2010 Union budget of India

The Union budget of India for 2010-11 was presented by Finance minister Pranab Mukherjee in the Lok Sabha on Friday, February 26, 2010.

Opening Remark

"Madam Speaker,

           I rise to present the Budget for 2009-10.

Just 140 days back, I had the privilege to present the Interim Budget for 2009-10. It is a rare honour that I have been called upon to present the regular budget after the new Government assumed office.

The Congress-led UPA Government has come back to power with a renewed mandate. As Prime Minister, Dr. Manmohan Singh, said recently “It is a mandate for continuity, stability and prosperity. It is a mandate for inclusive growth and equitable development.” It is a mandate that we accept with humility and a firm resolve to do all that we can for the welfare of this nation.

I am deeply conscious of the faith reposed by the people in our government and the responsibilities that come with it. I am sensitive to the great challenge of rising expectations of a young India . It reflects a population that is restless, yet engaged and is ready to seize the opportunities that it is presented with. There are new and powerful reasons for us to create, facilitate and sustain those opportunities"

For the full text of the speech of Finance Minister Pranab Mukherjee visit

http://indiabudget.nic.in/ub2009-10/bs/speecha.htm

OVERVIEW OF THE ECONOMY

Growth rate of Gross Domestic Product dipped from an average of over 9 per cent in the previous three fiscal years to 6.7 per cent during 2008-09.Whole sale price index rose to nearly 13 per cent in August, 2008 and had an equally sharp fall to zero per cent in March, 2009.The structure of India’s economy changed over the last ten years with contribution of the services sector to GDP at well over 50 per cent and share of merchandise trade doubling to 38.9 per cent of GDP in 2008-09.Recognising economic recovery and growth as co-operative effort of the Central and State Governments, meeting with Finance Ministers of States held as part of preparation of the Budget. This is intended to become an annual feature.

Challenges

• to lead economy to high GDP growth rate of 9 per cent per annum at the earliest
• to deepen and broaden the agenda for inclusive development
• to improve delivery mechanisms of the government.

