Monday, February 16, 2009

Interim Budget 2009-10: Pranab plays by the book, no poll sops

External Affairs Minisiter Pranab Mukherjee, who currently also holds charge of the Finance Ministry presented the interim Budget for 2009-10 in Lok Sabha today (February 16) claiming that every effort has been made to fulfil promises made.

Refraining from tinkering with tax and duty rates in the interim Budget, Finance Minister Pranab Mukherjee today (February 16) made a huge allocation of Rs 30,100 crore to Government's flagship rural employment programme and many other schemes in a bid to counter the economic recession.

Presentating the budget, Mukherjee said there was a need for acclerating pace of policy reforms, particularly in the financial sector.

"In these difficult times, when most economies are struggling to stay afloat, a healthy 7.1 percent rate of GDP growth still makes India the second fastest growing economy in the world," Mukherjee said.

Stocks extended losses to more than 3 percent on Monday after the interim budget failed to live up to investor expectations.

Despite the fact that revised estimates for tax collections during 2008-09 is projected at Rs 627,949 crore as against the budget estimate of Rs 687,715 crore, the Minister resisted the temptation of giving sops since it is an interim budget with General Elections just a few months away.

Highlights of the Budget

In view of the fact that security environment has deteriorated considerably with the Mumbai terror attacks giving an entirely new dimension to cross-border terrorism, the Budget increased the allocation for defence to Rs 141,703 crore including Rs 54,824 crore capital expenditure.

Aiming at enhancing expenditure on schemes to provide employment and lift the economy, the interim Budget for 2009-10 has planned a total expenditure of Rs 953,231 crore comprising Rs 285,149 crore in plan and Rs 668,082 crore in non-plan spending.

To counter the negative impact on exports due to the global economic crisis, the interest subvention of two per cent on pre and post shipment for certain employment sectors is proposed to be extended. Like the NREGS, the Bharat Nirman scheme gets a massive injection of Rs 40,900 crore in the coming year.

"In the current environment, there is a clear need for contra-cyclical policy and it calls for a substantial increase in expenditure in infrastructure development where we have a large gap and in rural development where the programmes such as Bharat Nirman and NREGS are playing a vital social role," Mukherjee said.

He said since the scope for revenue mobalisation is bound to be limited in a period of economic slowdown, any increase in plan expenditure will increase the fiscal deficit.

"Indeed, we may have to consider, the additional plan expenditure from 0.5 per cent to 1 per cent of GDP and gear up our systems accordingly," Mukherjee, who holds the additional charge of Finance, said in his 90-minute speech.

In the Budget estimates for 2009-10, the Sarva Siksha Abhiyan has been given Rs 13,100 crore more while the Mid-day Meal Scheme will get Rs 8,000 crore, the Integrated Child Development Scheme Rs 6,705 crore and the Jawaharlal Nehru Urban Renewal Mission will get an additional Rs 11,842 crore.

Among other schemes that got increased allocation are Rajiv Gandhi Rural Drinking Water Mission (Rs 7,400 crore), Total Rural Sanitation Programme (Rs 1,200 crore) and National Rural Health Mission (Rs 12,070 crore). To ensure continuity in financing of rural infrastructure projects, the Minister proposed RIDF-15 with a corpus of Rs 14,000 crore and continuation of the window for rural roads with a corpus of Rs 4,000 crore.

Mukherjee said the proposed provisions are appropriate for a vote-on-account but he pointed out that planned expenditure for 2009-10 will have to be increased substantially at the time the presentation of the regular Budget, if the economy has to be given a stimulus it needs to cope with the global recession that is likely to continue through the year.

The Budget makes a provision of Rs 95,579 crore for major subsidies including food, fertiliser and petroleum. For the coming year, gross tax revenue receipts at the existing rates of taxation are estimated at Rs 671,293 crore, of which the Centre's net receipts have been projected at Rs 500,096 crore.

With revenue expenditure estimated at Rs 848,085 crore, the revenue deficit amounts to 4 per cent of the GDP. Fiscal deficit is estimated at Rs 332,835 crore which is 5.5 per cent of the GDP. This would be lower than in 2008-09 but higher than would be appropriate under normal circumstances, he said.

"However, conditions in the year ahead are not likely to be normal and therefore the high fiscal deficit is inevitable. We will return to FRBM targets once the economy is restored to the recent trend growth path," he said.

Mukherjee said extraordinary economic circumstances merit extraordinary measures. "Now is the time for such measures. Our government decided to relax the FRBM targets, in order to provide much needed demand boost to counter the situation created by global financial meltdown.

"Indeed, depending on the response of the domestic economy and the revival of the global economy, there may be a need to consider additional fiscal measures when the regular budget is presented by the new government after the elections. However, the medium term objective should be to revert to the path of fiscal consolidation at the earliest," he said.

