union budget report 2010-11

8/6/2019 Union Budget Report 2010-11

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26th February 2010

2nd Floor, Parijat House, Manjrekar Lane, 1076, Off Dr. E. Moses Road,

Acharya Atre Chowk, Near Worli Naka, Worli, Mumbai - 400018

Union Budget Repor t2010-11

UnionBudget Report2010-11


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Union Budget Highlights 2010-11 Please see the disclaimer on the last page Private Circulation only 2

Union Finance Minister Mr. Pranab Mukherjee came out with a growth focusing FY10-

11 budget stressing government's role as an enabler. With focus on achieving the

9% GDP growth coupled with objectives to reduce inflation, the Finance minister has

laid down a road map to cut the Fiscal Deficit to permissible limits. Resonating the

comprehensive development philosophy, FY10-11 budget has covered everything

from impetus for Agricultural growth to Fiscal consolidation to Financial Inclusion to

Improving Investment Environment. Encouraged by recovery in Economy, although

on back of the Fiscal Stimulus, the Finance Minister is looking forward to quickly

revert to high GDP growth path of 9% and then find the means to cross the 'double

digit growth barrier'.

With economic recovery in sight, FY10-11 budget looks forward to implement a calibrated

exit strategy from expansionary fiscal stance in line with Thirteenth Finance

Commission's recommendations. In process of fiscal consolidation, the Government

would target an explicit reduction in its domestic debt- GDP ratio. In line with the same,

the Finance Minister would come up with a status paper giving a detailed analysis of the

situation and the road map of the curtailing the overall public debt in six months followed

by the annual report on the same. The Finance Minister informed the house that in his

endeavour to simplify the tax system, he has almost completed the process for Direct

Tax code and exuberated confidence of implementing it by April 1, 2011 while is engaged

with the Empowered Committee to finalize the structure of GST as well as modalities of

its expeditious implementation.

In order to bridge the fiscal gap, Government has set a target to raise more than Rs

25,000 Cr. from disinvestment which has been the target for FY09-10. A Nutrient based

subsidy policy as announced in Budget 2009 will be effective from April 1, 2010. This

policy is expected to promote balanced fertilization through new fortified products and

focus on extension services by fertilizer Industry leading to increase in agricultural

productivity and better returns to farmers. In order to strengthen the banking sector,

Budget FY11 looks forward to make a provision of Rs 16,500 Cr. to ensure 8% Tier- I

capital for PSB and RRB's. In addition, it was informed that RBI is considering allotment

of banking licenses to few private players and NBFC's.

Budget FY10-11 has laid down four pronged strategy to promote inclusive agricultural

growth to enhance rural economy and sustain food security. It covers (a) agricultural

production (b) reduction in wastage of produce (c) credit support to farmers and (d) a

thrust on the food processing sector. To ensure strong push to Agricultural sector,

allocations have been increased to Rs 3,75,000 Cr. from Rs 3,25,000 Cr. provided last

year.

Infrastructure development has cornered 45% of the total plan allocation amounting to

Rs 1,73,552 Cr. It includes allocation of Rs 19,894 Cr (Up by 13% (YoY)) for road

transport and Rs 16,752 Cr (Rise of 6% (YoY)). Allocation for Power sector has beenmore than doubled to Rs 5,130 Cr while 61% hike to Rs 1,000 Cr. has been proposed

for Jawaharlal Nehru National Solar Mission.

Resonating the comprehensive

development philosophy, FY10-11

budget has covered everything

from impetus for Agricultural

growth to Fiscal consolidation to

Financial Inclusion to Improving

Investment Environment.

With economic recovery in sight,FY10-11 budget looks forward to

implement a calibrated exit

strategy from expansionary fiscal

stance in line with Thirteenth

Finance Commission's

recommendations.

In order to bridge the fiscal gap,

Government has set a target to raise

more than Rs 25,000 Cr. from

disinvestment which has been the

target for FY09-10.

