India's Budget Largely Positive - Dun & Bradstreet

An Indian child posing as Lord Krishna speaks over a mobile phone, a sign of India's tryst with economic growth Photograph sourced from google imgaes

The Union Budget 2009 -10 is largely positive, and seems to be an ‘aspirational’ budget in terms of what it seeks to achieve over a long term horizon. The continued thrust on agriculture, social sector and infrastructure would support the economy to get back on the revival path soon.
The stimulus related proposals in the budget will however place a huge burden on the Centre’s already strained fiscal position. Having said that, the Government does not have too much room to maneuver and perhaps, living with a high fiscal deficit may be inevitable for the time being.

Fiscal Arithmetic for FY10
For FY10, total expenditure is budgeted to increase by 36 percent to a record Rs 10,208 bn. Plan expenditure received a major boost in the Budget, reinforcing the Government’s commitment towards accelerating the growth process.

At Rs 3,251 bn, the Plan expenditure has been increased by 34 percent. The non-Plan expenditure is however budgeted to grow at a faster pace; the expenditure
on this front is slated to increase by 37% and account for 68percent of the total expenditure.

The increase in non-Plan expenditure is mainly on account of implementation of the Sixth Central Pay Commission recommendations and higher subsidies (budgeted to grow at 55.8 percent).

Significant increase in Government borrowing has exerted pressure on interest payments and are budgeted to increase by 18.2 percent.

Revenue collection targets of the Government are fairly moderate with total receipts likely to grow by 36 percent during FY10.

The gross tax revenue targets for FY10 are set in consonance with the slowdown in the economic activity. The gross tax revenue receipts are budgeted to decline
by 6.8 percent owing to a projected decline in income tax, customs and excise duty collections.

The
Minimum Alternate Tax is proposed to go up to 15% from the current rate of 10%. On the other hand, the proposed abolishment of the FBT is a welcome move.

For FY10, Fiscal Deficit has been budgeted to increase to 6.8% of GDP and Revenue Deficit to 4.8 percent of GDP, deferring the attainment of the FRBM targets with respect to both.

However, intentions towards structural changes in direct taxes by releasing the new Direct Taxes Code within the next 45 days and in indirect taxes by accelerating the process for the smooth introduction of the Goods and Services Tax (GST) with effect from April 1, 2010 are welcome.

Of course, these measures would have been even more welcome if a specific road map for containing the fiscal deficit had been laid out for the medium term.

As economic revival sets in, and the high fiscal deficit becomes a potential bottleneck, monetary policy may have to be appropriately adjusted to take care of the issues pertaining to fund availability – which in itself may not have too much
room. Hence, over the medium term, concerns over the fiscal deficit remain.

UNION BUDGET 2009-10: Impact Analysis

The positives contained in this budget will become most apparent over the longer term, and that is where it scores the most – provided the intent and aspiration is met.

While disinvestment could have found greater articulation, there seems to be a positive movement in that direction.

The large number of measures proposed with regard to institutional, procedural and regulatory reform in such diverse areas as petrol prices, taxation and growth inclusiveness will unlock much of the economic growth potential.

As the FM indicated, one budget speech will not solve all our problems! Hence, we may see some policy measures announced as off-budget initiatives.

India, Russia Want Change in US Dollar Based Currency System

DO WE TRUST? Photograph sourced from Dollar Art Website

India and Russia believe the global economy is too reliant on the U.S. dollar and have urged to find possible changes to mange the $6.5 trillion currency reserves, ahead of a meeting between Group of Eight leaders later this week.

Bloomberg News writes, “The challenge to the dollar, a linchpin of world finance and trade since 1945, underlines the shift in relative economic power toward emerging markets and away from the developed nations that spawned the global crisis.”

Russian President Dmitry Medvedev said the system based on the dollar and euro have been proved to be flawed in the context of the present global crisis and needs to be changed.

A top Indian economist and adviser to India’s Prime Minister S. Tendulkar on July 3 urged his nation to diversify its foreign holdings away from the dollar.
French Finance Minister Christine Lagarde, has also suggested to explore better coordination of exchange-rate policies without naming flaws with dollar.
Questions need to be asked about “the balance of currencies and the role of currencies in a world that has changed because of the crisis and the growing role of emerging countries,” she said.