Highlights

• The Indian economy was facing grave uncertainty. Growth had started decelerating when the interim and full budget for 2009-10 were presented.
• At home there was added uncertainty because of subnormal southwest monsoon.
• Yet, the economy now in a far better position than it was eight years ago.
• India weathered the economic crisis well and emerged from the global slowdown faster than any other country.
• First challenge before the government is to quickly revert to high GDP growth path of 9%.
• Expects 10% economic growth in the near future.
• Second challenge is to harness economic growth to make it more inclusive and consolidate gains.
• Third challenge is to overcome weakness in government's public delivery mechanism; a long way to go in this.
• Impressive recovery in the past few months. Can witness faster recovery in the coming months.
• Food security has been strengthened.But bottleneck of the public delivery mechanism can hold us back.
• Fiscal year 2009-10 was challenging for the economy.
• Focus shifted to non-governmental actors and an enabling government. Government now concentrates on supporting and delivering services to the poorer sections.
• Economy stabilised in the first quarter of 2009 itself.
• 18.5% manufacturing growth in December was the highest in two decades.
• Figures for merchandise exports for January encouraging after turnaround in November and December last year.
• Double digit food inflation last year due to bad monsoon and drought-like conditions.
• Government conscious of the price rise and taking steps to tackle it.
• Erratic monsoon and drought-like conditions forced supply-side bottleneck that fuelled inflation.
• Need to review stimulus imparted to economy last year to overcome the recession.
• Need to ensure that the demand-supply imbalance is managed.
• Need to make growth more broad-based.
• Need to review public spending and mobilise resources.
• Status paper on public debt within six months.
• Government hopes to implement direct tax code from April 2011.
• Earnest endeavour to implement general sales tax in April 2011.
• Government will raise Rs25,000 crore from divestment of its stake in state-owned firms.
• Kirit Parekh report on fuel price deregulation will be taken up by petroleum minister Murli Deora in due course.
• Nutrient-based fertiliser subsidy scheme to come into force from April 1 this year.
• Nutrient-based fertiliser subsidy will reduce volatility of subsidy and also reduce it.
• Market capitalisation of five public-sector undertakings listed since October increased by 3.5 times.
• FDI inflows steady during the year. Government has taken series of steps to simplify FDI regime. Intends to make FDI policy user friendly by compling all guidelines into one document.
• Government has decided to set up apex-level Financial
• Stability and Development Council.
• RBI considering issuing banking licences to private companies. Non-banking finance companies will also be considered if they meet the criteria.
• Government to provide Rs16,500 crore to public-sector banks to maintain tier-I capital.
• Government to continue interest subvention of 2% for one more year for exports covering handicrafts, carpets, handlooms and small and medium enterprises.
• Government to provide Rs300 crore to organise 60,000 pulse and oilseed villages and provide integrated intervention of watershed and related programmes.
• Rs200 crore provided for climate-resilient agriculture initiative.
• Government committed to ensuring continued growth ofspecial economic zones
• Need to take firm view on opening up of the retail sector.
• Deficit in foodgrains storage capacity to be met with private-sector participation.
• Period for repayment of loans by farmers extended by six months to June 30, 2010, in view of the drought and floods in some parts of the country.
• Interest subvention for timely repayment of crop loans raised from 1% to 2%, bringing the effective rate of interest to 5%.
• Road transport allocation raised by 13% to Rs19,894 crore.
• Proposal to maintain thrust of upgrading infrastructure in rural and urban areas. IIFCL authorised to refinance infrastructure projects.
• Rs1,73,552 crore provided for infrastructure development.
• Allocation for railways fixed at Rs16,752 crore, an increase of Rs950 crore over the last financial year.
• Government proposes to set up Coal Development Regulatory Authority.
• Mega power plant policy modified to lower cost of generation; allocation to power sector more than doubled to Rs5,130 crore in 2010-11.
• Government favours competitive bidding for coal blocks for captive power plants.
• Rs500 crore allocated for solar and hydro projects for the Ladakh region in Jammu & Kashmir.
• Clean Energy Fund to be created for research in new energy sources.
• Allocation for new and renewable energy ministry increased by 61% to Rs1,000 crore.
• One-time grant of Rs200 crore provided to Tirupur textile cluster in Tamil Nadu.
• Allocation for National Ganga River Basin Authority doubled to Rs500 crore.
• Alternative port to be developed at Sagar Island in West Bengal.
• Draft of Food Security Bill ready, to be placed in the public domain soon.
• Outlay for social sectors pegged at Rs1,37,674 crore, accounting for 37% of the total plan allocation.
• Plan allocation for school education raised from Rs26,800 crore to Rs31,036 crore in 2010-11.
• 25% of plan outlay earmarked for rural infrastructure development.
• Plan allocation for health and family welfare increased to Rs22,300 crore from Rs19,534 crore.
• For rural development, Rs66,100 crore have been allocated.
• Allocation for National Rural Employment Guarantee Authority stepped up to Rs40,100 crore in 2010-11.
• Indira Awas Yojana's unit cost raised to Rs45,000 in the plains and Rs48,500 in hilly areas.
• Allocation for urban development increased by 75% to Rs5,400 crore in 2010-11.
• 1% interest subvention loan for houses costing up to Rs20 lakh extended to March 31, 2011; Rs700 crore provided.
• Allocation for development of micro and small-scale sector raised from Rs1,794 crore to Rs2,400 crore.
• Rs1,270 crore provided for slum development programme, marking an increase of 700%.
• Government to set up National Social Security Fund with initial allocation of Rs1,000 crore to provide social security to workers in the unorganised sector.
• Government to contribute Rs1,000 per annum to each account holder under the new pension scheme.
• Exclusive skill development programme to be launched for textile and garment-sector employees.
• Allocation for woman and child development increased by 80%
• Plan outlay for the social justice ministry raised by 80% to Rs4,500 crore.
• Plan allocation for minority affairs ministry raised from Rs1,740 crore to Rs2,600 crore.
• Financial-Sector Legislative Reforms Committee to be set up.
• Rs1,900 crore allocated for Unique Identification Authority of India.
• A unique identity symbol will be provided to the rupee in line with the US dollar, British pound sterling, euro and Japanese yen.
• Defence allocation pegged at Rs1,47,344 crore in 2010-11 against Rs1,41,703 crore in the previous year. Of this, capital expenditure would account for Rs60,000 crore.
• Planning Commission to prepare integrated action plan for
• Naxal-affected areas to encourage "misguided elements" to eschew violence and join the mainstream.
• Gross tax receipts pegged at Rs7,46,656 crore for 2010-11, non-tax revenues at Rs1,48,118 crore.
• Total expenditure pegged at Rs11.8 lakh crore, an increase of 8.6%.
• Fiscal deficit at 5.5%.
• Fiscal deficit seen at 4.8% and 4.1% in 2011-12 and 2012–13, respectively.
• Non-plan expenditure pegged at Rs37,392 crore and plan expenditure at Rs7,35,657 crore in budget estimates. Proposed increase of 15% in plan expenditure and 6% in non-plan expenditure.
• Cash subsidy for fuel and fertiliser instead of previous practice of bonds to continue.
• Fiscal deficit pegged at 6.9% in 2009-10 as against 7.8% in the previous fiscal.
• Government's net borrowing to be Rs3,45,010 crore for 2010-11.
• Income-tax department ready with two-page Saral-2 returns form for individual salaried assesses.
• Personal income-ax rates pruned:
  • Income up to Rs1.6 lakh — nil
  • Income above Rs1.6 lakh and up to Rs5 lakh — 10%
  • Income above Rs5 lakh and up to Rs8 lakh — 20%
  • Income above Rs8 lakh — 30%
• Additional deduction of Rs20,000 allowed on long-term infrastructure bonds for income-tax payers; this is above Rs1 lakh on savings instruments allowed already.
• Investment-linked tax deductions to be allowed to two-star hotels anywhere in the country.
• Weighted deduction of 125% for payments to approved associations doing social and statistical research.
• One-time interim relief to housing and real-estate sector.
• Businesses with a turnover of up to Rs60 lakh and professionals earning up to Rs15 lakh to be exempted from the obligation to audit their accounts.
• Housing projects allowed to be completed in five years instead of four to avail of tax breaks.
• Revenue loss of Rs26,000 crore on direct tax proposals.
• Central excise duty on all non-petroleum products raised to 10% from 8%.
• FM increases customs duty on crude oil to 5%, on diesel and petrol to 7.5%, and on other petroleum products to 10%.
• Structural changes in excise duties on cigarettes, cigars, and cigarillos.
• Clean energy cess of Rs50 per ton to be levied on coal produced in India.
• Concessional excise duty of 4% on solar cycle-rickshaws.
• Balloons exempted from central excise duty.
• Customs and central excise proposals to result in a net revenue gain of Rs43,500 crore.
• More services to be brought under the service tax net.
• Certain accredited news agencies exempted from payment of service tax.
• Net revenue gain from tax proposals pegged at Rs20,500 crore.