Budget FY10-11 has laid down four

pronged strategy to promote

inclusive agricultural growth to

enhance rural economy and

sustain food security.

Infrastructure development has

cornered 45% of the total planallocation amounting to Rs

1,73,552 Cr.

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Allocation for school education has

been increased by 16% to Rs.

31036 Cr. while that for Ministry of

Health & Family Welfare has beenincreased by 14% to Rs. 22300 Cr.

Rate of Minimum Alternate Tax

(MAT) has been increased to 18%

of book profits from earlier 15%.

The fiscal deficit for FY09-10 has

been 6.9% as per the revised

estimates due to the expansionary

fiscal policies practiced to ensure

the economy comes out unscathed

during global financial crisis.

We believe that the Finance Minister

has struck a balance between

growth, inflation and fiscal

prudence.

Budget 2011 makes an allocation of Rs 1,37,674 Cr. for spending on social sector,

which accounts for 37% of the total plan outlay for FY11.Allocation for school education

has been increased by 16% to Rs. 31,036 Cr. while that for Ministry of Health & Family

Welfare has been increased by 14% to Rs. 22,300 Cr.

Other large flagship programme which continued to attract increased allocation include

Mahatma Gandhi National Rural Employment Guarantee scheme, Rural infrastructure

under Bharat Nirman, Indira Awas Yojana etc.

Budget FY11 has been marked by a partial rollback of the expansionary measures

taken in past. Excise duties on all non-petroleum products have been raised to 10%.

The specific rates of duty applicable to portland cement and cement clinker are also

being adjusted upwards proportionately i.e. from 12% to 14%. Rate of Minimum Alternate

Tax (MAT) has been increased to 18% of book profits from earlier 15%.

The fiscal deficit for FY09-10 has been 6.9% as per the revised estimates due to the

expansionary fiscal policies practiced to ensure that the economy emerges out unscathed

during global financial crisis. The total expenditure proposed in the Budget Estimates

for 2010-11 is Rs.11,08,749 Cr. The fiscal deficit of 5.5 % of GDP in 2010-11 works out

to Rs.3,81,408 Cr. Taking into account the various other financing items for fiscal deficit,

the actual net market borrowing of the Government in 2010-11 would be of the order of

Rs.3,45,010 Cr. The Government has outlined a roadmap of reducing the fiscal deficit

and pegged the rolling targets for fiscal deficit at 4.8% and 4.1% for FY2011-12 and

FY2012-13 respectively.

BUDGET HAS BEEN IN LINE OF EXPECTATIONS OF THE

MARKET:

Markets have given a Thumbs Up to the General Budget put in the house by Finance

minister Mr. Pranab Mukherjee. The partial withdrawl of stimulus was on expected

lines, the projected fiscal deficit figures were not unnerving but the market was surprised

by the borrowing programme which was lower than the expected Rs 3,90,000 Cr. At the

end of the day, Sensex was up by 1.08% at 16429.55 and Nifty closed higher by 1.29%

at 4922.3.

CONCLUSION:We believe that the Finance Minister has struck a balance between growth, inflation and

fiscal prudence. He has laid down a clear path to reduce the fiscal deficit to permissible

limits and the targets seem to be achievable thus encouraging and improving investment

environment. The Finance minister has taken steps to partially roll back the stimulus in

calibrated manner thus reflecting the strength of Indian economy which would be among

the firsts to practice the same in wake of other economies reeling under pressure to

demand more.


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Budget Es t imat es fo r 2011Budget Es t imat es fo r 2011Budget Es t imat es fo r 2011Budget Es t imat es fo r 2011Budget Es t imat es fo r 2011

The Gross Tax Receipts are estimated at Rs.7,46,651 Cr., while the Non Tax Revenue Receipts are estimated at

Rs.1,48,118 Cr. for 2010-11

The total expenditure proposed is Rs.11,08,749 Cr., i.e. an increase of 8.6% over last year.

