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 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)

India inflation slows to a year low on oil price cut

India's wholesale price inflation , fell to a one-year low primarily on the federal government's move to cut fuel prices.
Wholesale prices climbed 4.39 percent in the last week of January from a year earlier after gaining 5.07 percent the previous week, according to government data. Economists expected an increase in the range of 4.4 and 4.5 percent.
India's central bank had intermittently slashed interest rates in the past few months to strengthen and insulate the country's economy against the world's worst financial crisis, since the great depression in the 1930s.
The repurchase rate, which has been cut four times since October, is at 5.5 percent and the reverse repurchase rate is 4 percent.
The $1.2 trillion Indian economy is likely to expand 7.1 percent in the 12 months to March 31, the government said this week.
Prices of crude oil , India's major import, have slided 60 percent in the past oone year as fuel demand global recession has dampened demand. Crude has declined from a record $147.27 a barrel on July 11, 2008.