Despite all the worries about the dollar’s role, new markets like Indian and China remain dependent on the currency.
The International Monetary Fund said June 30 the share of dollars in allocated global foreign-exchange reserves increased to 65 percent, or $2.6 trillion, in the first three months of this year, the highest since 2007.
The Russian President said there is “no immediate alternative” to the dollar or euro, while proposing development of “regional reserve currencies” to reduce reliance on the US currency.
“We cannot be hostages to the economic situation of a single country, as is happening today with the United States,” he said.
Russia has support. India’s Tendulkar said he is advising Singh to diversify India’s $264.6 billion in foreign-exchange reserves and hold fewer dollars.

India Woos Print Media by Extending Stimulus Package Term; Gives Broadcast Media a Miss

The Photograph sourced from google images shows a man reading Times of India, the country's most read broadsheet.
The Indian print media was relieved on Monday after the finance minister extended a stimulus package offered to the industry by another six months till Dec. 31, 2009.
"Since print media is still passing through difficult times, I have decided to extend the stimulus package for another six months...," Pranab Mukherjee said in his budget speech.
In the interim budget presented in February, Mukherjee offered a stimulus package for the industry which included a waiver of 15 percent agency commission on directorate of advertising and visual publicity (DAVP) advertisements.
The offer also suggested a 10 percent increase in the DAVP rates to be paid as a 'special relief' subject to proof of loss of revenue in non-governmental advertisements.
DAVP is the publicity arm of the Indian government.
Print media across the globe has been affected in the worst economic downturn since the great depression as key clients such as airlines, real estate, auto, and retail players were forced to curtail ad spending as consumer demand slumped.
Interestingly the broadcast media which too is facing a similar downturn was kept out of this benefit. Most Indian broadcaster including NDTV has reduced salaries of employees across board.
In the most drastic step so far newcomer channel INX News has fired 78 of its staff.
The finance minister has abolished fringe benefit taxes, which will also the help entertainment and media sector that incurs significant expenditures previously under fringe tax.

India budget provisions $100 million for displaced Tamil civilians in Sri Lanka conflict

India plans to spend about $100 million for thousands of Tamil civilians displaced by a 20 year-conflict in neighouring Sri Lanka.

More than 400,000 civilians fled their homes in the final stages of Sri Lankan military's offensive against the Liberation Tigers of Tamil Eelam separatist force. The displaced persons are currently being housed in temporary shelters.


'I propose to allocate five billion rupees for the rehabilitation of the internally displaced people and the reconstruction of the northern and eastern areas of Sri Lanka,' Finance Minister Pranab Mukherjee said in his budget speech on Monday.

Analysts said Mukherjee's helping proposal was aimed at appeasing his government's regional Tamil allies. India's Tamil Nadu is the place of origin of millions of Tamil diaspora spread across the world.

INDIAN ECONOMY: A SNAPSHOT

Photograph of gateway of India taken from inside the sea
Following is a snapshot about Indian economy, Asia's third biggest and 12th-ranked in the world.

Population: 1.15 billion

Size (in terms of GDP): $1 trillion

Growth: The government said on Monday economic growth slowed to 6.7 percent in 2008/09 from year-earlier 9.0 percent. It would be the slowest growth in six years.
The budget assumes growth of 8 percent in 2010/11 and of 9 percent in 2010/11.


Exports: India's exports, which form 16 percent of the economy, grew 3.4 percent in the year to March 2009, compared with growth of 23.02 percent in 2007/08.
They fell 29.2 percent in May and fell 33.2 percent in April.

Industrial growth: India's industrial output , which accounts for a quarter of its GDP, grew 2.4 percent in the year to March 2009, compared with 8.5 percent growth the year before.
Output was up 1.4 percent in April.



What to hope for in 2009/10 (as per budget document):
* Fiscal deficit seen at 4.01 trillion rupees, or 6.8 percent of GDP
* Revenue deficit seen at 2.83 trillion rupees, or 4.8 percent of GDP

* Total receipts seen at 10.21 trillion rupees
* Revenue receipts seen at 6.14 trillion rupees
* Capital receipts seen at 4.06 trillion rupees
* Borrowings and other liabilities seen at 4.01 trillion rupees

* Total expenditure seen at 10.21 trillion rupees
* Plan expenditure seen at 3.25 trillion rupees
* Non-plan expenditure seen at 6.96 trillion rupees

Take-home Salaries To Rise; Fringe Tax gone

India's Finance Minister, Pranab Mukherjee proposed to abolish Fringe Benefit Tax on the value of certain fringe benefits provided by employers to their employees, a measure, which may directly benefit salaried employees.

