Budget Analysis 09

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UNION BUDGET 2009-10

Impact Analysis



UNION BUDGET 2009-10: Impact Analysis

CONTENTS

BUDGET AT A GLANCE ............................................................................................ 1

UNION BUDGET 2009-10 : A MACROECONOMIC PERSPECTIVE ........................ 2 - 3

SECTORAL IMPACT ........................................................................................... 4 - 24

CHANGE IN CENTRAL PLAN OUTLAY ..................................................................... 25

RECEIPTS ........................................................................................................ 26 - 27

EXPENDITURE ................................................................................................ 28 - 29

KEY ECONOMIC INDICATORS (Absolute Values) ................................................... 30

KEY ECONOMIC INDICATORS (Percentage Change Over Previous Year) ...............31




1

BUDGET AT A GLANCE

(Rs bn) 2008-09 2009-10

Revised Esmates Budget Esmates

1 Revenue Receipts 5,621.73 6,144.97

2) Tax Revenue 4,659.70 4,742.18

(net to centre)

3) Non-Tax Revenue 962.03 1,402.79

4 Capital Receipts (5+6+7)$ 3,387.80 4,063.41

5) Recoveries of loans 96.98 42.25

6) Other receipts 25.67 11.20

7) Borrowings and other liabilies * 3,265.15 4,009.96

8 Total Receipts (1+4)$ 9,009.53 10,208.38

9 Non-Plan Expenditure 6,179.96 6,956.89

10) On Revenue Account of which 5,617.90 6,188.34

11) Interest Payments 1,926.94 2,255.11

12) On Capital Account 562.06 768.55

13 Plan Expenditure 2,829.57 3,251.49

14) On Revenue Account 2,416.56 2,783.98

15) On Capital Account 413.01 467.51

16 Total Expenditure (9+13) 9,009.53 10,208.38

17) Revenue Expenditure (10+14) 8,034.46 8,972.32

18) Capital Expenditure (12+15) 975.07 1,236.06

19 Revenue Decit (17-1) 2,412.73 2,827.35

% of GDP (4.4) (4.8)

20 Fiscal Decit {16-(1+5+6)} 3,265.15 4,009.96

% of GDP (6.0) (6.8)

21 Primary Decit (20-11) 1,338.21 1,754.85

% of GDP (2.5) (3.0)

$ Does not include receipts in respect of Market Stabilisaon Scheme.

* Includes draw-down of Cash Balance.

Note : GDP for BE 2009-2010 has been projected at Rs.5856569 crore assuming 10.05% growth

over the revised esmates of 2008-2009 (Rs.5321753 crore) released by CSO. Decit indicators in

RE 2008-09 have been retained on the basis of advance esmate for 2008-09 (Rs. 5426277 crore).




2

UNION BUDGET 2009-10 : A MACROECONOMIC PERSPECTIVE

The Union Budget 2009 -10 is largely posive, and seems to be an ‘aspiraonal’ budget in terms

of what it seeks to achieve over a long term horizon. The connued thrust on agriculture, social

sector and infrastructure would support the economy to get back on the revival path soon.

The smulus related proposals in the budget will however place a huge burden on the Centre’s

already strained scal posion. Having said that, the Government does not have too much room

to maneuver and perhaps, living with a high scal decit may be inevitable for the me being.

Fiscal Arithmec for FY10

For FY10, total expenditure is budgeted to increase by 36% to a record Rs 10,208 bn. Plan

expenditure received a major boost in the Budget, reinforcing the Government’s commitmenttowards accelerang the growth process. At Rs 3,251 bn, the Plan expenditure has been increased

by 34%. 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 68% of the total expenditure. The

increase in non-Plan expenditure is mainly on account of implementaon of the Sixth Central

Pay Commission recommendaons and higher subsidies (budgeted to grow at 55.8%). Signicant

increase in Government borrowing has exerted pressure on interest payments and are budgeted

to increase by 18.2%.

Revenue collecon targets of the Government are fairly moderate with total receipts likely togrow by 36% during FY10. The gross tax revenue targets for FY10 are set in consonance with

the slowdown in the economic acvity. The gross tax revenue receipts are budgeted to decline

by 6.8% owing to a projected decline in income tax, customs and excise duty collecons. 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 Decit has been budgeted to increase to 6.8% of GDP and Revenue Decit to 4.8%

of GDP, deferring the aainment of the FRBM targets with respect to both. However, intenons

towards structural changes in direct taxes by releasing the new Direct Taxes Code within the

next 45 days and in indirect taxes by accelerang the process for the smooth introducon of

the Goods and Services Tax (GST) with eect from April 1, 2010 are welcome. Of course, these

measures would have been even more welcome if a specic road map for containing the scal

decit had been laid out for the medium term. As economic revival sets in, and the high scal

decit becomes a potenal boleneck, 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 scal decit remain.




3

The posives contained in this budget will become most apparent over the longer term, and

that is where it scores the most – provided the intent and aspiraon is met. While disinvestment

could have found greater arculaon, there seems to be a posive movement in that direcon.

The large number of measures proposed with regard to instuonal, procedural and regulatory

reform in such diverse areas as petrol prices, taxaon and growth inclusiveness will unlock much

of the economic growth potenal. As the FM indicated, one budget speech will not solve all our

problems! Hence, we may see some policy measures announced as o-budget iniaves.




4

SECTORAL IMPACT

Sector Rang

Agriculture Posive

Social Sector Posive +

Infrastructure Posive +

MSME Posive

Automobiles Marginally Posive

Capital and Engineering Goods Neutral

Cement Posive

Oil & Gas Posive

Power Posive

Petrochemicals Neutral

Pharmaceucals & Healthcare Posive

Consumer Goods Marginally Posive

Leather Posive

Gems & Jewellery Neutral

Texles Neutral

Banking and Finance Posive

Hospitality Marginally Posive

Media and Entertainment Neutral

Informaon Technology Posive

Retail Posive

Rangs:

Posive + Predominantly posive proposals

Posive Posive proposals

Marginally Posive Posive proposals but not up to industry expectaons

Neutral Negave proposals oseng posive proposals




5

Agriculture

The total outlay allocated to agriculture sector is to be increased by 5.51% to Rs 106.29 bn.ÿ

The target for agriculture credit ow for the year FY10 is being set at Rs 3,250 bn.ÿ

An addional allocaon of Rs 10 bn over Interim Budget Esmates for the Acceleratedÿ

Irrigaon Benet Programme (AIBP), marking an increase of 75% over the allocaon in FY09

(Budget Esmates).

