INDIA's UNION BUDGET 2009-10-PRELIMINARY HIGHLIGHTS-VRK100-06072009

HIGHLIGHTS OF THE UNION BUDGET PRESENTED BY THE FINANCE MINISTER IN INDIAN PARLIAMENT ON JULY 6, 2009:

POSITIVES:



 There are no changes in the Corporate Tax (except for MAT)



 No new taxes have been proposed in the Budget (as per the cursory reading of the Budget – the budget’s fineprint is yet to be unveiled)



 No changes in indirect taxes – service tax and Cenvat reductions of previous year are maintained at the same level



 Fringe Benefit Tax is scrapped



 Commodity Transaction Tax is scrapped



 Goods and Service Tax is expected to be introduced from April 1, 2010



 Software Technology Parks of India (STPI) scheme’s tax exemption is extended by one more year up to 2011 (positive for IT sector)



 Govt will get Rs 35,000 crore by auctioning of 3G spectrum to telecom cos



 More allocations are made to social sectors, roads (NHAI), rural roads, urban projects, Bharat Nirman, Railways, Rural Housing, etc



 Unique ID project for all citizens gets an allocation of Rs 120 crore



 Public float of listed companies will go up from the present 15% (this is telling in an indirect manner that the Govt will sell some stake in Govt cos)



 Total expenditure of the GOI has crossed Rs 10 lakh crore for the first time since Independence (in the first budget after independence, GOI’s total expenditure was only Rs 193 crore)



 Personal IT slabs have been slightly increased by Rs 15,000 for senior citizens and by Rs 10,000 for others



 Investment allowance for companies in certain sectors, like, gas pipelines, cold storage, etc. has been raised



 The FM has not re-introduced the long-term capital gains tax (in place of STT) as has been feared by several marketmen

 A new Direct Tax Code will be unveiled in 45 days

 IIFCL will give 60% funds to Banks for PPP projects

NEGATIVES:



o Government’s borrowing from the market is at around Rs 4 lakh crore, higher by Rs 40,000 crore compared to projections in Feb. 2009 (Bond market has reacted negatively to this figure – Banking stocks have fallen heavily as a result)



o Higher fiscal deficit and more than expected government borrowing, combined with nil receipts from DISINVESTMENT have made the markets to believe that the interest rates are going to go up in the medium term – which may not be good corporate profits



o State Governments are allowed to borrow more from the market



o This fiscal expansion is, in fact, a double-edged sword (one way to see it is it boosts expenditure which is good for the economy and in another way it is a negative for bond market)



o The policies that are liked by market players and experts have not been articulated by the FM in his budget speech (The government is still stuck in its socialistic mindset and indoctrination, at least, outwardly – the authorities don’t want to give any impression that the budget’s big picture is for the benefit of financial markets. The UPA Government still believes that their re-election is due to their cheap populism of yester years. The Congress party over the years has mastered the art of given confusing signals and satisfy the public with little sops. Ministers tell something and at the same time; government secretaries and economic advisors and other cohorts confuse the markets with expressing contradictory views)



o Minimum Alternative Tax (MAT) has gone up from 10% to 15% (negative for companies, like, Reliance Industries and Reliance Communications who historically pay considerably lesser taxes year after year)



o May be, the government’s policies have not been well articulated in a manner that is palatable to the financial markets



o No policy is announced in relation to freeing of fuel prices (petrol, diesel, LPG, etc) – instead, a new committee is set up (somehow, we are fond of setting up committees without bothering to implement their recommendations)



o The budget speech is a bit silent about disinvestment target, increase in FDI limit in insurance, banking consolidation, sops for housing sector and new timelines for FRBM Act

MY OVERALL ASSESSMENT:



Overall, the budget is okay under the given circumstances in relation to the fact that the authorities have already implemented a lot of policy measures since September 2008 – like, two fiscal stimulus plans, reduction of excise duties, cut in service tax, drastic cuts in interest rates by RBI, and other stimuli. Even in the last one month, several ministers have revealed their good intentions for broad thrust on reforms – for example, Minister for Roads, Kamal Nath, has stated that he would work for building 20 km roads each day; Kapil Sibal, HRD Minister has stated that reforms will be done in Education sector; Nandan Nilekani has been absorbed by GOI for its Unique ID Project; petrol and diesel prices were increased only a few days back; and others. Put together, all the steps that have been taken since September 2008 may keep the economy in good stead for the next one year or so. Moreover, FBT and CTT have been scrapped. And the FM has not re-introduced long-term capital gains (had he re-introduced this LTCG, markets would have tanked and hit lower circuit on this day). The FM has also not tinkered with dividend distribution tax (DDT) as has been anticipated by industry players.



For individuals, the FM has raised the income tax slabs and has put more money in the hands individuals which is likely to boost the private consumption.



Overall, it’s a status quo budget given that the FM had little time to present it after the elections. May be, he would do a better job for the next budget in Feb. 2010, which is only a little less than eight months time.



May be, we’re like that only!



HOWEVER, LET US HOPE FOR THE BEST NEXT TIME!



MY OVERALL SCORE: Six out a possible 10.


Note: The above highlights were prepared much before the budget’s fineprint is out.