Budge

t-
Budge Friday, February 26,
t 2010
Analys
is
Union Budget 2010-11: Deft balancing of
fiscal deficit, with surprise on personal
tax front

The Union Budget 2010-11 has to be

lauded for no major negative surprises
and deft balancing of fiscal deficit and
major positive surprise on the personal
tax front. In line with market
expectations, the general rate of excise
duties have been hiked from 8% to 10%,
but contrary to fears, there was no
change in service tax rates. Also, like in
the previous years, there is attempt to
increase service tax net, by bringing
another 8 services into service tax net.
In a major positive for the banking
sector, RBI is considering giving some
additional banking licenses to private
sector players. The Finance Minister
clearly indicated that Non Banking
Financial companies could also be
considered, if they meet the RBI's
eligibility criteria. In addition, the
reduction in fiscal deficit by 7.9% to Rs
3.81 trillion for FY 2010-11 (Budgeted)
from Rs 4.14 trillion in FY 2009-10
(Revised) augurs well for the banking
sector, as yields may not rise citing
higher government borrowings. The
Central Government would cut its Debt-
GDP ratio marginally from 51.5% at end
March 2010 to 51.1% at end March 2011,
as against Thirteenth Finance
Commission's recommendation of 45% at
March 2015.
The lower fiscal deficit is sought to be
achieved by primarily factoring in (a) Rs
40000 crore of divestment flows for FY
2010-11 (b) Rs 37726 crore increase in
other non tax revenue to Rs 74571 crore
in FY 2010-11. This primarily would be
factoring in Rs 35000 crore of 3G auction
revenues. On 25th February 2010, the
government indicated that the notice
inviting applications for 3G auctions was
given on 25th February 2010, with last
date of submission of application being
19th March 2010, and pre qualification of
bidders will be done on 30th March 2010.
Also, 3G auctions will start on 9th April
2010 and BWA auctions of 3G auctions
will start two days after the close of 3G
auctions. So, the 3G-auction money will
be available to the government in April
2010 itself, which is factored in the
budget estimates.
Hike in General rate of excise duty from
8% to 10%, coupled with spike in the
customs duty and excise duty on
petroleum products will fan inflation.
Nevertheless, fiscal consolidation was
seen of paramount importance, and
hence the likely inflationary tendencies
have been taken with a pinch of salt.
The major beneficiary of the Union
Budget 2010-11 is the individuals and
HUF, due to substantial reduction in the
personal income tax rates. Though there
has been no change in the basic
exemption limit of Rs 1.6 lakh, the
subsequent two slabs have been revised
benevolently. Hitherto, the income tax
was 10% for income between Rs 1.6 lakh
to Rs 3.00 lakh. 20% for income between
Rs 3.00 lakh and Rs 5.00 lakh and 30%
for income above Rs 5.00 lakh. Now, the
slabs have been revised with 10%
income tax for income between Rs 1.6
lakh and Rs 5.00 lakh, 20% for income
between Rs 5.00 lakh and Rs 8.00 lakh,
and 30% for income above Rs 8 lakh. On
an average, there will be savings in tax
liability of Rs 50000/- for a person
earning Rs 10 lakh (excluding the impact
of 80 C deductions etc). In addition, the
finance minister has also provided
additional deduction for investment in
long term infrastructure bonds notified by
the Central Government to the extent of
Rs 20000 per annum, which will be in
addition to Rs 1 lakh U/s 80 C for select
payments and investments.
Outlook
While deftly managing the fiscal deficit,
and giving largesse on personal income
tax front, the budget has fuelled inflation
through hike in excise duties and
increase in fuel prices. So, while India
may well increase the pace of growth in
GDP, it appears that double-digit inflation
may elongate for a longer period than
without these fiscal stimulus withdrawal
measures. Perhaps, it appears
government wants higher growth at the
cost of high and rising inflation. So, rich
will get richer, while poor will get poorer,
and middle class will not crib as higher
costs will be largely compensated by
lower income tax incidence. This is
despite the fact that 25% of the plan
allocations have been devoted to the
development of rural infrastructure!
Union Budget 2010-11: Government
Fisc at a Glance
200 FY
2009 2009 2010 Chan
Paramet 8- 2010
- - - ges
ers 200 -11
2010 2010 2011 in
9 Vs
FY FY
Act
BE RE BE 2009 2009
uals
-10# -10
1. -
540 6144 5772 6822 18.1
Revenue 6.05
259 97 94 12 741
Receipts 422

2. Tax -
443 4742 4651 5340 14.8
Revenue 1.92
319 18 03 94 3349
(net to C 211
entre)
-
3. Non 969 1402 1121 1481 32.0
20.0
-tax 40 79 91 18 2307
23
Revenue
4.
Capital -
343 4063 4442 4265 9.33
Receipts 3.98
697 41 53 37 0095
(5+6+7) 782
$
5. Rec
613 0.68 20.5
overies 4225 4254 5129
9 6391 6888
of
Loans

6. Oth 2595 4000 2217 54.0

566 1120
er 8 0 .679 9508
Receipts

7. Borr -
336 4009 4140 3814 3.25
owings 7.88
992 96 41 08 315
and 159
other

Liabilities
*
8.
Total 883 1020 1021 1108 0.06 8.53
Receipts 956 838 547 749 9453 6269
(1+4)$
9.
Non-plan 608 6956 7063 7356 1.53 4.14
Expendit 721 89 71 57 5456 598
ure
10. On
559 6188 6419 6435 3.73 0.25
Revenue
024 34 44 99 4443 7811
Account
of

which,
11.
-
Interest 192 2255 2195 2486 13.2
2.66
Payment 204 11 00 64 8656
55
s
12.
-
On 496 7685 6442 9250 43.5
16.1
Capital 97 5 7 8 8576
707
Account
13.
-
Plan 275 3251 3151 3730 18.3
3.06
Expendit 235 49 76 92 7576
721
ure
14.
-
On 234 2783 2644 3151 19.1
5.02
Revenue 774 98 11 25 7999
41
Account
15. 404 4675 5076 5796 8.58 14.1
On 61 1 5 7 5913 8694
Capital
Account
16.
Total
883 1020 1021 1108 0.06 8.53
Expendit
956 838 547 749 9453 6269
ure
(9+13)
17.
Revenue 793 8972 9063 9587 1.01 5.77
Expendit 798 32 55 24 6794 7979
ure

(10+14)
18.
-
Capital 901 1236 1151 1500 30.2
6.80
Expendit 58 06 92 25 3908
711
ure

(12+15)
19.
-
Revenue 253 2827 3290 2765 16.3
15.9
Deficit 539 35 61 12 8495
694
(17-1)
Revenue 4.5 4.8 5.3 4.0
Deficit as
a % of
GDP
20.
Fiscal
-
Deficit 336 4009 4140 3814 3.25
7.88
{16- 992 96 41 08 315
159
(1+5+6)
}
Fiscal
Deficit as
6.0 6.8 6.7 5.5
a % of
GDP
21.
Primary 144 1754 1945 1327
Deficit 788 85 41 44
(20-11)
Primary
Deficit as
2.6 3.0 3.2 1.9
a % of
GDP