INDIAN BUDGET 2009 key features

Abhishek Sharma

MBA Marketing PGPM HR

http://indiabudget.nic.in

Government of India

“Democracy is the art and science of mobilizing the

entire physical, economic and spiritual resources of various

sections of the people in the service of the common good of

all.”

Mahatma Gandhi

BUDGET 2009-10

July 6, 2009

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Key Features of Budget 2009-2010

CHALLENGES

! to lead economy to high GDP growth rate of 9 per cent per annum at the earliest

! to deepen and broaden the agenda for inclusive development

! to improve delivery mechanisms of the government.

OVERVIEW OF THE ECONOMY

! Growth rate of Gross Domestic Product dipped from an average of over 9 per cent

in the previous three fiscal years to 6.7 per cent during 2008-09.

! Whole sale price index rose to nearly 13 per cent in August, 2008 and had an

equally sharp fall to zero per cent in March, 2009.

! The structure of India’s economy changed over the last ten years with contribution

of the services sector to GDP at well over 50 per cent and share of merchandise

trade doubling to 38.9 per cent of GDP in 2008-09.

! Recognising economic recovery and growth as co-operative effort of the Central

and State Governments, meeting with Finance Ministers of States held as part of

preparation of the Budget. This is intended to become an annual feature.

TOWARDS ECONOMIC REVIVAL

Short-term Measures

! To counter the negative fallout of the global slowdown on the Indian economy,

Government responded by providing three focused fiscal stimulus packages in the

form of tax relief and increased expenditure on public projects along with RBI

taking a number of monetary easing and liquidity enhancing measures.

! Fiscal accommodation led to an increase in fiscal deficit from 2.7 per cent in

2007-08 to 6.2 per cent of GDP in 2008-09.

! The fiscal stimulus at 3.5 per cent of GDP at current market prices for 2008-09

amounts to Rs.1,86,000 crore.

! Measures taken by the Government were effective in arresting the fall in GDP

growth rate in 2008-09. 6.7 per cent growth rate recorded in 2008-09.

Infrastructure Development

! IIFCL to evolve a Takeout financing scheme in consultation with banks to facilitate

incremental lending to infrastructure sector.

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! IIFCL to refinance 60 per cent of commercial bank loans for PPP projects in critical

sectors over the next fifteen to eighteen months. IIFCL and Banks are now in a

position to support projects involving total investment of Rs.1,00,000 crore.

Highway and Railways

! Allocation to National Highways Authority of India (NHAI) for the National

Highway Development Programme (NHDP) increased by 23 per cent over

B.E. 2008-09 in B.E. 2009-10 and allocation for Railways increased from Rs.10,800

crore in Interim B.E. 2009-10 to Rs.15,800 crore in B.E. 2009-10.

Urban Infrastructure

! Allocation under Jawaharlal Nehru National Urban Renewal Mission (JNNURM)

stepped up by 87 per cent to Rs.12,887 crore in B.E. 2009-10 over B.E. 2008-09.

Allocation for housing and provision of basic amenities to urban poor enhanced to

Rs.3,973 crore in B.E. 2009-10. This includes provision for Rajiv Awas Yojana

(RAY), a new scheme announced.

Brihan Mumbai Storm Water Drainage Project (BRIMSTOWA)

! Provision for the project BRIMSTOWA initiated in 2007 and funded through Central

Assistance to address the problem of flooding in Mumbai, enhanced from Rs.200

crore in Interim B.E. 2009-10 to Rs.500 crore in B.E. 2009-10 to expedite

completion of the project.

Power

! Allocation under Accelerated Power Development and Reform Programme

(APDRP) increased by 160 per cent to Rs.2,080 crore in B.E. 2009-10 over

B.E. 2008-09.

Gas

! Blueprint to be developed for long distance gas pipelines leading to a National Gas

Grid to facilitate transportation of gas across the length and breadth of the country.

Assam Gas Cracker Project

! Outlay for Assam Gas Cracker Project stepped up suitably in B.E. 2009-10.

AGRICULTURE DEVELOPMENT

! Target for agriculture credit flow set at Rs.3,25,000 crore for the year 2009-10.

In 2008-09 agriculture credit flow was at Rs.2,87,000 crore.

! Interest subvention scheme for short term crop loans up to Rs.3 lakh per farmer at

the interest rate of 7 per cent per annum to be continued. Additional subvention of

1 per cent to be paid from this year, as incentive to those farmers who repay short

term crop loans on schedule. Additional allocation of Rs.411 crore over Interim

B.E. 2009-10 made for this.