This was announced by Shri Mukherjee, while presenting the Union Budget for the year 2009-10 in Lok Sabha today. He also proposed to extend the sun-set clauses for deduction in respect of export profits under Section 10A and 10B of the Income Tax Act by one more year i.e. for the Financial Year 2010-11.

However, the Finance Minister proposed no changes in the Corporate Tax rates.

Shri Mukherjee stated that the tax exemptions are largely profit link under the present scheme of the Income Tax Act and such incentives are inherently inefficient and liable to misuse.

He, therefore, proposed to incentivise businesses by providing investment linked tax exemptions rather than profit-linked exemptions.

To begin with, the Finance Minister proposed to extend investment linked tax incentives to the businesses of setting up and operating ‘cold chain’ warehousing facilities for storing agricultural produce and business of laying and operating cross country natural gas or crude or petroleum oil pipe line network for distribution on common carrier principal.

Under this method, all capital expenditure, other than expenditure on land, goodwill and financial instruments will be fully allowable as a deduction, he added.

India needs $93 billion to fund budget; financial markets tank

India plans to borrow $93 billion to fund its budget spending to aid the poor and finance road and power infrastructure.

India’s finance minister Pranab Mukherjee unveiled the federal budget for the year 2009/10 ending March 2010 on Monday. The minister said the country’s fiscal deficit may widen to a 16-year high of 6.8 percent of gross domestic product from a revised 6 percent.

Bonds, shares and currency fell as investors were disappointed without major asset sales announcements and concerns a ballooning budget deficit may lead to a credit-rating cut.

Indian shares fell about 6 percent the maximum intraday fall on a budget day after 2001, as the much-hyped budget failed to live up to expectations.

Bloomberg News writes Mukherjee, 73, provided for only 11.2 billion rupees this year from the sale of stakes in state-run companies. Advisors to the finance minister, in a report on July 2, estimated the government could raise as much as 250 billion rupees annually over the next five years from asset sales.

India’s credit rating has worsened in the last few months with agencies Standard & Poor’s and Fitch Ratings placing it at their lowest possible investment grade, while Moody’s have placed the country two levels below investment grade.

None of the agencies have taken an immediate call on credit rating as of now.
Economist Prime Minister Manmohan Singh, however, lauded the budget and ensured the plans aim to bring India back in the 9 percent growth track on a sustained basis.

India GDP growth fell to 6.7 percent in 2008/09 fiscal year ending March 31, down from a three-year-average at near 9 percent.

Mamta 'Didi' put Indian Railway on tracks

Mamata Banerjee, who rose from the status of a little known regional grass-root politician to the positions of a federal minister, after winning the recent national polls, presented her first railway budget on Friday.
The leader, who became famous amongst masses in Bengal and infamous among the industrial community after her agitation forced Tata Motors to shift their world’s cheapest ‘Nano’ car project, promised socially responsible railways in India in her budget speech. Didi, or elder sister, as she’s popularly known, didn’t increase passenger fares in an attempt to woo the 18 million Indians, who travel on 9,000 trains every day. Indian Railway is the world's largest commercial or utility employer, with more than 1.4 million employees and with a revenue of about $20 billion.
(The Cartoon is sourced from google images attributed to Satish Acharya)

MUMBAI'S NEW SEA-LINK

Mumbai, India's financial capital, is attracting big crowd these days with this new sea-link bridge between sub urban Bandra and commercial Worli. The government claims it is the first step to make Mumbai as adorable as Singapore, Shanghai or NewYork. Obviously most of us doubt, nevetheless we also joined the craze, and drove across the 5 km long bridge which took 10 years to build and cost $400 million. The bridge allows free passage till Monday, when the toll officers will charge more than a dollar to cross one side.

Indian Economy Seen Growing at 7.75 pct in 2009/10

The Indian economy may grow between 6.25 percent and 7.75 percent in the financial year ending March 2010, a federal government survey stated on Thursday.
The Economic Survey, a prelude to the annual Union Budget hoped on revival of the domestic economy supported by speedy policy reforms and expected bounce back in the U.S economy.
"If US economy bottoms out by September, there could be possibility for the Indian economy repeating last financial year's performance," the government survey said.

India is Asia's third biggest economy, which grew 6.7 percent in 2008/09, lower than the compound annual average of 8.8 percent in the past five years, analysts said. Finance Minister Pranab Mukherjee will present the Budget on July 6.