BUDGET ANALYSIS: 2009-2010

1. BUDGET ANALYSIS: 2009-2010 ghanshyamgupta7@gmail.com 9015264601 2/24/2010 10:59:36 AM 1 Ghnahsym IILM Gurgaon

2. What is budget? The budget is a document that states expenditure and income of the Government for the current financial year and which reflects the direction of Government policies and priorities. 2/24/2010 10:59:37 AM 2 Ghnahsym IILM Gurgaon

3. TAXATION Exemption of Income Tax increased from Rs. 110,000 to Rs. 150,000. Minimum slab changed to Rs. 190,000 for women tax payers. Threshold changed to Rs. 240,000 for Senior citizens. Corporate Tax unchanged. 2/24/2010 10:59:39 AM 3 Ghnahsym IILM Gurgaon

4. Automobile Sector Highlights Impact of the budget Cut in excise duty on buses from 16% to 12%. Cut in excise duty on small cars from 16% to 12% Cut in excise duty on hybrid cars from 24% to 14% Cut in excise duty on two and three wheelers from 24% to 16%. No changes in peak rate of customs duty General CENVAT on all goods reduced from 16% to 14%. The Union Budget 2008-09 proved to be a delight for the auto industry. Leading manufacturers Hyundai Motor India and General Motors slashed prices by up to Rs.16,000 to pass on benefits of the excise duty cut. However, despite the initial cheer in the auto industry after the announcement of the budget, there was a drastic fall in the sales of all major automakers due to the global recession. Cars segment saw sales of 76,221 for the half yearly as against 82,780 last year, decline of 7.9%.Though the domestic market sales grew marginally by 3.5 %, the exports saw a slump of 20.2%. The only cheer in passenger car segment was the sales of LCV’s and UV’s, which saw a year on year growth of 20 and 10.1% respectively 2/24/2010 10:59:40 AM 4 Ghnahsym IILM Gurgaon

5. TELECOM Specified inputs and raw materials for manufacture of specified electronics/ IT hardware items have been exempted from excise duty. Additional duty of 1 per cent to be levied on imported mobile phones towards national calamity contingency receipt Countervailing duty on wireless data modem cards with exempted by way of excise duty exemption. These goods are already exempt from customs duty. However, 4 per cent additional duty of customs will be attracted. Internet telecommunication service brought under the service tax net. Customs duty on convergence products to be reduced from 10 per cent to 5 percent.alamity contingency reserve 2/24/2010 10:59:42 AM 5 Ghnahsym IILM Gurgaon

6. BANKING PSU banks and regional rural banks (RRBs) to offer debt waiver on all agricultural loans disbursed upto March 2007 and due until the end of December 2007. Complete debt waiver on all loans given to small and marginal farmers. Rs 100 cr one-time grant to expand banks in unbanking areas 2/24/2010 10:59:43 AM 6 Ghnahsym IILM Gurgaon

7. AGRICULTURE Interest subvention scheme for agriculture loans to continue Targeted credit flow is about Rs 325,000 crore Loans up to 3 lakh will be available for the farmers at 7% per annum Those who pay their loans in time will be eligible loans at 6% in future additional allocation of Rs.1000 cr for accelerated irrigation projects Central assistance for storm water drainage project increased to Rs 500 crore from Rs 200 crore provided by the interim budget 2/24/2010 10:59:45 AM 7 Ghnahsym IILM Gurgaon

8. INFRASTRUCTURE Allocation for Bharat Nirman up 45% The budgetary allocation for the flagship Bharat Nirman (Build India) programme has been IndiraAwaasYojna hiked by 63% to Rs 8,883 cr and increased by 45%. This is a program which focuses on rural development and poverty alleviation. Allocation to NHAI increased by 23% New company IIFCL to look at infrastructure needs 2/24/2010 10:59:46 AM 8 Ghnahsym IILM Gurgaon

9. EDUCATION The allocation for the health and educational sectors had gone up by 20%. The budget allocation for the Mid-day Meal Program was Rs. 8000 crores. Plan to set up three new IITs in Andhra Pradesh, Rajasthan and Bihar The Indian budget had provided Rs. 34,400 crores to the educational sector in India Plan to set up 16 new central universities. The SarvaShikshaAbhiyaan was provided Rs. 13,100 2/24/2010 10:59:48 AM 9 Ghnahsym IILM Gurgaon

10. Contd… Provision for upper primary classes to get midday meals Plan to set up 410 new Vidyalayas in the villages Plan to set up three new IIScs in Trivandrum and Bhopal. NavodiyaVidyalayas in 6000 districts. Rs. 4,554 crores had been allocated for the secondary education scheme Plan to set up 6000 new model schools. Grant of 44 crores to 22 Sainik schools. Scholarships for science and research. 2/24/2010 10:59:49 AM 10 Ghnahsym IILM Gurgaon