Debt Relief for Farmers

! Time given to the farmers having more than two hectares of land to pay 75 per cent

of their overdues under Debt Waiver and Debt Relief Scheme extended from 30th

June, 2009 to 31st December, 2009.

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! Taskforce to be set up to examine the issue of debt taken by a large number of

farmers in some regions of Maharashtra from private money lenders who were not

covered by the loan waiver scheme announced last year.

Accelerated Irrigation Benefit Programme

! Allocation under Accelerated Irrigation Benefit Programme (AIBP) increased by

75 per cent over B.E. 2008-09.

! Allocation under Rashtriya Krishi Vikas Yojana (RKVY) stepped up by 30 per

cent in B.E. 2009-10 over B.E. 2008-09.

RESTORING EXPORT GROWTH

! Adjustment assistance scheme to provide enhanced Export Credit and Guarantee

Corporation (ECGC) cover at 95 per cent to badly hit sectors extended upto

March 2010.

! Allocation for Market Development Assistance Scheme enhanced to Rs.124 crore

in B.E. 2009-10.

! Interest subvention of 2 per cent on pre-shipment credit for seven employment

oriented export sectors extended beyond the current deadline of September 30,

2009 to March 31, 2010.

! To facilitate flow of credit at reasonable rates, Rs.4,000 crore provided as special

fund out of Rural Infrastructure Development Fund (RIDF) to Small Industries

Development Bank of India (SIDBI). This will incentivise Banks and State Finance

Corporations (SFCs) to lend to Micro and Small Enterprises (MSEs) by refinancing

50 per cent of incremental lending to MSEs during the current financial year.

! Stimulus package for print media comprising waiver of 15 per cent agency

commission on DAVP advertisements and 10 per cent increase in DAVP rates to be

paid as a special relief subject to documentary proof of loss of revenue in nongovernmental

advertisements, extended from 30th June, 2009 to 31st December, 2009.

MEDIUM-TERM SUSTAINABILITY

! To bring the fiscal deficit under control, institutional reform measures to be initiated

during the current year itself.

Fertilizer Subsidy

! To ensure balanced application of fertilizers for increasing agricultural productivity,

Government intends to move towards a nutrient based subsidy regime so as to

cover larger basket of fertilizers with innovative fertilizer products available in the

market at reasonable prices.

! It is intended to move to a system of direct transfer of subsidy to the farmers in due

course.

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Petroleum and Diesel pricing Policy

! With almost three quarters of our oil consumption met through imports, it is

important to recognise that domestic prices of petrol and diesel are broadly in sync

with global prices. Government to set up an expert group to advise on a viable and

sustainable system of pricing petroleum products.

Taxation

! SARAL – II forms to be introduced early.

People’s ownership of PSUs

! While retaining at least 51 per cent Government equity in Public Sector

Undertakings, people’s participation in disinvestment programmes to be encouraged.

! Public Sector Enterprises such as banks and insurance companies to remain in

public sector and will be given full support including capital infusion to grow and

remain competitive.

Financial Sector

! The threshold for non-promoter public shareholding for all listed companies to be

raised in a phased manner.

! Scheduled commercial banks allowed to set up off-site ATMs without prior approval

subject to reporting.

! A sub-committee of State Level Bankers Committee (SLBC) to identify and

formulate an action plan for providing banking facilities in under-banked/unbanked

areas in the next three years. Rs.100 crore set aside as one-time grant in-aid to

ensure provision of at least one centre/Point of Sales (POS) for banking services in

each of the unbanked blocks.

! Government has established Competition Commission of India, an autonomous

regulatory body. An Appellate body headed by a retired judge of Supreme Court

also constituted.

TOWARDS INCLUSIVE DEVELOPMENT

National Rural Employment Guarantee Scheme (NREGS)

! Allocation under NREGS increased by 144 per cent to Rs.39,100 crore in

B.E. 2009-10 over B.E. 2008-09.

! To increase productivity of assets and resources under NREGA, convergence with

other schemes relating to agriculture, forests, water resources, land resources, rural

roads initiated. In the first stage 115 pilot districts selected for convergence.

National Food Security Act

! National Food Security Act to be brought in to ensure entitlement of 25 kilo of rice

or wheat per month at Rs.3 per kilo to every family living below the poverty line in

rural or urban areas. Food Security Bill to be put on the website of the Department

of Food and Public Distribution for public debate.

