Sunday, February 28, 2010

Indian Budget 2010-11 highlights

1. The budget proposals at a glance. Total Budget is for Rs 11.09 lakh Cr, of which Rs 7.36 lakh Cr has been allocated for non-Plan expenditures and Rs 3.73 lakh Cr towards Plan expenditures.

2. The fiscal deficit is forecast for 5.5% of the GDP (Rs 3,81,408 crore) for 2010-11, down from the revised estimate of 6.7% of GDP (Rs 4,14,041 crore) for 2009-10. This includes all obligations to oil and fertilizer companies, thereby phasing out the off-balance sheet obligations. The actual net borrowing of the government in 2010-11 would be Rs 3,45,010 crore. The revenue deficit is also expected to decline to 4% of GDP from 5.3%. The government has also explicitly declared its commitment to reduce the public debt to GDP ratio to 68% over the next five years, from over 80% now.

The budget proposals hope to lower the deficit through disinvestment proceeds, sale of telecome 3G spectrum, and an overall reform in the expenditure management of the government including subsidies. It has targeted a revenue of Rs 40,000 crore from divestment of PSU shares (against the estimates of Rs 25,000 crore for 2009-10, only Rs 12,660 crore has been raised by dilution of stakes in NHPC, NTPC, and REC) and Rs 35,000 crore from the auction of 3G spectrum (the same was budgeted in 2009-10 also). The 3G auction process is slated to start on April 9 and the spectrum is expected to be available commercially to all the successful bidders from September 1.

3. The total expenditure on food, fuel and fertilizer subsidies in 2010-11 (at Rs 108,666.91 crore) is estimated at over 12% lower than the revised estimates of 2009-10 (at Rs 123,936.26 crore).

Petroleum subsidy (given to state-run oil marketing firms for selling cooking gas to households and kerosene to public distribution system at below cost) is forecast to come down to Rs 3,108 crore from Rs 14,954 crore (original budget estimate for 2009-10 pegged petroleum subsidy at Rs 3,109 crore, although it was finally Rs 14,954 crore). The food subsidy (for running PDS) is estimated to decline marginally to Rs 55,578.18 crore next fiscal from Rs 56,002 crore in 2009-10. Fertiliser subsidy (the actual fertilizer subsidy in 2008-09 was 2.5 times larger than the budgeted Rs 30,986 Cr) is pegged lower at Rs 49,980.73 crore in next fiscal from Rs 52,980.25 crore in 2009-10. Under this subsidy, the government would provide Rs 15,980.73 crore for indigenous (urea) fertilisers, Rs 5,500 crore for imported (urea) fertilisers and Rs 28,500 crore for sale of decontrolled fertilisers (DAP, MOP and complexes) with concession to farmers.

4. Over 46% (Rs 173,552 crore or $37 bn) of the total plan outlay of Rs 373,000 crore for 2010-11 was allocated to the infrastructure sectors, including road, power, railway, ports and airports. This is up from around 30% last year. It includes doubling of allocation for R-APDRP for cutting electricity distribution losses; increased plan outlay for renewables by 61%; increased allocations for roads (Rs 19894 Cr, up 13%) and railways (Rs 16752 Cr) to Rs 36,600 crore, up by Rs 3,300 crore; estimates disbursements by the India Infrastructure Finance Company to touch Rs 9,000 crore by March 2010 and reach around Rs 20,000 crore by March 2011. The take-out financing scheme, where banks sell their loan book from infrastructure companies to IIFCL, announced in the last Budget, was expected to provide funding of Rs 25,000 crore over the next three years.

The boost to infrastructure comes even as the PM's Committee on Infrastructure has estimated the infrastructure investments at $1.5 trillion for the 12th Plan (against $500 bn for 11th Plan). The Planning Commission has reported that though infrastructure investments rose from 4.5% of GDP in 2003-04 to 6% of GDP in 2007-08, it still remains well short of the 11% of GDP of China.