See also

Dream Budget

External links

• Government of India: Union Budget and Economic Survey, Official website
• Union Budget of India 2010 : Budget Speech of Hon'ble Finance Minister, Official website
• Video: Panel discuss the 2010 Indian Union Budget, Asia Society, New York, March 2, 2010

Impact of budget 2010 on various sectors:-

This year, the Union Budget symbolises balance. Balance between controlling fiscal deficit (government expenditure) and encouraging private

expenditure, and a balance between increasing infrastructure investments and sourcing it from taxpayers. This budget did not have any sweeping reforms that will drastically change the outlook for any sector, except banking.

The structural changes to allow more private players in banking will act as a harbinger of change for the sector. It may lead to competitive pricing and consolidation in the sector. The tax rebates given in the budget will act as a key driver of consumption growth. The hike in excise duty will impact many sectors.

This budget will also give an impetus to the energy and transport sectors as the government has increased its allocation to these sectors by 34 and 15 percent respectively and they account for 28 and 19 percent of the total central plan outlay. Hence, the sectors that have been impacted by budgetary changes from an investment perspective are power, banking, infrastructure and hospitality.

Hospitality

The budgetary impact on hospitality was not understood clearly by many until much later. Budget 2010-11 gives a tax deduction for new two-star hotels that are to be opened on or after April 1, 2010. The deduction under Section 35AD of the Income Tax Act will be up to 100 percent of the capital expenditure (other than investing in financial instruments, land, and goodwill ) incurred for the purpose of building and operating a new hotel of two-star or higher category.

To take an example, if a company constructs a hotel on a leased land for Rs 200 crores, it will get a tax break for that amount, but it will not get a tax break if the money is invested to buy land to build a hotel. The impact of this new provision will be huge on the profitability of hospitality sector companies.

Banking

The budget impact on the banking sector has been manifold. Capitalisation of public sector banks, Reserve Bank of India (RBI) to permit new private sector banks, conversion of some non-banking financial companies (NBFCs) into banks, debt wavier and debt relief scheme for farmers, and extension of deadline for repayment of loans by six more months from December 31, 2009 to June 30, 2010.

The government has proposed to provide Rs 16,500 crores to public sector banks to ensure they can attain a minimum eight percent Tier-I capital by March 31, 2011. Capitalisation of public sector banks and regional rural banks will make them stronger by increasing their capital base. Last but not the least, the reduction of government borrowings by approximately Rs 50,000 crores will avoid crowding out private investments. All these provisions are targeted at increasing the private sector credit growth.

Infrastructure

The increased budgetary allocation for roads and rural infrastructure will give additional opportunities for construction service providers and infrastructure developers. The budget has reiterated the plan of constructing 20 km of roads a day to improve the connectivity to rural areas. The budget has also tied up funding for these projects via tax deductions on investments in infrastructure bonds.

This budgetary push should bring this sector back into focus in the stock markets. Overall, the budget is positive for construction service providers and neutral for infrastructure developers due to the increase in MAT to 18 percent.

Cement industry

The cement industry, especially asbestos cement manufacturers, could benefit from the rural housing impetus in the budget. Acceleration in urban housing and construction, and other infrastructure-related activity under the Jawaharlal Nehru National Urban Renewal Mission (JNNURM) and National Rural Employment Guarantee Act (NREGA) will revive demand for various cement products, which is experiencing excellent demand from the rural markets.

The hike in excise duty on cement products is negative for the industry but this can be overwhelmed by improved demand from the greater thrust on infrastructure and rural sectors. Hence, investors should track the good stocks in the sector.

Power

Budget 2010-11 has met one of the key demands of the sector - extension of excise duty exemption on supplies made to mega power projects irrespective of type of bidding. Thermal power plants with a generation capacity of over 1,000 MW and hydel power plants with a capacity of more than 500 MW are defined as mega power projects.