2009, the expectations were really high from the finance ministry to wave a magical wand to satisfy all needs and wishes. However, these wishes will have to be put on hold now!

As of now, the focus seems to be on getting the infrastructure on track to ensure 9% GDP growth and also to include the Rural Indians in any future growth stories. On the fiscal deficit front effort will be on generating revenue.

This is expected to be achieved by not cutting on spending targets especially infrastructure and rural development. The other task would be fund the projects without borrowing money that would increase the deficit even more.