5. The spending on social sector has been hiked to Rs 1,37,674 crore, around 37% of the total Plan outlay in 2010-11, and another 25% of the Plan allocation is proposed to the development of rural infrastructure.

In the three years from 2007-08 to 2010-11, the Plan outlays on the Bharat Nirman scheme would have doubled from Rs 24,600 to Rs 48,000 crore and that on the NREGA would have shot up over threefold from Rs 12,000 to Rs 40,100 crore. Money in the hands of farmers would also be bolstered by the whopping sum of Rs 3,75,000 crore earmarked for agricultural credit this year, up by 66% in just three years.

6. Indirect tax collections, which actually fell Rs 34,368 crore between 2007-08 and 2009-10, are budgeted to increase by nearly 29 per cent in 2010-11 over the Revised Estimates (RE) for this fiscal.

In contrast, direct tax revenues, which did not suffer even in the peak slowdown phase (the RE for 2009-10 has overshot the budgeted number by Rs 10,608 crore), are slated to rise by only 11% in the coming fiscal. Therefore, the share of direct taxes in the Centre's gross tax receipts is estimated to fall to 56.6% from the 60.1%in the RE for 2009-10. The Centre's gross tax-GDP ratio, which hit a peak of 12% in 2007-08 and had declined to 10.3% in the RE for 2009-10, is being projected to recover to 10.8% in 2010-11.

Further, by widening the service tax net, the revenue collections from service tax for 2010-11 have been pegged at Rs 68,000 crore with no increase in rates, up from Rs 58,000 crore in 2009-10.

7. Coinciding with the first year of the implementation of Thirteenth Finance Commission (TFC), transfers to the States (states are entitled to 32% of the Centre's tax income under the TFC award, against 30.5% earlier) from the Central tax pool are expected to increase by about Rs 44,000 crore, from the revised estimate of Rs 1,64,832 crore in 2009-10 to Rs 2,08,997 crore in 2010-11.

8. The Union government lost Rs 5,02,299 crore of potential revenue during 2009-10 on account of various exemptions, rebates and concessions given to individual and corporate tax-payers (subsidies to preferred tax payers). This is nearly 80% of all tax collections in the year and has gone up by nearly 18% over the previous year. Including the export-related subsidies and exemptions worth Rs 37,970 crore, revenue foregone would reach a whopping Rs 5,40,269 crore, or about 86% of actual tax collections.

The corporate sector got concessions in corporate tax worth Rs 79,554 crore, an increase of nearly 20% over the previous year. Taking advantage of various exemptions and rebates, they paid taxes at the rate of 22.78%, substantially lower than the statutory tax rate of 33.66%. Interestingly, public sector companies paid tax at the rate of about 27% while private sector paid at the rate of about 22%. Individual tax-payers could save on I-T to the tune of Rs 36,186 crore, an increase of 8% over last year.

Thanks to the tax benefits to the Software Technology Parks of India (STPI), which are now set to go away in March 2011, the effective tax rates on software firms as a percentage of profits before tax could go up from the average 15-17% now to 26%.

Update 1 (10/3/2010)
Businessline has this graphic about the budgetary shortfalls.

Update 2 (15/3/2010)
And this snapshot of budget subsidies over the years

Update 3 (16/3/2010)
Excellent snapshot (from Business Standard) of infrastructure allocations this budget. On a total Union Budget of Rs 11.09 lakh crore, infrastructure plan outlay forms 16%. Of the Plan expenditure, it forms 46%. This allocation forms 38% of the annual requirement of $100 bn or Rs 4.5 lakh Cr (Planning Commission estimates $500 bn required over the 11th Five Year Plan). 30% is estimated to come from the private sector and PPPs, while state/local governments and off-budget resources are set tocontribute the remaining 32%.

Update 4 (19/3/2010)
The changing shares and absolute values of Plan and non-Plan expenditures over the past five years is shown below


Bhaskar said...

its really good study on tax. This information is useful to me sir.

Halflifept said...

This is good. Thanks a lot!