Fiscal deficit for 2010-11 is estimated at 5.5% of GDP, which works out to Rs.3,81,408 Cr. which was inline with the streetexpectations.

The rolling targets for fiscal deficit are pegged at 4.8% and 4.1% for 2011-12 and 2012-13, respectively.

Government's net borrowing to be Rs.3,81,408 Cr. for 2010-11 as against Rs.4,00,996 Cr.

Fiscal deficit pegged at 6.9% in 2009-10 as against 7.8% (inclusive of oil and fertilizer bonds) in the previous fiscal

following a conscious effort to continue giving cash subsidy for fuel and fertiliser instead of previous practice of bonds.

Non-plan expenditure pegged at Rs.37,392 Cr. and Plan expenditure at Rs.7,35,657 Cr. in budget estimates. 15%

increase in plan expenditure and 6% in non-plan expenditure.

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Government plans to raise Rs.25,000 Cr. from disinvestment of its stake in state-owned firms.

RBI considering some additional banking licenses to private companies, NBFC will also be considered if they meetcriteria.

GST and Direct Tax Code to be introduced by April 2011

The manufacturing sector recorded 18.9% growth in 2009. the highest in past two decades

The Advance Estimates for Gross Domestic Product (GDP) growth for 2009-10 is pegged at 7.2%.

Government intends to make FDI policy user friendly by compiling all guidelines into one document. FDI inflows for Apr-

Dec were at $20.9bn.

Service tax rate is retained at 10% to pave the way forward for GST

Central excise duty on petrol and diesel is raised by Rs.1/litre

Budget A l loca t ionsBudget A l loca t ionsBudget A l loca t ionsBudget A l loca t ionsBudget A l loca t ions

Thrust on growth in infrastructure, power and agriculture in the agenda

Propose to maintain thrust of upgrading infrastructure in rural and urban areas. India Infrastructure Finance Company Ltd

authorized to refinance infrastructure projects.

Government is to provide Rs1,73,552 Cr. for infrastructure

Road transport allocation raised by 13% to Rs.19,894 Cr.

Railways has been provided with Rs.16,752 Cr., which is about Rs.950 Crs more than last year.

Rs.1,270 Cr. provided for slum development programme, marking an increase of 700%.

Allocation towards Bharat Nirman is pegged at Rs.48000 Cr. for FY11

For rural development, Rs.66,100 Cr have been allocated

25% of plan outlay earmarked for rural infrastructure development

Allocation for urban development increased by 75% to Rs.5,400 Cr. in 2010-11.

In view to enhance use of renewable energy resource, Rs.500 Cr. has been allocated for solar and hydro projects. Mega power plant policy modified to lower cost of generation; allocation to power sector more than doubled to Rs.5,130

Cr. in 2010-11.

Allocation towards Defence stands at Rs.1,47,344 Cr in 2010-11 against Rs.1,41,703 Cr. in the previous year. Of this,

capital expenditure would account for Rs.60,000 Cr.

Government is set to provide Rs.16,500 Cr to public sector banks to maintain tier-I capital.

Rs.1900 Cr has been allocated for Unique Identification Authority of India.

Allocation for development of micro and small scale sector raised from Rs.1,794 Cr. to Rs.2,400 Cr

1% interest subvention loan for houses costing up to Rs.20 lakh extended to March 31, 2011.

Indira Awas Yojana scheme's unit cost is raised to Rs.45,000 in plain area and Rs.48,500 in hilly areas.

Plan allocation for health and family welfare has been increased to Rs.22,300 Cr. from Rs.19,534 Cr.

Plan allocation for school education is increased from Rs.26,800 Cr to Rs.31,036 Cr. in 2010-11.

Deficit in foodgrains storage capacity to be met by private sector participation.

Plan allocation for Ministry of Minority Affairs is raised from Rs.1,740 Cr to Rs.2,600 Cr.

Plan outlay for Ministry of Social Justice will be raised by 80 % to Rs.4,500 Cr.