The allocaon for the Rashtriya Krishi Vikas Yojna (RKVY) to be increased by 30% over Budgetÿ

Esmates of FY09.

An allocaon of Rs 11 bn for Naonal Horculture Mission.ÿ

An allocaon of Rs 13.50 bn for Naonal Food Security Mission.ÿ

An allocaon of Rs 9.50 bn for Macro Management in Agriculture.ÿ

An allocaon of Rs 4.30 bn for Micro Irrigaon.ÿ

An allocaon of Rs 6.44 bn for Naonal Agricultural Insurance Scheme.ÿ

An allocaon of Rs 3.20 bn for Integrated Oilseeds, Oil Palm, Pulses & Maize Development.ÿ

Proposal to connue the interest subvenon scheme for short term crop loans to farmers forÿ

loans upto Rs 0.3 mn per farmer at the interest rate of 7% per annum. Further, an addional

subvenon of 1% is proposed as an incenve to those farmers who repay their short term

crop loans on schedule. An addional Budget provision of Rs 4.11 bn over Interim BE to be

made for the scheme.

Under the Agricultural Debt Waiver and Debt Relief Scheme (2008), farmers having moreÿ

than two hectares of land were given me upto June 30, 2009 to pay 75% of their overdues.

Proposal to extend this period by six months upto December 31, 2009.

To ensure balanced applicaon of ferlizers, the Government intends to move towards aÿ

nutrient based subsidy regime instead of the current product pricing regime.

In some regions of Maharashtra, a large number of farmers had taken loans from privateÿ

money lenders and the loan waiver scheme did not cover them. Hence, there is a proposal

to set up a Taskforce to examine the maer in greater detail and suggest the future course

of acon.

An allocaon of Rs 750 mn as a Special package for farming populaon in 31 suicide proneÿ

districts.

An allocaon of Rs 15.84 bn for Agricultural Research and Educaon.ÿ

An allocaon of Rs 2.52 bn for World Bank Aided Naonal Agricultural Innovaon Project.ÿ




6

Posive

The strong focus of the budget on the irrigaon sector reiterates the Government’s commitment

to boost the overall agriculture growth in India. Moreover, the substanal increase in the target for farm credit to Rs 3,250 bn coupled with increased allocaon for Krishi Vikas Yojana and an

allocaon for agriculture research & development are some of the key measures intended to

promote growth in agriculture sector. The proposal to move towards a nutrient based subsidy

regime for ferlizers instead of current product pricing regime is commendable and is expected

to result in availability of innovave ferlizer products in the market at reasonable prices. While

the extension of period for payment of overdues under Agricultural Debt Waiver and Debt Relief

Scheme (2008) and a Special package for farming populaon in 31 suicide prone districts augurs

well for debt-ridden farmers, the addional subvenon of 1% on short-term crop loans is expected

to encourage farmers to repay their crop loans on schedule, in turn leading to improvement in

banks’ loan recovery.




7

Social Sector

Human Resource Development and Social Jusce

An allocaon of Rs 67.05 bn for Integrated Child Development Services.ÿ

An allocaon of Rs 600 mn for Integrated Child Protecon Scheme.ÿ

An allocaon of Rs 391 bn for FY10 for NREGA which marks an increase of 144% over FY09ÿ

Budget Esmates.

An allocaon of Rs 1 bn for Pradhan Mantri Adarsh Gram Yojana (PMAGY). Each villageÿ

would be able to avail gap funding of Rs 1 mn over and above the allocaons under Rural

Development and Poverty Alleviaon Schemes.

The Swarna Jayan Gram Swarozgar Yojna (SGSY) is being restructured as the Naonal Ruralÿ

Livelihood Mission to make it universal in applicaon, focused in approach and me bound

for poverty eradicaon by 2014-15.

Stress to be laid on the formaon of women Self Help Groups (SHGs).ÿ

Apart from providing capital subsidy at an enhanced rate, it is also proposed to provideÿ

interest subsidy to poor households for loans upto Rs 0.1 mn from banks.

The corpus of the Rashtriya Mahila Kosh to be raised to Rs 5 bn, over the next few years fromÿ

Rs 1 bn at present.

Proposal to launch a Naonal Mission for Female Literacy, with focus on minories, SC, STÿ

and other marginalised groups.

To enable students from economically weaker secons to access higher educaon, it isÿ

proposed to introduce a scheme to provide them full interest subsidy during the period of

moratorium. It will cover loans taken by such students from scheduled banks to pursue any

of the approved courses of study, in technical and professional streams, from recognised

instuons in India.

The Plan outlay of Ministry of Minority Aairs to be enhanced from Rs 10 bn in BE FY09 to Rsÿ

17.40 bn in FY10, registering an increase of 74%. This includes an allocaon of Rs 9.90 bn for

Mul-Sectoral Development Programme for Minories in selected minority concentraon

districts, almost two mes increase in Grants-in-aid for Maulana Azad Educaon Foundaon,

and provisions for Naonal Minories Development and Finance Corporaon and Pre-Matric

and Post-Matric Scholarships for Minories. Further, allocaons to be made for the new

schemes of Naonal Fellowship for Students from the Minority Community and Grants-in-

aid to Central Wakf Council for computerizaon of records of State Wakf Boards.

An allocaon of Rs 250 mn each for Aligarh Muslim University’s campuses at Murshidabad inÿ

West Bengal and Malappuram in Kerala.