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Bharat Nirman

! Allocation for Bharat Nirman increased by 45 per cent in 2009-10 over

B.E. 2008-09. Allocations under Pradhan Mantri Gram Sadak Yojana (PMGSY)

increased by 59 per cent over B.E. 2008-09 to Rs.12,000 crore in B.E. 2009-10.

Under Rajiv Gandhi Grameen Vidyutikaran Yojana (RGGVY), allocation increased

by 27 per cent to Rs.7,000 crore.

! Allocation under Indira Awaas Yojana (IAY) increased by 63 per cent to Rs.8,800

crore in B.E. 2009-10. Allocation of Rs.2,000 crore made for Rural Housing Fund

(RHF) in National Housing Bank (NHB) to boost the resource base of NHB for

refinance operations in rural housing sector.

Pradhan Mantri Adarsh Gram Yojana (PMAGY)

! New scheme Pradhan Mantri Adarsh Gram Yojana (PMAGY) with an allocation

of Rs.100 crore launched on pilot basis for integrated development of 1000 villages

having population of scheduled castes above 50 per cent.

EMPOWERMENT OF WEAKER SECTIONS

! The Swarna Jayanti Gram Swarozgar Yojana (SGSY) restructured as National Rural

Livelihood Mission to make it universal in application, focused in approach and

time bound for poverty eradication by 2014-15. In addition to capital subsidy at

enhanced rate, interest subsidy to poor households to be provided for loans upto

Rs.1 lakh from banks.

! There are over 22 lakh Women’s Self Help Groups linked with banks. Reach of

SHGs to be widened to enrol at least 50 per cent of all rural women in India as

members of SHGs over the next five years.

! Corpus of Rashtriya Mahila Kosh to be increased from Rs.100 crore to Rs.500

crore over the next few years.

Female Literacy

! National Mission for Female Literacy to be launched with focus on minorities, SC,

ST and other marginalized groups with the aim to reduce level of female illiteracy

by half in three years.

Integrated Child Development Services (ICDS)

! All ICD Services to be extended to every child under the age of six by

March, 2012.

Student Loans to Weaker Sections

! To enable students from economically weaker sections to access higher education,

a scheme to provide full interest subsidy 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 recoganised institutions in India.

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Welfare of Minorities

! Plan outlay of Ministry of Minority Affairs enhanced from Rs.1,000 crore in B.E.

2008-09 to Rs.1,740 crore in 2009-10 registering an increase of 74 per cent. This

includes Rs.990 crore for Multi-Sectoral Development Programme for Minorities,

Grants-in-aid to Maulana Azad Education Foundation, National Minorities Development

and Finance Corporation and pre and post matric scholarship for minorities.

! Allocations made for the new schemes of National Fellowship for Students from

minority community and Grants-in-aid to Central Wakf Council for computerization

of records of State Wakf Boards.

! Rs.25 crore each allocated for establishing new campuses at Murshidabad in West

Bengal and Malappuram in Kerala by Aligarh Muslim University.

Welfare of workers in the unorganized sector

! Action initiated to ensure implementation of social security schemes for occupation

like weavers, fishermen and women, toddy tappers, leather and handicraft workers,

plantation labour, construction labour, mine workers, bidi workers and rickshaw

pullers. Necessary financial allocation will be made for these schemes.

Employment Exchanges

! New project for modernization of Employment Exchange in public private

partnership to be launched so that a job seeker can register on line from anywhere

and approach any employment exchange.

Handloom

! One handloom mega cluster each in West Bengal and Tamil Nadu and one

powerloom mega cluster in Rajasthan to be set up. New mega clusters for carpets

to be also set up in Srinagar (J&K) and Mirzapur (UP).

Health

! Allocation under National Rural Health Mission (NRHM) increased by Rs.2,057

crore over Interim B.E. 2009-10 of Rs.12,070 crore.

! All BPL families to be covered under Rashtriya Swasthya Bima Yojana (RSBY).

Allocation under RSBY increased by 40 per cent over previous allocation to Rs.350

crore in B.E. 2009-10.

Environment and climate change

! In furtherance to National Action Plan on Climate Change, eight national missions

representing a multi-pronged long-term and integrated approach to be launched.

! National Ganga River Basin Authority set up. Budgetary allocation under National

River and Lake Conservation Plans increased from Rs.335 crore in B.E. 2008-09

to Rs.562 crore in B.E. 2009-10.

! Special one-time grant of Rs.100 crore given to Indian Council of Forestry Research

and Education, Dehradun.