Bank farm loan target is raised to Rs.3.75 trillion for FY11

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Repayment of loan by farmers extended by six months to June 30, 2010 in view of drought and floods in some part of the

country.

Rs.400 Cr. provided to extend the green revolution to the eastern region of the country comprising Bihar, Chattisgarh,

Jharkhand, Eastern UP, West Bengal and Orissa.

Rs.300 Cr. provided to organize 60,000 "pulses and oil seed villages" in rain-fed areas during 2010-11 and provide an

integrated intervention for water harvesting, watershed management and soil health, to enhance the productivity of thedry land farming areas.

Allocation for National Rural Employment Guarantee Agreement is stepped up to Rs.40100 Cr. in 2010-11.

Government to extend 2% interest subvention by 1 yr for some export companies

2% export interest subvention for handicraft, SME's

Customs duty on diesel, petrol restored to 7.5%

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In view of launching GST by April 2011, with an outlay of Rs.1,133 Cr. of which the Center's share is Rs.800 Cr, the

Government has provided for automation of Central Excise & Service Tax, (which has already been rolled out throughout

the country this year) along side, a Mission Mode Project for computerization of Commercial Taxes in States has been

approved recently.

The income tax department is to notify SARAL-II form for individual salaried taxpayers for the coming assessment year.

DIRECT TAX ESDIRECT TAX ESDIRECT TAX ESDIRECT TAX ESDIRECT TA XES

Criteria Tax Rate

Income upto Rs 1.6 lakh Nil

Income above Rs 1.6 lakh and upto Rs. 5 lakh 10%

Income above Rs.5 lakh and upto Rs. 8 lakh 20%

Income above Rs. 8 lakh 30%

Additional deduction of Rs.20,000 allowed on long term infrastructure bonds for income tax payers; this is above Rs. 1 lakhon saving instruments allowed already.

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Limits for turnover over which accounts need to be audited enhanced to Rs.60 lakhs for businesses and to Rs.15 lakh

for professions

Current surcharge of 10% on domestic companies reduced to 7.5%

Minimum Alternate Tax (MAT) rate has been increased from the 15% to 18% of book profits

To further encourage R&D across all sectors of the economy, weighted deduction on expenditure incurred on in-house

R&D enhanced from 150%t to 200%.

Payment made to an approved association engaged in research in social sciences or statistical research to be allowed

as a weighted deduction of 125%. The income of such approved research association shall be exempt from tax.

Limit of turnover for the purpose of presumptive taxation of small businesses enhanced to Rs.60 lakhs

Interest charged on tax deducted but not deposited by the specified date to be increased from 12% to 18% per annum.

Proposals on direct taxes estimated to result in a revenue loss of Rs.26000cr for the year

INDIRECT T AXESINDIRECT T AXESINDIRECT T AXESINDIRECT T AXESINDIRECT T AXES Rate reduction in Central Excise duties to be partially rolled back and the standard rate on all non-petroleum products

enhanced from 8% to 10% ad valorem.

The specific rates of duty applicable to portland cement and cement clinker also adjusted upwards proportionately.

Similarly, the ad valorem component of excise duty on large cars, multi-utility vehicles and sports-utility vehicles increased

by 2 percentage points to 22%.

Restore the basic duty of 5% on crude petroleum; 7.5% on diesel and petrol and 10% on other refined products. CentralExcise duty on petrol and diesel enhanced by Re.1 per litre each.

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Some structural changes in the excise duty on cigarettes, cigars and cigarillos to be made coupled with some increase

in rates

Excise duty on all non-smoking tobacco such as scented tobacco, snuff, chewing tobacco etc to be enhanced.

Compounded levy scheme for chewing tobacco and branded non-manufactured tobacco based on the capacity of

pouch packing machines to be introduced.

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To exempt the testing and certification of agricultural seeds from service tax

The transportation by road of cereals, and pulses to be exempted from service tax

Provide full exemption from excise duty to trailers and semi-trailers used in agriculture.