8

There is a proposal to launch a new project for modernisaon of the Employment Exchangesÿ

in public private partnership. Under the project, a naonal web portal with common soware

to be developed which will contain all the data regarding availability of skilled persons on the

one hand and requirements of skilled persons by the industry on the other.

An allocaon of Rs 450 mn for computerisaon of PDS operaons in all States/Unionÿ

Territories.

An allocaon of Rs 1 bn for Rajiv Gandhi Naonal Creche Scheme.ÿ

An allocaon of Rs 1.10 bn for Rajiv Gandhi Scheme for Empowerment of Adolescent Girls.ÿ

An allocaon of Rs 590 mn for Relief to and Rehabilitaon of Rape Vicms.ÿ

An allocaon of Rs 4.80 bn towards Special Central Assistance for Scheduled Castes Componentÿ

Plan.

An allocaon of Rs 7.50 bn and Rs 2.73 bn for Post Matric Scholarships for SC and ST studentsÿ

respecvely.






10

Health & Sanitaon

The allocaon for the Naonal Rural Health Mission to be increased by Rs 20.57 bn over andÿ

above Rs 120.70 bn provided in the Interim Budget.

An allocaon of Rs 12 bn for Total Sanitaon Campaign.ÿ

An allocaon of Rs 3.50 bn for Rashtriya Swasthya Bima Yojana (RSBY).ÿ

Customs duty on inuenza vaccine and nine specied life saving drugs used for the treatment of ÿ

breast cancer, hepas-B, rheumac arthris etc. and on bulk drugs used for the manufacture

of such drugs to be reduced to 5% from 10%. There is a proposal to fully exempt these drugs

from excise duty and countervailing duty.

Customs duty on two specied life saving devices used in treatment of heart condions to beÿ

reduced to 5% from 7.5%. There is a proposal to fully exempt these devices from excise duty

and countervailing duty.

Regional Development

An allocaon of Rs 600 mn for North Eastern Development Finance Corporaon.ÿ

Posive +

The social sector that has received almost 24.95% of the total plan outlay of the central Government

remains a key focus area for the Union Budget FY10. The allocaon for rural development which

is proposed to be increased by almost 131% (as against FY09 BE) to Rs 438.5 bn point towards

the Government’s commitment for providing further impetus to the sector. The increase in

budgetary allocaon for various employment generaon and poverty alleviaon programmes

is expected to increase the purchasing power in the hands of rural poor. On the educaon front,

the implementaon of various schemes with greater allocaon will help to enhance spread of

educaon especially among the weaker secons of the society. Further, the provision for new IITs

and NITs in the budgetary allocaon and an increase in allocaon for seng up and up-gradaonof Polytechnics under the Skill Development Mission is expected to provide llip to the higher

educaon sector.

Nonetheless, public health & sanitaon sectors which together have received allocaon of mere

3.24% of total central plan outlays, needs to receive greater aenon as it would go a long way

in improving sanitaon facilies in the country.




11

Infrastructure

Increase infrastructure investment to more than 9% of GDP by FY14.ÿ

Greater exibility is to be provided to the India Infrastructure Finance Company Limitedÿ

(IIFCL) to fulll its mandate.

IIFCL would, in consultaon with banks, evolve a ‘takeout nancing’ scheme which couldÿ

facilitate incremental lending to the infrastructure sector.

The Central and State Governments have been urged to remove policy, regulatory andÿ

instuonal bolenecks for speedy implementaon of infrastructure projects.

Highways and Railways

The allocaon during the current year to Naonal Highways Authority of India (NHAI) for theÿ

Naonal Highways Development Programme (NHDP) stepped up by 23% over the FY09 (BE).

Allocaon for Railways increased from Rs 108 bn made in the Interim Budget for FY10 to Rsÿ

158 bn.

Rural InfrastructureThe allocaons for Bharat Nirman increased by 45% to about Rs 453.56 bn in FY10 over theÿ

BE of FY09.

The allocaon for Pradhan Mantri Gram Sadak Yojana (PMGSY) increased by 59% over BEÿ

FY09 to Rs 120 bn.

The allocaon for the Indira Awaas Yojana (IAY) is proposed to be increased by 63% to Rs 88ÿ

bn in Budget Esmates FY10.

An allocaon of Rs 20 bn for Rural Housing Fund in the Naonal Housing Bank (NHB).ÿ

An allocaon of Rs 80 bn for supplemenng the States in their eort to provide safe drinkingÿ

water to all rural habitaons.

An allocaon of Rs 1 bn for Stand-alone Water Puricaon Systems in rural schools.ÿ




12

Urban Infrastructure

The allocaon for the Jawaharlal Nehru Naonal Urban Renewal Mission (JNNURM) proposedÿ

to be stepped up by 87% to Rs 128.87 bn.

The allocaon for housing and provision of basic amenies to urban poor enhanced to Rsÿ

39.73 bn. This includes the provision for Rajiv Awas Yojana (RAY), a new scheme announced

intended to make the country slum free in the ve year period.

Brihan Mumbai Storm Water Drainage Project (BRIMSTOWA)

The allocaon for the Brihan Mumbai Storm Water Drainage Project (BRIMSTOWA) enhancedÿ

from Rs 2 bn in Interim BE to Rs 5 bn to expedite the compleon of the project.

Posive+

Overall the infrastructure sector is likely to benet greatly from the Union Budget FY10. Steps

such as greater exibility provided to the India Infrastructure Finance Company Limited (IIFCL)

and evolving a ‘takeout nancing’ scheme are likely to boost investment in infrastructure

sector signicantly. Further, removal of procedural bolenecks for speedy implementaon of

infrastructure projects will ensure mely availability of funds. The increased allocaon for NHDP

programme and railways is expected to provide impetus to transportaon sector. Moreover, a

signicant increase in allocaon for APDRP and RGGVY schemes point towards the Government’s

eorts to sasfy the ever rising demand for electricity in the country.