11. RURAL SECTOR HIGHLIGHTS IMPACT The finance minister proposed a total loan waiver of Rs 60000 Crores to the farmers which comprises of 4% of total bank loans Agriculture loans restructured and rescheduled by banks from 2004-06 and other loans normally rescheduled under RBI guidelines will also be eligible under the waiver scheme. Government also introduced the nutrient based policy and will give 326.67 bln rupees for food subsidy Irrigation and water resource will be set up. Implementation of debt waiver and debt relief will be completed by June 30’09. The loan waiver scheme will benefit 3 crore small and medium farmers and cover loans totalling Rs 50,000 crore. 1 crore other farmers will benefit to the tune of Rs 10,000 crore in the waiver, Fertilizer subsidy boast agriculture growth 2/24/2010 10:59:50 AM 11 Ghnahsym IILM Gurgaon

12. Union budget 2009-10-Challenges Firstly, sustaining high growth. Secondly, increasing the spread and inclusiveness of the benefits of this growth Thirdly, strengthening the delivery system through better governance and processes. 2/24/2010 10:59:52 AM 12 Ghnahsym IILM Gurgaon

13. VIEWS ON BUDGET BY VARIOUS EXPERTS “'The excise duty cuts may not directly help FMCG companies like us since we have set up manufacturing facilities in excise-free zones. But it will certainly help other sectors like automobiles and offer the right fiscal stimuli to fuel consumption and business.” - Adi Godrej, Chairman, Godrej Group “Finance Minister PranabMukherjee's efforts to revive the economy back to nine per cent (growth) is in the right direction”. - ChandaKochhar, MD & CEO, ICICI Bank “I am happy on behalf of the whole industry that Fringe Benefit Tax has been abolished, but I am a little bit unhappy about MAT”. - Rahul Bajaj, Chairman and Managing Director, Bajaj Group 2/24/2010 10:59:53 AM 13 Ghnahsym IILM Gurgaon

14. Contd… “The budget has a huge focus on rural area. It is definitely beneficial for us. All companies which have a rural exposure will benefit from this budget”. - ManojKohli, CEO, BhartiAirtel “Budget is on the expected lines and the industry has not been penalised although we are disappointed that the corporate tax has not been changed”. - Sunil Mittal, President, Confederation of Indian Industry (CII) “In these trying times, the finance minister has placed a budget that is extremely well crafted, provides fresh stimulus for growth, a special focus on social sectors and the promise of a more inclusive future”. - Y C Deveshwar, Chairman, ITC 2/24/2010 10:59:55 AM 14 Ghnahsym IILM Gurgaon

15. FISCAL STIMULUS Increase in government spending Cenvat rate cut by 4% Exporters Housing Support for medium, small, and micro enterprises (MSMEs) Textiles sector Infrastructure Financing 2/24/2010 10:59:56 AM 15 Ghnahsym IILM Gurgaon

16. ANOTHER STIMULUS PACKAGE IIFCL Interest rate cuts ECB Limits CVDs FIIs in Debt Markets SMEs State Governments Public Sector Banks 2/24/2010 10:59:57 AM 16 Ghnahsym IILM Gurgaon

17. WEAKNESSES IN THE BUDGET However, low plan allocation for agriculture is worrisome, especially as this sector witnessed pedestrian growth of 1.2 percent in 2008-09. The lack of attention to flood and irrigation can prove to be a major detriment and serious policy measures to remove the dependence of agriculture on monsoon rainfall are clearly lacking. The Budget also lacked vision on restructuring of the public sector undertakings, nor did it set any targets for the disinvestment programming. Expenditure doubled in 5 years. MAT hiked 10% to 15% No major provision for funding Budget Deficit No major provision for SME’s 2/24/2010 10:59:59 AM 17 Ghnahsym IILM Gurgaon

18. CONCLUSION Union Budget 2009-10 was considerably constrained by the high expenditure and high rate of deficit of the previous financial year. Against this backdrop the Finance Minster must be complemented for balancing the growth objectives through high level of government expenditure even while walking the tightrope of fiscal rectitude. The inherent construct and nature of the Budget itself restricts flexibility and thereby it may have received some criticism for articulating what some call a “Holding Budget’. The Budget 2009-10 has clearly placed greater emphasis on the demand side and capacity challenges that India is faced with rather than focusing on supply side distortions that can be resolved through capacity creation. However, the Finance Minister’s aversion to use disinvestment for bridging the fiscal gap must be applauded. Implementation of Goods and Service Tax in 2010 is another notable reform measure that has been embraced and could have far greater positive impact on business and economy than can be estimated at this time 2/24/2010 11:00:00 AM 18 Ghnahsym IILM Gurgaon

19. In the last four to five years, this has been the first time where government has to come out with not one but two Fiscal stimulus packages before regular budget, as the economic growth slumped in the economy. Going forward, these packages might become the most frequently used tool to stimulate economy from time to time. 2/24/2010 11:00:02 AM 19 Ghnahsym IILM Gurgaon

20. THANK YOU 2/24/2010 11:00:03 AM 20 Ghnahsym IILM Gurgaon