Provide concessional customs duty of 5% to specified agricultural machinery not manufactured in India

Provide full exemption from customs duty to refrigeration units required for the manufacture of refrigerated vans or

trucks

Provide project import status at a concessional customs duty of 5% with full exemption from service tax to the initial

setting up and expansion of

Cold storage, cold room including farm pre-coolers for preservation or storage of agriculture and related sectorsproduce ; and Processing units for such produce

To build the corpus of the National Clean Energy Fund, clean energy cess on coal produced in India at a nominal rate

of Rs.50 per tonne to be levied. This cess will also apply on imported coal.

Provide a concessional customs duty of 5% to machinery, instruments, equipment and appliances etc. required for the

initial setting up of photovoltaic and solar thermal power generating units and also exempt them from Central Excise

duty.

Central Excise duty on LED lights reduced from 8% to 4% at par with Compact Fluorescent Lamps.

To remedy the difficulty faced by manufacturers of electric cars and vehicles in neutralising the duty paid on their inputs

and components, a nominal duty of 4% on such vehicles imposed. Some critical parts or sub-assemblies of such

vehicles exempted from basic customs duty and special additional duty subject to actual user condition. These parts

would also enjoy a concessional CVD of 4%.

Import of compostable polymer exempted from basic customs duty

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Increase in rates on precious metals as follows

On gold and platinum from Rs.200 per 10 grams to Rs.300 per 10 grams

On silver from Rs.1000 per kg to Rs.1500 per kg.

Basic customs on Rhodium - a precious metal used for polishing jewellery reduced to 2%.

Basic customs duty on gold ore and concentrates reduced from 2 % ad valorem to a specific duty of Rs.140 per 10

grams of gold content with full exemption from special additional duty. Further, the excise duty on refined gold made

from such ore or concentrate reduced from 8 % to a specific duty of Rs.280 per 10 grams.

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Rate of tax on services retained at 10 % to pave the way forward for GST

Accredited news agencies which provide news feed online that meet certain criteria, exempted from service tax

Proposals relating to service tax are estimated to result in a net revenue gain of Rs.3,000 Crs. for the year.

Overal l net revenue gain es t imat ed

Taking into account the proposals on direct taxes, it is estimated to result in a revenue loss of Rs.26,000 Cr for the year.

However, the proposals relating to Indirect Taxes is estimated to result in a net revenue gain of Rs.46,500 Cr. for the year.

Subsequently, taking into account the concessions being given in the tax proposals and measures taken to mobilizeadditional resources, the government estimates the overall net revenue gain to be Rs.20,500 Cr. for 2011.


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CENTRAL GOVERNMENT FINANCES

Source: Ministry of Finance, Annual Budget FY2010-11BE - Budgeted Estimate, RE - Revised Estimate

(Rs bn)

FY10BE FY10RE YOY (%) FY11BE YOY (%)

REVENUE RECEIPTS

Tax Revenue

Union Excise Duties 1,064.8 1,020.0 (4.2) 1,320.0 24.0

Customs 980.0 844.8 (13.8) 1,150.0 17.3Corporation Tax 2,567.3 2,550.8 (0.6) 3,013.3 17.4

Income Tax 1,128.5 1,249.9 10.8 1,205.7 6.8

Service Tax 650.0 580.0 (10.8) 680.0 4.6

Taxes of Union Territories 16.0 16.1 0.5 16.5 3.1

Other taxes & duties 4.3 69.4 1,533.6 81.0 1,806.6

Gross Tax Revenue 6,410.8 6,331.0 (1.2) 7,466.5 16.5

Less: NCCD for financing

National Calamity Contigency Fund 25.0 31.6 26.4 35.6 42.4

Less: States' share 1,643.6 1,648.3 0.3 2,090.0 27.2

Centre's Net Tax Revenue [A] 4,742.2 4,651.0 (1.9) 5,340.9 12.6

Non-Tax Revenue

Interest Receipts 191.7 192.1 0.2 192.5 0.4

Dividends & Profits 497.5 519.8 4.5 513.1 3.1

Other Non-Tax Revenue 706.0 399.2 (43.5) 766.3 8.5Non-Tax Revenue of Union Territories 7.5 10.7 42.3 9.3 22.7