The greater allocaon for the Jawaharlal Nehru Naonal Urban Renewal Mission (JNNURM) and

the introducon of Rajiv Awas Yojana (RAY) intended to make the country slum free in the 5 year

period are likely to play a pivotal role in urban infrastructure development. The Union Budget lays

emphasis on the development of rural infrastructure as is evident from the greater allocaon for

various schemes for housing, irrigaon and sanitaon.




13

Industry

Micro, Small and Medium Enterprises (MSMEs)

The Government has proposed a fund of Rs 40 bn in the form of a special fund to be providedÿ

to Small Industries Development Bank (SIDBI) out of Rural Infrastructure Development Fund

(RIDF)

Posive

The provision of a special fund to the SIDBI is likely to help the MSMEs receive increased ow

of credit at reasonable rates. The increased allocaon would provide incenves to the Banks

and State Finance Corporaons (SFCs) to easily extend credit to the rms by renancing 50% of

incremental lending to MSMEs during FY10. The MSMEs have been severely hit by the decline

in demand, both on domesc as well as export front. Moreover, credit crunch has le the SMEs

unable to nance their working capital. The addional allocaon would provide them the much

needed respite.

Automobiles

Specic component of excise duty applicable on large cars and mul-ulity vehicles withÿ

engine capacity of 2,000 cc and above is to be reduced from Rs 20,000 per vehicle to Rs

15,000 per vehicle

Excise duty on petrol-driven trucks and lorries is to be reduced from 20% to 8%. Excise dutyÿ

on chassis of such trucks and lorries is to be reduced from 20% plus Rs 10,000 to 8% plus Rs

10,000

Marginally Posive

The reducon in addional excise duty on large cars and mul-ulity vehicles is expected to have

a negligible impact on boosng demand for such vehicles. The focus on infrastructure is expected

to indirectly give a boost to demand for commercial goods carriers and is expected to be a long-

term demand driver for passenger cars.

Passenger Vehicles

The reducon in addional excise duty on large cars and ulity vehicles is expected to have

negligible impact on boosng demand as the customer segment for this category of vehicles is

not price-sensive.

Commercial Vehicles (CV)

The 12-percentage point reducon in excise duty on petrol-driven trucks and lorries is expected tohave negligible impact on demand as majority of the trucks in the country run on diesel engines.




14

Nevertheless, the CV industry is expected to benet indirectly from certain other budgetary

announcements. Increased allocaon to the infrastructure and road sectors is expected to have a

long-term posive impact on providing a boost to demand for such vehicles.

Two & three-wheelers

There were no specic announcements made for this sector. However, the focus on rural areas is

likely to have a posive impact on boosng demand for two-wheelers.

Auto Components

Since only a negligible proporon of trucks run on non-diesel engines, the reducon in excise duty

on chassis of petrol-driven trucks and lorries is expected to have neutral impact on pushing up

demand for petrol-driven trucks/lorries, and thereby for their auto components.

Capital goods and Engineering

Concessional customs duty of 5% on specied machinery for tea, coee and rubber plantaonsÿ

to be reintroduced for one year.

Customs duty on ‘mechanical harvester’ for coee plantaon to be reduced from 7.5% toÿ

5%.

Neutral

Government announced reducon in customs duty on import of specied machinery for tea, coee

and rubber plantaons. This is expected to boost the tea, coee and rubber plantaon industry.

Apart from this, budget emphasis on several infrastructure and rural development projects

with increased fund allocaon and defence expenditure will provide boost to capital goods and

engineering industry in FY10.

CementCustoms duty exempon on concrete batching plants of capacity 50 cubic meter per hour orÿ

more has been withdrawn. Such plants will now aract customs duty of 7.5%

Posive

The increase in customs duty on concrete batching plants would aect construcon companies;

however the impact of the same on the cement industry would be minimal. Increased allocaon

for various infrastructure segments, such as for the Naonal Highway Development Programme

(NHDP) through NHAI, Bharat Nirman, Pradhan Mantri Gram Sadak Yojana, Jawaharlal NehruNaonal Urban Renewal Mission (JNNURM), Accelerated Power Development and Reform




15

Programme (APDRP), Rajiv Gandhi Grameen Vidyukaran Yojana (RGGVY), Accelerated Irrigaon

Benet Programme (AIBP) augurs well for the cement industry. The infrastructure sector would

also benet from the decision to allow IIFCL to renance 60% of commercial bank loans for PPP

projects in crical sectors. The infrastructure sector is one of the major consumer segments of

cement.

Oil and Gas

Government to set up an expert group to advice on a viable and sustainable system of pricingÿ

petroleum products.

Government proposes to develop a blueprint for long distance gas highways leading to aÿ

Naonal Gas Grid, which would facilitate transportaon of gas across the length and breadthof the country. LNG infrastructure in the country is also being expanded.

Outlay for Assam Gas Cracker Project sanconed in April 2006 to be stepped up suitably inÿ

budget esmates for FY10.

Tax holiday under secon 80-IB(9) of the Income Tax Act which was hitherto available inÿ

respect of prots arising from the commercial producon or rening of mineral oil to be

extended to natural gas. This tax benet to be available to undertakings in respect of prots

derived from the commercial producon of mineral oil and natural gas from oil and gas blocks,

which are awarded under the NELP-VIII round of bidding.

Investment linked tax incenves to be provided instead of prot-linked exempons toÿ

the business of laying and operang cross-country natural gas or crude or petroleum oil

pipeline network for distribuon on common carrier principle. Under this method, all capital

expenditure, other than expenditure on land, goodwill and nancial instruments, to be fully

allowable as deducon.

The ad valorem component of excise duty of 6% on petrol and diesel intended for sale with aÿ

brand name to be converted into a specic excise duty. Petrol intended for sale with a brand

name would now aract an excise duty of Rs 14.50 per litre instead of ‘6% + Rs 13 per litre,

while diesel intended for sale with a brand name would now aract a total excise duty of Rs4.75 per litre instead of ‘6% + Rs 3.25 per litre’.

Customs duty on bio-diesel to be reduced from 7.5% to 2.5%.ÿ

Duty paid High Speed Diesel blended with upto 20% bio-diesel to be fully exempted fromÿ

excise dues.

