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.