Total - Non Tax Revenue [B] 1,402.8 1,121.9 (20.0) 1,481.2 5.6

Total Revenue Receipts [C=A+B] 6,145.0 5,772.9 (6.1) 6,822.1 11.0

CAPITAL RECEIPTS

Recoveries of Loans 42.3 42.5 0.7 51.3 21.4

Misc Capital Receipts 11.2 259.6 2,217.7 400.0 3,471.4

Debt receipts to finance fiscal deficits 4,010.0 4,196.2 4.6 3,814.1 (4.9)

Total Capital Receipts [D] 4,063.4 4,498.3 10.7 4,265.4 5.0

Total Receipts [C+D] 10,208.4 10,271.3 0.6 11,087.5 8.6

NON-PLAN EXPENDITURE

Revenue Expenditure

Interest Payments 2,255.1 2,195.0 (2.7) 2,486.6 10.3Defense 868.8 884.4 1.8 873.4 0.5

Subsidies 1,112.8 1,310.3 17.7 1,162.2 4.4

Grants to State and U.T. Governments 485.7 466.1 (4.0) 460.0 (5.3)

Admin & Social Responsibility 1,466.0 1,563.7 6.7 1,453.7 (0.8)

Total Revenue Non-Plan Expenditure [E] 6,188.3 6,419.4 3.7 6,436.0 4.0

Capital Expenditure

Defense 548.2 478.2 (12.8) 600.0 9.4

Other Non-Plan Capital Outlay 210.6 153.4 (27.2) 310.5 47.5

Loans to Public Enterprises 6.4 6.4 - 5.4 (15.4)

Others 3.4 6.3 85.8 4.7 38.5

Total Capital Non-Plan Expenditure [F] 768.6 644.3 (16.2) 920.6 19.8

Total Non Plan Expenditure [G=E+F] 6,956.9 7,063.7 1.5 7,356.6 5.7

PLAN EXPENDITURERevenue Plan Expenditure

Central Plan 2,002.9 1,878.4 (6.2) 2,308.8 15.3

Central Assistance for State & UT Plans 781.1 765.7 (2.0) 842.4 7.9

Total Revenue Plan Expenditure [H] 2,784.0 2,644.1 (5.0) 3,151.3 13.2

Capital Plan Expenditure

Central Plan 395.5 413.3 4.5 497.2 25.7

Central Assistance for State & UT Plans 72.0 94.4 31.1 82.5 14.5

Total Capital Plan Expenditure [I] 467.5 507.7 8.6 579.7 24.0

Total Plan Expenditure [J=H+I] 3,251.5 3,151.8 (3.1) 3,730.9 14.7

Total Expenditure [G+J] 10,208.4 10,215.5 0.1 11,087.5 8.6

Revenue Deficit [H+E-C] 2,827.4 3,290.6 16.4 2,765.1 (2.2)

% of GDP (4.8) (5.3) (4.0)

Fiscal Deficit 4,010.0 4,140.4 3.3 3,814.1 (4.9)

% of GDP (6.8) (6.7) (5.5)

Primary Deficit 1,754.9 1,945.4 10.9 1,327.4 (24.4)

% of GDP (3.0) (3.2) (1.9)


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ECONOMIC DATA CHARTS

Where the Rupee goes

Fiscal deficit (Rs bn) Revenue deficit (Rs bn)

GDP Growth by constituents (%) Gross domestic savings & capital formation (%)

Source: Government of India, Annual Budget FY2010-11

Where the Rupee comes from

Gross domestic savings & capital formation (%)

Rs.

inBn

Rs.

inBn


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union budget report 2010-11

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