Excise duty on Special Boiling Point spirits has been reduced to 14%.ÿ

Excise duty on naphtha has been reduced to 14%.ÿ




16

Posive

Seng up the expert group for pricing of petroleum products would denitely aid the sector,

however for now uncertainty on the pricing and subsidy front would connue as no meframe for seng up the panel has been indicated. Oil exploraon and producon (E&P) companies would

benet with the extension of benets under secon 80 IB (9) of Income Tax act.

Power

Allocaon under Accelerated Power Development and Reform Programme (APDRP) increasedÿ

by 160% to Rs 20.80 bn in budget esmates for FY10 over FY09.

Allocaon under the Rajiv Gandhi Grameen Vidyukaran Yojana (RGGVY) increased by 27%ÿ

to Rs.70 bn.

Extension of benets under secon 80IA extended by1-year ll March 31, 2011 for powerÿ

generaon, distribuon and transmission projects that are commissioned by March 31,

2011.

Excise duty on naphtha to be reduced to 14%.ÿ

Customs duty on permanent magnets for PM synchronous generator above 500 KW used inÿ

wind operated electricity generators to be reduced from 7.5% to 5%.

Posive

The increased allocaon under the APDRP and RGGVY schemes are major posives for the sector.

This could help in strengthening the distribuon sector as also rural electricaon. Power companies

using naphtha as feedstock would benet from the reducon in excise duty on naphtha.

The power sector would also gain from the decision to allow IIFCL to renance 60% of commercial

bank loans for PPP projects in crical projects and the extension of tax benets under secon 80-

IA by 1-year.

Petrochemicals

The excise duty on naphtha to be reduced to 14%.ÿ

There is no change in the excise duty (4% currently) on the paraxylene.ÿ

Excise duty on acrylonitrile to be increased from 4% to 8%.ÿ

Excise duty on PTA and DMT to be increased from 4% to 8%.ÿ

Customs duty on rock phosphate to be reduced from 5% to 2%.ÿ






18

Consumer Goods

Basic customs duty on LCD panels to be reduced from 10% to 5%.ÿ

Exempon from countervailing duty (CVD) of 4% to accessories, parts and componentsÿ

imported for the manufacturing of mobile phones extended for another year.

Marginally Posive

The Government has proposed to reduce the customs duty on LCD panels to 5% from previous 10%

in order to ease import of the same. This would help the indigenous producon of LCD televisions.

Moreover, this may also lead to the reducon in prices of LCD televisions to the benet of the

consumers.

The Government’s move to extend exempon of CVD on imports of accessories, parts and

components for mobile phones ll next year will be benecial if the manufacturers pass on the

benets to the consumers.

The dual impact of an increase in the personal income tax exempon limit by Rs 10,000 for women

and all other categories of tax payers along with removal of 10% surcharge on personal income tax

may bring marginal increase in net wages to the employees. But the impact of the government’s

proposals is not expected to be reected largely in the demand for consumer goods.

Leather

List of specied raw materials and equipment imported by manufacturer-exporters of leatherÿ

goods, which are fully exempt from customs duty to be expanded.

The Government has iniated measures to ensure that social security schemes for occupaonsÿ

including leather workers, in the unorganised sector, are implemented at the earliest. The

Government has also proposed to make necessary nancial allocaons for the schemes.

Posive

The government has proposed some measures for the beerment of leather exports. A few more

items have been included in exempon of customs duty which will provide a boost for leather

exports and manufacturing. The extension of interest subvenon of 2% on pre-shipment credit

beyond the current deadline of September 30, 2009 to March 31, 2010 for leather exports will

posively impact the sector.

Leather industry which largely constute of SMEs will be beneted by the step taken by the

government for facilitang the ow of credit at reasonable rates to SIDBI. The government

iniaon of social security schemes for leather workers will be benecial for the leather industry

in a medium to long term period.




19

Gems and Jewellery

Branded gold and silver jewellery to be exempt from excise dutyÿ

Rough corals to be exempt from customs dutyÿ

Customs duty on gold bars (other than tola bars) and gold coins to be increased from Rs 100ÿ

per 10 gram to Rs 200 per 10 gram

The customs duty on other forms of gold used for jewellery to be increased from Rs 250 perÿ

10 gram to Rs 500 per 10 grams

The customs duty on silver to be increased from Rs 500 per kilogram to Rs 1,000 perÿ

kilogram

Neutral

Budget announcements have not addressed the issues of the gems and jewellery industry which

has been adversely impacted by the nancial crisis. Increase in customs duty on gold and silver

is expected to have an adverse eect on the cost of manufacturing of jewellery. Exempon

of custom duty on rough corals is expected to boost exports of the same. On the other hand,

reducon in excise duty on branded jewellery could boost demand if the benet is passed on

to the customers. However, this reducon is not likely to oset the eect of increase in customs

duty on gold and silver. Connuaon of interest subvenon of 2% by 6 months and extension of

adjustment assistance scheme ll March 2010 will help the industry to boost exports in the short term.

Texles

Five mega clusters to be set up, these include West Bengal and Tamil Nadu for handlooms;ÿ

Rajasthan for powerloom; and Srinagar and Mirzapur for carpets.

The excise duty on manmade bre and yarn to be increased to 8% from 4%ÿ

The excise duty on PTA and DMT to be increased to 8% from 4%ÿ

The excise duty on polyester chips to be increased to 8% from 4%ÿ

Restoraon of scheme of oponal excise duty of 4% on pure coonÿ

The excise duty on manmade and natural bres (other than pure coon) beyond bre andÿ

yarn stage to be increased to 8% from 4%

Suitable adjustments to be made in duty rates applicable to DTA clearances of texle productsÿ

made by Export Oriented Units manufactured using indigenous raw materials/inputs

The customs duty on coon waste to be reduced to 10% from 15%ÿ

The customs duty on wool waste to be reduced to 10% from 15%ÿ




20

Neutral

Budget announcements have not met the expectaons of the Indian Texle Industry. Ailing under

the global economic crisis, texle players had expected substanal measures to facilitate exportsand raonalisaon of tax structure. However, the budget proposes increase in excise dues on

manmade bres and yarns, which is expected to adversely aect the synthec texle players.

