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Economy

Budget 2010 Quick Summary

Pranab Mukherjee presented the budget for 2010-11 today. Some notes, to be expanded upon later:

Taxes, which will interest most of you:

  • Tax slabs changed:
    • Upto 1.6 lakhs, no tax.
    • 1.6L to 5L: 10% tax
    • 5L to 8L: 20% tax
    • 8L onwards: 30% tax.
  • No reintroduction of surcharge above 10L that was taken out last year, which is a good thing.
  • Additional Rs. 20,000 deduction, above the 80C deductions, if you invest in infrastructure bonds.
  • Companies get to pay lower taxes if they’re not tax free entities. Surcharge for companies lowered to 7.5% (from 10%), but Minimum Alternate Tax increased to 18% (from 15%)
  • The company tax changes hurt IT companies, SEZ exporters like Reliance, tax free players like Bharti
  • Taxes on petroleum products – removed for fiscal stimulus – brought back. Crude gets 5% duty, Diesel 7.5% and the rest 10%. With the administered pricing in place I don’t know if this will mean price rises (if crude falls). Update: It seems it might mean a price rise.
  • Cigarettes and chewing tobacco likely to cost more. Details when I get ‘em.
  • Customs duty on Automobiles brought back up to 22% (reduced for stimulus)
  • Central excise duty up to 10% from 8% across the board (reversing stimulus)
  • No change in service tax – stays at 10%

Other interesting notes:

  • Disinvestment to bring in 25,000 crores.
  • The Direct Tax Code is on for 2011, and so is GST.
  • Kirit Parekh committee report to be implemented sometime – oil prices will be freed. But right now, nothing.
  • Public Sector Banks to get 16,500 cr. in additional Tier 1 capital. This can’t be good for the private banks.
  • Interest subvention of 2% in certain sectors like handicrafts, carpets and SMEs will be continued till March 2011.
  • Agri Credit targets hiked to 375,000 cr. (from 325,000 cr.)
  • Additional 1% interest subvention (total 2%) for farmers that repay crop loans on time. The “on time” bit moved to end Jun 2010.
  • Roads get 19,800 cr. (versus 17,500 cr.)
  • Fertilizer subsidies will be given direct to farmers rather than paying fertilizer companies. That’s a good thing.
  • UID project gets 1900 cr. next year. First UID numbers will be released next year as well.
  • NREGA allocation upped from 40,000 cr. to 48,000 cr. Wow. Where are they going to fund this from? Update: Alert reader AbheekB tells me I got that part wrong – NREGA Is only at 40,100 cr. (it’s “Bharat Nirman” that’s up to 48,000 crores)
  • Housing loans upto 10L for houses costing upto 20L were given 1% interest subsidy, that continues into the next year. Will cost the govt. 700 cr.
  • Some level of social security for workers like rickshaw pullers etc. I don’t yet know the details. The scheme will start with 1000 cr. put in.
  • New Pension Scheme: All new accounts opened in 2010-11, where people put in less than 12,000 Rs. per year, get an additional Rs. 1,000 from the government.
  • Direct taxes will cost the govt. 26,000 cr. in lost revenue; they expect gross tax receipts at 746,000 cr. That’s not a great amount, considering how much more we are spending this year.
  • Oil companies to be paid for shortage in cash, not bonds. That brings it back on the balance sheet and deficits are better known/managed.
  • Excise slashed for electric cars.
  • Host of green initiatives get duty cuts. Will detail more as I get ‘em.

Overall, this is a ridiculously expensive budget. We will probably up revenue only by 1 or 2% – 20,000 cr.  if there is no double dip abroad. And the expenses? just the increase in NREGA is 8,000 cr. – and it gets much worse if you consider most of the other stuff. Turns out the NREGA bit was wrong – the increase there is just 1,000 cr. But the expenses seem very large – the deficit should widen, not contract this year.

Inflation will go up. Fiscal deficit is sure to be higher than expected. This can’t be positive for interest rates; expecting bonds to underperform and banks to be hit along with other rate sensitives.

Much more to come as I analyze the speech. Stay tuned.

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