Budget India 2010-11

On 6th July,2009 when Finance Minister Pranab Mukherjee finished his 2009-10 budget presentation, the stock market had tanked by more than 5%. Even though, given the economic context it was a good budget as reported in my earlier blog of July 8th, 2009. However, this time around when he presented the budget today, the market went up by 1.3%. The general pre-budget opinion was a mixture of caution with fear. People were expecting that the Finance Minister would roll back all the excise duty cuts he made during pre- election as part of the economic stimulus package. But Pranab Mukherjee turned the tables on them by coming with another balanced budget.

He has promised to bring the fiscal deficit from 6.8% of GDP in 2009-10 to 5.5% in 2010-11 and has made a road map to bring it to 4% in the third year. Also, he has promised to implement the direct tax code(DTC) and goods and service tax(GST) by 1/4/2011. He has provided more money to the poor thro' National rural employment guarantee scheme(NREGA).

He has managed to increase the 10% i/tax slab from Rs.3 lakhs to 5 lakhs and similar enhancement for 20% tax slab from Rs.5 to 8 lakhs. This would really help the salaried class. However, he has made no changes in the base exemption limit of Rs.1.6 lakh. With inflation going thro' the roof, one would have expected relief in this as the value of the money has been eroded. The other surprising proposal was to roll back the duty on crude and petroleum products. Also he has enhanced the excise duty on petroleum produts by Re.1. This would increase the petrol rate by Rs.2.7 and Diesel by Rs.2.55. this will have a ripple effect and spiralling inflation. This brought uproar from the opposition who staged a walkout.

My first impression of the budget is the Finance Minister has by and large kept his earlier promise and has looked at the future pragmatically taking India to the 9% GDP growth era. Well done. i would give 7 out of 10 marks.

Budget India 2009-10

As the Finance Minister Pranab Mukherjee rose to present the Budget in Parliament at 11a.m on the 6th of July,2009, the stock market shot up in hope and expectations. 90 minutes later, when he was winding up his Budget speech, the Market fell by more than 5%- the biggest fall ever on a budget day-. An analysis of the Budget would reveal that it is a well balanced budget aiming for growth through increased expenditure and satisfying the social sectors as promised in the UPA's manifesto.

Then why did the market tank? Firstly, the market movement should not be taken as a yardstick to judge the overall budget. Probably a lot of hype was built around this budget by the media stating it to be the "Big Budget" especially after the ease with which the Congress won the Elections.The media made it look that without the "Left party", there was no hurdles left. The Economic survey report which was tabled a couple of days prior to the Budget day did not help matters as it laid out a grand vision for India but without any time frame or road map.

The Budget per se tried to increase domestic demand by putting money in the hands of the rural people and allocating spends on Infrastructure. The NREGA scheme(National rural employment guarantee scheme), abolition of Surcharge in income tax, abolition of the fringe benefit tax etc.. would create wealth in the hands of the people and would increase spending. For the first time, the Budget provides for Rs ten lakh crores(Rs 10 trillion) expenditure. The revenues at Rs six lakh crore(Rs 6 trillion) makes the Fiscal deficit at 6.8% of the GDP( Rs.58 trillion). This obviously is a huge figure which is to be made up by borrowings.

Certain facts emanate out of this deficit. The huge borrowings would push the Bond yields up and the interest rates to harden. With the Government borrowing so much , will it elbow out the private sector borrowings? The growth can never fructify without the private sector participation. The government's stated policy is also to go in for public-private sector partnership(PPP).

It was also praiseworthy that the Finance minister did not take the retrograde step of rolling back the excise duty cuts he unfolded just prior to the elections as part of the economic stimulus package. What was missing was a clear road map for disinvestment in PSU's and the participation of FDI's(Foriegn direct investment) in Banking and Insurance sectors. One is pretty sure the Government would go in for disinvestment to raise the necessary fund but Pranab Mukherjee could have articulated this better.

Of course, the choice before the Finance Minister was to either please the FII's(Foriegn Institutional investors) with deep pockets or the 1.2 billion Indians. The Minister chose the latter and rightly so.