One of the posive announcements for the texle sector relates to reducon in customs duty

of coon waste and wool waste by 5 percentage points. This will facilitate growth of SMEs

manufacturing blankets, carpets and rugs. The proposals to add mega handloom, powerloom

and carpet cluster would help on generang addional employment in the sector. Increased

allocaon to the Market Development Assistance (MDA) scheme by 148% and connuaon of

interest subvenon of 2% ll March 2010 is expected to help the texle exporters in tapping new

markets.




21

Services

Banking and Finance

Banking

Public Sector Enterprises such as banks and insurance companies will remain in the public sectorÿ

and will be given full support including capital infusion to grow and remain compeve.

Agricultural and rural nance

Agriculture credit ow target for FY10 was set at Rs 3250 bn. In FY09 agriculture creditÿ

ow was at Rs 2870 bn.

Connuaon of interest subvenon scheme for short term crop loans up to Rs 0.3 mn perÿfarmer at the interest rate of 7% per annum. Addional subvenon of 1% was announced,

as incenve to the farmers who repay short term crop loans on schedule, bringing down

the rate for such farmers to 6%. An addional allocaon of Rs 4.11 bn over Interim budget

esmates was made for this purpose.

Under Debt Waiver and Debt Relief Scheme, me given to farmers to pay 75% of theirÿ

overdues was extended by six months- from June 30, 2009 to December 31, 2009.

Allocaon of Rs 20 bn was made for Rural Housing Fund (RHF) in Naonal Housingÿ

Bank (NHB) to boost the resource base of NHB for renance operaons in rural housing

sector.

Infrastructure nance

IIFCL to renance 60% of commercial bank loans for Public Private Partnership (PPP)ÿ

projects in crical sectors over the next een to eighteen months.

Export nance

Interest subvenon of 2% on pre-shipment credit for seven employment oriented exportÿ

sectors was extended beyond the current deadline of September 30, 2009 to March 31,2010.

SME nance

To facilitate ow of credit at reasonable rates, Rs 40 bn was provided as special fund outÿ

of Rural Infrastructure Development Fund (RIDF) to Small Industries Development Bank

of India (SIDBI). This would incenvise Banks and State Finance Corporaons (SFCs) to

lend to Micro and Small Enterprises (MSEs) by renancing 50% of incremental lending to

MSEs during FY10.




22

Financial inclusion iniaves and loans to weaker secons

A sub-commiee of State Level Bankers Commiee (SLBC) will idenfy and formulate anÿ

acon plan for providing banking facilies in under-banked or unbanked areas in the next

three years. Rs 1 bn has been set aside as one-me grant in-aid to ensure provision of

at least one centre or Point of Sales (POS) for banking services in each of the unbanked

blocks

The budget aims at enrolling at least 50% of all rural women in India as members of SHGsÿ

over the next ve years and links these SHGs to banks

Interest subsidy to poor households to be provided for loans upto Rs 1 hundred thousandÿ

from banks

A scheme for economically weaker secons was announced, to provide full interest subsidyÿ

during the period of moratorium introduced to cover loans taken from scheduled banks

to pursue any of the approved courses of study in technical and professional streams

from recognized instuons in India.

Financial sector

The threshold for non promoter public shareholding for all listed companies to be raised in aÿ

phased manner

The Commodies Transacon Tax was abolished.ÿ

Posive

The overall impact of the budget on the banking and nance sector was posive, though not up

to the expectaons of the industry. The budget specied that public sector banks would remain in

the public sector. The government reiterated its commitment towards providing capital support

to banks to retain growth and compeveness.

Observing that the industry has made signicant strides towards nancial inclusion in the past

few years, the budget made ambious plans with respect to nancial inclusion in the next threeyears. The addion to the Debt Waiver and Debt Relief Scheme connued, with the increase in

the me allowance to repay 75% of the debt. The scheme also inuenced the introducon of an

interest subvenon for farmers repaying loans on me.

Most of the announcements made in the budget were aimed at increasing the credit ow to needy

sectors, and not at directly facilitang the banking industry. The abolion of the Commodies

Transacon Tax will be benecial for the traders trading on commodity exchanges.




23

Hospitality

Allocaon for Commonwealth games increased from Rs. 21.12 bn in the interim budget to Rsÿ

34.72 bn in the budget for FY10

Budgetary outlay for the Naonal River and Lake Conservaon Plans was raised to Rs 5.62 bnÿ

in FY10 from Rs 3.35 bn in FY09.

Marginally Posive

No signicant announcements were made impacng the hospitality industry. The hotel industry,

which had received a 5-year tax holiday for seng up hotels and convenon centers in the

Naonal Capital Region would marginally benet from the increase in budgetary allocaons for

the Commonwealth Games scheduled to be held in Delhi in 2010. Improvement in connecvity through roads is likely to have marginally posive impact on the sector.

Media & Entertainment

Print media smulus package extended by six months ll December 31, 2009ÿ

Basic Customs Duty of 5% on Set Top boxesÿ

Neutral

The extension of smulus package for print media will help the industry migate the risk arising

out of the global crisis and is expected to provide a boost to the sector. The imposion of basic

customs duty of 5% on Set Top Boxes will help to facilitate the growth of set top box manufacturers

as it is intended to encourage domesc value addion. However it is expected that it will make Set

Top Boxes costlier for the consumers.

Informaon Technology

The excise and countervailing duty on packaged soware to be exempt on the value consideredÿ

for transfer of the right to use the soware

The excise duty on recorded smart cards and recorded proximity cards and tags to be madeÿ

oponal

Posive

Excise and CVD exempon on packged soware is expected to boost sales and check. The

Indian IT industry is expected to be indirectly beneted from various government projects like

modernisaon of the employment exchanges and Unique Idencaon Authority of India’s

plans of seng up of online databases with identy and biometric details of Indian residents.