! Rs.15 crore each to be allocated to Botanical Survey of India and Zoological Survey of

India. An additional amount of Rs.15 crore to be allocated for Geological Survey of India.

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TOWARDS BUILDING ACOUNTABLE INSTITUTIONS

Improving Delivery of Public Services

! Unique Identification Authority of India (UIDAI) to set up online data base with

identity and biometric details of Indian residents and provide enrolment and

verification services across country. Provision of Rs.120 crore made for this in the

Budget.

! First set of unique identity number to be rolled out in 12 to 18 months.

National Security

! Additional amount of Rs.430 crore provided over Interim B.E. 2009-10

to modernise police machinery in the States.

! Additional amount of Rs.2,284 crore proposed over Interim B.E. 2009-10 for

construction of fences, roads, flood lights on the international borders.

! Programme for housing to create 1 lakh dwelling units for Central Para-military

Forces personnel to be launched through innovative financing model.

One Rank One Pension for Ex-servicemen (OROP)

! Based on the recommendation of the Committee headed by the Cabinet Secretary

on OROP, government has decided to substantially improve the pension of pre

01.01.2006 defence pensioners below officer rank and bring pre 10.10.1997

pensioners on par with post 10.10.1997 pensioners. The decisions to be implemented

from 01st July, 2009 and will cost more than Rs.2,100 crore annually.

Education

! Provision for the scheme ‘Mission in Education through ICT’ substantially increased

to Rs.900 crore and the provision for setting up and up-gradation of Polytechnics

under the Skill Development Mission enhanced to Rs.495 crore.

! Rs.827 crore allocated for opening one Central University in each uncovered State.

! Rs.2,113 crore allocated for IITs and NITs which includes a provision of Rs.450

crore for new IITs and NITs.

! The overall Plan budget for higher education is to be increased by Rs.2,000 crore

over Interim B.E. 2009-10.

! Rs.50 crore allocated for Punjab University, Chandigarh. Plan allocation for

Chandigarh to be suitably enhanced during the year to provide better infrastructure

to the people of Chandigarh.

Commonwealth Games, 2010

! Outlays to be stepped up from Rs.2,112 crore in Interim Budget to Rs.3,472 crore

in regular Budget 2009-10.

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Srilankan Tamils

! Rs.500 crore allocated for rehabilitation of internally displaced persons and

reconstruction of the northern and eastern areas of Sri Lanka. Ministry of External

Affairs to work closely with the Sri Lankan Government.

Cyclone Aila

! Rs.1,000 crore allocated for programme for rebuilding the damaged infrastructure

caused due to cyclone Aila in West Bengal.

BUDGET ESTIMATE 2009-10

! Budget Estimates provide for a total expenditure of Rs.10,20,838 crore consisting

of Rs.6,95,689 crore under Non-plan and Rs.3,25,149 crore under Plan registering

an increase of 37 per cent in Non-plan expenditure and 34 per cent in Plan

expenditure over B.E. 2008-09.

! Total expenditure in B.E. 2009-10 increased by 36 per cent over B.E. 2008-09.

! Increase in Non-plan expenditure is mainly due to implementation of Sixth Central

Pay Commission recommendations, increased food subsidy and higher interest

payment arising out of larger fiscal deficit in 2008-09.

! Interest payments estimated at Rs.2,25,511 crore constituting about 36 per cent of

Non-plan revenue expenditure in B.E. 2009-10.

! Subsidies up from Rs.71,431 crore in B.E. 2008-09 to Rs.1,11,276 crore in B.E.

2009-10.

! Outlay for Defence up from Rs.1,05,600 crore in B.E. 2008-09 to Rs.1,41,703

crore in B.E. 2009-10.

! Gross Budgetary Support for Annual Plan 2009-10 enhanced by Rs.40,000 crore

over Interim B.E. 2009-10.

! State Governments to be permitted to borrow additional 0.5 per cent of their GSDP

by relaxing the fiscal deficit target under FRBM from 3.5 per cent to 4 per cent of

their GSDP. This will enable the States to borrow Rs.21,000 crore additionally

over Interim B.E. 2009-10.

! Gross tax receipts budgeted at Rs.6,41,079 crore in B.E. 2009-10 compared to

Rs.6,87,715 crore in B.E. 2008-09.

! Non-tax revenue receipts estimated at Rs.1,40,279 crore in B.E. 2009-10 compared

to Rs.95,785 crore in B.E. 2008-09.

! Revenue deficit projected at 4.8 per cent of GDP in B.E. 2009-10 compared to 1

per cent in B.E. 2008-09 and 4.6 per cent as per provisional accounts of 2008-09.