Touching on the revised estimates for 2008-09, he said the total expenditure has been revised to Rs 900,953 crore against Rs 750,884 crore, an increase of Rs 150,069 crore. The plan expenditure for 2008-09 was placed at Rs 243,386 crore in the Budget estimate which has now gone up to Rs 282,957 crore in the revised estimates. The additional plan spending of Rs 39,571 crore is on account of increase in the central plan by Rs 24,174 crore and an increase of Rs 15,397 crore in central assistance to state and UT plans.

On the non-plan side, the additional Rs 110,498 crore in the revised estimate is accounted for by an increase in expenditure of Rs 48,863 crore on fertiliser subsidy, Rs 10,960 crore on food subsidy, Rs 15,000 crore on agriculture debt waiver, Rs 7,605 crore on pensions and Rs 5,149 crore on police. An additional amount of Rs 9,000 crore has also been provided for in defence expenditure.

In keeping with the recent trend, the actual tax collections during 2007-08 exceeded the revised estimate for the year both for direct and indirect taxes. However, for 2008-09, the revised estimate for tax collection is projected at Rs 627,949 crore as against Budget estimate of Rs 687,715 crore.

This shortfall is primarily on account of government's proactive fiscal measures to counter the impact of global economic slowdown on the Indian economy, Mukherjee said. A substantial relief of about Rs 40,000 crore has been extended through tax cuts, including a fairly steep across-the-board reduction in central excise rates in December last. Despite this, it is expected that the tax collections will exceed last year's collection.

Taking into account the variations in receipts and expenditure, the current year expected to end with a revenue deficit of Rs 241,273 crore as against Budgeted figure of Rs 55,184 crore.

Accordingly, the revised revenue deficit stands at 4.4 per cent of GDP instead of 1 per cent in the Budget estimates. Similarly, the fiscal deficit of 2008-09 has gone up from Rs 133,287 crore in the Budget estimate to Rs 326,515 crore in the revised estimates. The revised fiscal deficit is estimated at 6 per cent of the Gross Domestic Product (GDP) as against the budgeted figure of 2.5 per cent.

Rs 10 crore allocated for NIA

The National Investigation Agency (NIA), set up in the wake of audacious strikes in Mumbai, has
been allocated Rs 10 crore for 2009-10.

The NIA, which is under the administrative control of Home Ministry, was set up by an Act of Parliament in December 2008 soon after the November 26 terror strikes in which more than 180 people were killed.

The agency has concurrent jurisdiction which empowers the Centre to probe terror attacks in any part of the country, covering offences, including challenge to the country's sovereignty and integrity, bomb blasts, hijacking of aircraft and ships, and attacks on nuclear installations.

Last month, senior IPS officer Radha Vinod Raju was appointed as Director General of the NIA.

Highlights of Interim General Budget 2009-10

* Growth forecast at 7.1 per cent for 2008-09

* Total expenditure for FY'10 seen at Rs 9,53,231 crore

* Plan expenditure estimated at Rs 2,85,149 crore.

* Non-Plan expenditure pegged at Rs 6,68,082 crore.

* Revenue expenditure at Rs 8,48,085 crore.

* Centre's net tax revenue pegged at Rs 5,00,096 crore.

* Revenue deficit 4 per cent of GDP.

* Fiscal deficit at 5.5 per cent of GDP.

* Major subsidies estimated at Rs 95,579 crore.

* Two per cent interest subsidy for exports extended till Sept for employment oriented sector.

* Defence allocation at Rs 1,41,703 crore.

* Rs 30,100 crore allocated for rural employment scheme.

* Bharat Nirman allocated Rs 40,900 crore.

* Rs 12,070 crore for National Rural Health Mission.

* Rural drinking programme allocated Rs 7,400 crore.

* Rural sanitation programme gets Rs 1,200 crore.

* Rs 14,000 crore for rural infrastructure development.

* Mid-day Meal scheme allocated Rs 8,000 crore.

* Rs 6,705 crore for Integrated Child Development Scheme.

* Sarva Sikhsha Abhiyan allocated Rs 13,100 crore.

* Urban renewal mission gets Rs 11,842 crore.

* Government to recapitalise public sector banks.

Budget Trivia

* This is the UPAs 6th Budget

* Pranab's first Budget Speech in the UPA govt

* Earlier five Budgets were presented by P Chidambaram

* Mukherjee was Finance Minister between 1982 to 1984

* During this period Dr Manmohan Singh was RBI Governor

What is an interim budget?

1. 'Interim Budget' is described as a Vote-on-Account in Article 116 of the Constitution.

2. Vote-on-Account is presented when government has no time to present full Budget or elections
are around the corner.

3. In such cases, propriety demands new government have lee-way to present a policy and
financial outlook as per their priorities.

4. Vote-on-account primarily takes Parliament sanction for spending to be incurred in the first few
months of a new financial year till new government takes over.

5. Nothing prevents the government from making new announcements or tax changes, but
conventionally this has not been done.

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