24

Implementaons of these programs will lead to a wide usage of Internet besides providing a huge

business opportunity within India (especially in mes of economic slowdown) to both IT soware

as well as IT hardware industry. Budget announcements have also proposed the seng up of

an alternave dispute resoluon mechanism within the Income Tex Department to eecvely

address tax issues faced by foreign companies in a short span of me. This move will boost foreign

investment in the sector/country.

Budget announcements have also earmarked an amount of Rs 9 bn for “Mission in Educaon

through ICT” and Rs 21.13 bn for IITs and NITs. These moves will assist in the creaon of quality

talent pool that is in line with global IT standards and will ease the industry’s “knowledge-pool”

scarcity.

Retail

Branded jewellery fully exempt from excise dutyÿ

IT exempon limit increased by Rs 15,000 for senior cizens and by Rs 10,000 for otherÿ

categories

Posive

The excise exempon on branded arcles in jewellery is likely to boost organised jewellery

retailing.

The increase in exempon limit of personal income tax by Rs.15,000 for senior cizens; by Rs

10,000 for all other categories of individual taxpayers will increase personal disposable income of

consumers which is likely to increase consumer spending; a posive sign for the retail sector.




25

CHANGE IN CENTRAL PLAN OUTLAY

(Rs bn) 2008-09 2009-10 % Change

Revised Esmates Budget Esmates

Min. of Rural Development 751.54 807.7 7.5

Min. of Petroleum and Natural Gas 575.35 575.01 -0.1

Min. of Power 363.07 531.26 46.3

Railways 359.99 395.45 9.9

Min. of Human Resource Development 313.01 364 16.3

Ministry of Shipping* 29.87 50.99 70.7

Ministry of Road Transport and Highways* 171.5 204.5 19.2

Min. of Communicaons and Informaon Technology 220.72 196.38 -11.0

Min. of Health and Family Welfare 164.75 195.34 18.6

Min. of Civil Aviaon 74.9 121.65 62.4

Min. of Agriculture 95.68 100.6 5.1

Min. of Women and Child Development 68.5 73.5 7.3

Min. of Coal 55.26 56.74 2.7

Department of Atomic Energy 60.86 62.77 3.1

Min. of Urban Development 73.58 52.84 -28.2Min. of Finance 27.41 29.02 5.9

Min. of Texles 40.92 45 10.0

Min. of Social Jusce and Empowerment 24 25 4.2

Min. of Commerce and Industry 20.67 25.6 23.9

Min. of Mines 19.58 16.48 -15.8

Min. of Micro, Small and Medium Enterprises 17.85 18.64 4.4

Min. of Environment and Forests 15 18.8 25.3

Min. of Minority Aairs 6.5 17.4 167.7

Min. of Labour and Employment 8.18 9 10.0

Min. of Informaon and Broadcasng 6 8 33.3

Min. of External Aairs 4.5 6.29 39.8

Min. of Food Processing Industries 2.42 3.4 40.5

* In Budget 2008-09 this was a Department under the Ministry of Road Transport and Highways.




26

RECEIPTS

(Rs bn) 2008-09 Revised Esmates 2009-10 Budget Esmates

A. REVENUE RECEIPTS

1. Tax Revenue

Gross Tax Revenue 6,279.49 6,410.79

Union Excise Dues 1,083.59 1,064.77

Customs 1,080.00 980.00

Corporaon Tax 2,220.00 2,567.25

Income Tax 1,226.00 1,128.50

Service Tax 650.00 650.00

Taxes of the Union Territories 15.90 16.02

Other Taxes and Dues 4.00 4.25

Less NCCD transferred to the Naonal

Calamity Conngency Fund18.00 25.00

Less States’ Share 1,601.79 1,643.61

Net Tax Revenue 4,659.70 4,742.18

2. Non-Tax Revenue

Interest Receipts 190.36 191.74

Dividend and Prots 397.36 497.50

External Grants 27.48 21.36

Other non-tax revenue 339.34 684.65

Receipts of Union Territories 7.49 7.54

Total Non-tax Revenue 962.03 1,402.79

Total Revenue Receipts 5,621.73 6,144.97




27

RECEIPTS (Contd...)

(Rs bn) 2008-09 Revised Esmates 2009-10 Budget Esmates

B. CAPITAL RECEIPTS*

Non-debt Receipts

Recoveries of loans & advances@ 96.98 42.25

Miscellaneous capital receipts 25.67 11.20

Total 122.65 53.45

Debt Receipts to nance Fiscal Decit

Market Loans 2,619.72 3,979.57

Short term borrowings 575.00 -

External Assistance (Net) 96.03 160.47

Securies issued against Small Savings 13.24 132.56

State Provident Funds (Net) 48.00 50.00

Other Receipts (Net) -386.68 -312.64

Total 2,965.31 4,009.96

Total Capital Receipts (A+B) 3,087.96 4,063.41

Draw-Down of Cash Balance 299.84 -

TOTAL RECEIPTS 9,009.53 10,208.38

Financing of Fiscal Decit (2+Draw-Downof Cash Balance)

3,265.15 4,009.96

Receipts under MSS (Net) -817.81 -387.73

@excludes recoveries of short-term loans

and advances from States and loans to

Government servants, etc.

14.95 14.95

*The receipts are net of repayments.




28

EXPENDITURE

(Rs bn) 2008-09

Revised Esmates

2009-10

Budget Esmates

1. NON-PLAN EXPENDITURE

A. Revenue Expenditure

1 Interest Payments and Prepayment Premium 1,926.94 2,255.11

2 Defence 736.00 868.79

3 Subsidies 1,292.43 1,112.76

4 Grants to State and U.T.# Governments 384.21 485.70

5 Pensions 326.90 349.80

6 Police 207.11 253.90

7 Assistance to States from Naonal Calamity Conngecy

Fund (NCCF)

32.65 25.00

8 Economic Services (Agriculture, Industry, Power,

Transport, Communicaons, Science & Technology, etc.)