! Fiscal deficit as a percentage of GDP is projected at 6.8 per cent compared to 2.5

per cent in B.E. 2008-09 and 6.2 per cent as per provisional accounts 2008-09.

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TAX PROPOSALS

! Tax reform, like all reforms, is a process and not an event. Thrust of reforms has

been to improve the efficiency and equity of our tax system. This is sought to be

achieved by eliminating distortions in the tax structure, introducing moderate levels

of taxation and expanding the base and accompanied by requisite re-engineering

of key business processes coupled with automation.

! Recent initiative, on direct taxes side, of the setting up of a Centralized Processing

Centre (CPC) at Bengaluru where all electronically filed returns, and paper returns

filed in entire Karnataka, will be processed.

! Centre’s Tax-GDP ratio has increased to 11.5 per cent in 2008-09 from a low of 9.2

per cent in 2003-04. Share of direct taxes in the Centre’s tax revenues has increased

to 56 percent in 2008-09 from 41 percent in 2003-04, reflecting sharp improvement

in equity of our tax system.

! Structural changes in direct taxes to be pursued by releasing the new Direct Taxes

Code within the next 45 days and in indirect taxes by accelerating the process for

the smooth introduction of the Goods and Services Tax (GST) with effect from 1st

April, 2010.

! The Direct Taxes Code, along with a Discussion Paper, to be released to the public

for debate. The Direct Taxes Code Bill will be finalised for introduction in Lok

Sabha sometime during the Winter Session based on the inputs received.

! The Authorities for Advance Rulings on Direct and Indirect Taxes to be merged by

amending the relevant Acts.

! Agreement has been reached on the basic structure of GST in keeping with the

principles of fiscal federalism enshrined in the Constitution. Broad contour of the

GST Model envisages dual GST comprising of a Central GST and a State GST.

The Centre and the States will each legislate, levy and administer the Central GST

and State GST, respectively.

Direct Taxes

! No changes made in the Corporate Tax rates.

! Exemption limit in personal income tax raised by Rs.15,000 from Rs.2.25 lakh to

Rs.2.40 lakh for senior citizens; by Rs.10,000 from Rs.1.80 lakh to Rs.1.90 lakh

for women tax payers; and by Rs.10,000 from Rs.1.50 lakh to Rs.1.60 lakh for all

other categories of individual taxpayers.

! Deduction under section 80-DD in respect of maintenance, including medical

treatment, of a dependent who is a person with severe disability being raised from

the present limit of Rs.75,000 to Rs.1 lakh.

! Surcharge on various direct taxes to be phased out; in the first instance, by

eliminating the surcharge of 10 percent on personal income-tax.

! Sun-set clauses for deduction in respect of export profits under sections 10A and

10B of the Income-tax Act being extended by one more year i.e. for the financial

year 2010-11.

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! Fringe Benefit Tax on the value of certain fringe benefits provided by employers to

their employees to be abolished.

! Scope of provisions relating to weighted deduction of 150% on expenditure incurred

on in-house R&D to all manufacturing businesses being extended except for a

small negative list.

! Businesses to be incentivised by providing investment linked tax exemptions

rather than profit linked exemptions. Investment linked tax incentives to be

provided, to begin with, to the businesses of setting up and operating ‘cold chain’,

warehousing facilities for storing agricultural produce and the business of laying

and operating cross country natural gas or crude or petroleum oil pipeline network

for distribution on common carrier principle. Under this method, all capital

expenditure, other than expenditure on land, goodwill and financial instruments

to be fully allowable as deduction.

! Minimum Alternate Tax (MAT) to be increased to 15 per cent of book profits from

10 per cent. The period allowed to carry forward the tax credit under MAT to be

extended from seven years to ten years.

! New Pension System (NPS) to continue to be subjected to the Exempt-Exempt-

Taxed (EET) method of tax treatment of savings. Income of the NPS Trust to be

exempted from income tax and any dividend paid to this Trust from Dividend

Distribution Tax. All purchase and sale of equity shares and derivatives by the

NPS Trust also to be exempt from the Securities Transaction Tax. Self employed

persons to be enabled to participate in the NPS and to avail of the tax benefits

available thereto.

! Alternative dispute resolution mechanism to be created within the Income Tax

Department for the resolution of transfer pricing disputes. Central Board of Direct

Taxes (CBDT) to be empowered to formulate ‘safe harbour’ rules to reduce the

impact of judgemental errors in determining transfer price in international

transactions.

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