220.55 238.40

9 Other General Services (Organs of State, tax collecon,

external aairs, etc.)

158.98 187.29

10 Social Services (Educaon, Health, Broadcasng, etc.) 281.26 334.91

11 Postal Decit 38.25 53.95

12 Expenditure of U.T. without Legislature 30.92 31.62

13 Amount met from NCCF -32.65 -25.00

14 Grants to Foreign Govts. 14.35 16.11

Total Revenue Non-Plan Expenditure 5,617.90 6,188.34

B. Capital Expenditure

1 Defence 410.00 548.24

2 Other Non-Plan Capital Outlay 136.94 210.56

3 Loans to Public Enterprises 7.88 6.37

4 Loans to State and U.T. Governments 0.89 0.89

5 Loans to Foreign Governments 8.15 1.25

6 Others -1.80 1.24

Total Capital Non-Plan Expenditure 562.06 768.55

Total Non-Plan Expenditure 6,179.96 6,956.89

Note: Securies issued in the rst and second

Supplementary Demands for grants 2007-08 in lieu of

subsidies.

(i) Oil Markeng Companies 759.42 103.06

(ii) Ferlizer Companies 200.00 …




29

EXPENDITURE (Contd...)

(Rs bn) 2008-09

Revised Esmates

2009-10

Budget Esmates

2. PLAN EXPENDITURE

A. Revenue Expenditure

1 Central Plan 1,716.33 2,002.90

2 Central Assistance for States & Union Territory Plans 700.23 781.08

State Plan 681.99 743.62

Union Territory Plan 18.24 37.46

Total Revenue Plan Expenditure 2,416.56 2,783.98

B. Capital Expenditure

1 Central Plan 324.95 395.50

2 Central Assistance for State & Union Territory Plans 88.06 72.01

State Plan 71.09 57.05

Union Territory Plan 16.97 14.96

Total Capital Plan Expenditure 413.01 467.51

Total-Plan Expenditure 2,829.57 3,251.49

Total Budget Support for Central Plan 2,041.28 2,398.40

Total Central Assistance for State & UT Plans 788.29 853.09

TOTAL EXPENDITURE* 9,009.53 10,208.38

DEBT SERVICING

1 Repayment of Debt** 3,373.16 3,428.91

2 Total Interest Payments 1,926.94 2,255.11

3 Total Debt Servicing (1+2) 5,300.10 5,684.02

4 Revenue Receipts 5,621.73 6,144.97

5 Pecentage of 2 to 4 34.30% 36.70%

Footnotes

# U.T. implies Union Territories

* Excludes expenditure matched by receipts (Details in Annex-2 to Expenditure Budget, Volume-1, 2008-2009)

** Excludes discharge of 91 days, 182 days & 14 days intermediate Treasury bills, discharge of Ways & Means

Advances including Overdra, income and expenditure of Naonal Small Savings Fund (NSSF), investments of NSSF, Reserve Funds and Deposits not bearing interest and suspense transacons. Discharge under MSS met from

the sequestered cash balancesis not included.




30

KEY ECONOMIC INDICATORS

(Absolute Values)

2006-07 2007-08 2008-09

Gross Domesc Product at factor cost (Rs bn)

At current prices 37,793.84 43208.92Q 49331.83R

At 1999-00 prices 28,711.20 31297.17Q 33393.74R

Output (mn tonnes)

Foodgrains 217.3 230.8 229.9d

Electricity generaon (bn kWh) 663 704 724

(Ulies only)

Prices

Wholesale Price Indexe (All commodies) 206.2 215.8 234.0

CPI-IWf 125 133 145

External Sector (US$ mn)

Imports 185749.0 251439.0 287759

Exports 126361.0 162904.0 168704

Current Account Balance (US$ mn) -9565 -17034 (PR) -36469

Foreign Direct Investment (US$ mn) 7,693 15,401 (PR) 17,496

Monetary and Finance

Money Supply (M3) (Rs bn)h 33,159.93 40,175.73 47,584.04

Foreign Currency Assets (US$ mn)h 191,924 299,230 241426

Exchange rate (Rs/US$) 42.25 40.26 45.99

Q-Quick est.; R-Revised est.; d- 3rd Advance Esmates; PR - Parally Revised

e-Index (with base 1993-94 = 100) at the end of scal year; f-Index (with base 2001 = 100) at the end of the scal

year; h- Outstanding at the end of nancial year.

Source: RBI, CSO, Economic Survey, 2008-09




KEY ECONOMIC INDICATORS

(Percentage Change Over Previous Year)

(%) 2006-07 2007-08 2008-09

Gross Domesc Product at factor cost

At current prices 15.1 14.3Q 14.2R

At 1999-00 prices 9.7 9.0Q 6.7R

Sectoral Growth Rates at Constant (1999-200) prices

Agriculture & allied 4.0 4.9 1.6

Industry 11.0 8.1 3.9

Services 11.2 10.9 9.7

Prices

Wholesale Price Indexe (All commodies) 5.4 4.7 8.4

CPI-IWf 6.7 6.2 9.1

External Sector

Imports 24.5 35.4 14.4 (P)a

Exports 22.6 28.9 3.6 (P)a

Foreign Direct Investment 153.6 100.2 13.6

Monetary and Finance

Money Supply (M3)h 21.5 21.2 18.4

Foreign Currency Assetsh 32.3 55.9 -19.3

Exchange raten (Rs/US$) 4.6 4.7 -14.2

Q-Quick est.; R-Revised est.; d- 3rd Advance Esmates

e-Index (with base 1993-94 = 100) at the end of scal year; f-Index (with base 2001 = 100) at the end of the scal

year; (P)a - Growth rate on provisional over revised basis and based on Department of Commerce methodology; h-

Outstanding at the end of nancial year; n-Percent change indicates the rate of appreciaon (+)/depreciaon (-) of the Rupee vis-a-vis the US Dollar.

Source: RBI, CSO, Economic Survey, 2008-09

Documents

Budget Analysis 09