Budget

No relief to watch importers even as Finance Minister proposes progressive Union Budget 2010-11

In his presentation of the Union Budget for 2010-11, India’s Finance Minister Pranab Mukherjee laid emphasis on consolidated growth, improving investment environment, inclusive development and strengthening transparency and public accountability. However, on the whole, the import of watches is either the same or has become slightly costlier than before.

Regarding import of watches, the Special Additional Duty (SAD) of 4% has been abolished but this was anyway refundable after a year on the goods that were sold. This relief would be welcomed by the importers since they do not have to do all the paper work for the refund of the SAD. The process of getting refunds used to be time consuming and painful. However, the CVD (excise duty) has gone up from 8% to 10%. This nullifies the abolition of SAD.

Consumers have been given a golden opportunity by the Finance Minister to splurge on the things they love the most, but a rash of price hikes in an already inflationary environment could undermine some of the optimism generated by personal income-tax breaks. Finance Minister Pranab Mukherjee did everything he possibly could to put money into consumers’ hands without being too profligate, and individuals have got a healthy bonanza in the form of savings on taxes.

The changes in personal income-tax slabs will mean more money for households. The average savings for those with an annual income of Rs 7,00,000 will be about Rs 40,000 per year. It could go up to Rs 50,000 for those with earnings of Rs 30 lakh. The consumption story will remain upbeat with income-tax rebates, which puts higher disposable incomes in the hands of the consumer. The overall economy and the GDP growth story are intact and in fact will accelerate this year.

The Finance Minister proposed to reduce the current surcharge of 10 per cent on domestic companies to 7.5 per cent. At the same time, he proposed to increase the rate of Minimum Alternate Tax (MAT) from the current rate of 15 per cent to 18 per cent of book profits. This will further promote inter-se equity among corporate taxpayers. He proposed to retain the rate of tax on services at 10 per cent to pave the way forward for GST.

All businesses with a turnover exceeding Rs.40 lakh are currently required to have their accounts audited. A similar provision also applies to all professions whose receipts exceed Rs.10 lakh. The Finance Minister proposed to enhance these limits to Rs.60 lakh in the case of businesses and Rs.15 lakh in the case of professions. To facilitate the business operations of small taxpayers, he had extended the scope of presumptive taxation to all small businesses with a turnover of up to Rs.40 lakh. To further reduce the compliance burden on small taxpayers, he now propose to enhance this limit to Rs.60 lakh.

On Goods and Services Tax (GST), the Government has been focusing on generating a wide consensus on its design. In November, 2009 the Empowered Committee of the State Finance Ministers placed the first discussion paper on GST in the public domain. The Thirteenth Finance Commission has also made a number of significant recommendations relating to GST, which will contribute to the ongoing discussions. The Government officials are actively engaged with the Empowered Committee to finalise the structure of GST as well as the modalities of its expeditious implementation. It will be the Government’s earnest endeavour to introduce GST along with the DTC in April, 2011.

Consumer durables is another sector where prices have risen. Large-screen LCD television prices may go up between Rs 500 and Rs 1,000, while a 1.5-tonne split AC may cost Rs 400-500 more. Prices of daily consumption products like soaps, talcums, shampoos, hair colour, diapers and sanitary napkins are set to go up by 2-8%. But deodorants and perfumes could be 5% cheaper.

The prices of precious metals continue to rise. Since the customs duty is levied on these at specific rates, the Finance Minister proposed to index the rates as follows: • On gold and platinum from Rs. 200 per 10 grams to Rs. 300 per 10 grams; On silver from Rs.1,000 per kg to Rs. 1,500 per kg.

Gems and jewellery is a traditional item in our export basket. Rhodium - a precious metal used for polishing jewellery attracts a basic customs duty of 10 per cent. This is being reduced to 2 per cent. To encourage domestic refining capacity for gold, he proposed to reduce the basic customs duty on gold ore and concentrates from 2 per cent ad valorem to a specific duty of Rs.140 per 10 grams of gold content with full exemption from special additional duty. Further, the excise duty on refined gold made from such ore or concentrate is being reduced from 8 per cent to a specific duty of Rs.280 per 10 grams. Buyers of gold and silver jewellery are likely to feel the pinch as well. And service tax extension to several sectors like sports sponsorship, brand promotion, renting of houses is likely to push up costs.

The Finance Minister said that fiscal year 2009-10 was a challenging year for the Indian economy. The significant deceleration in the second half of 2008-09, brought the real GDP growth down to 6.7 per cent, from an average of over 9 per cent in the preceding three years. India was among the first few countries in the world to implement a broad-based counter-cyclic policy package to respond to the negative fallout of the global slowdown. It included a substantial fiscal expansion along with liberal monetary policy support. The effectiveness of these policy measures became evident with fast paced recovery. The economy stabilised in the first quarter of 2009-10 itself, when it clocked a GDP growth of 6.1 per cent, as against 5.8 per cent in the fourth quarter of the preceding year. It registered a strong rebound in the second quarter, when the growth rate rose to 7.9 per cent. With the Advance Estimates placing the likely growth for 2009-10 at 7.2 per cent, the Government is indeed vindicated in it policy stand. The final figure may well turn out to be higher when the third and fourth quarter GDP estimates for 2009-10 become available.

Foreign Direct Investment (FDI) inflows during the previous year have been steady in spite of the decline in global capital flows. India received FDI equity inflows of US$ 20.9 billion during April-December, 2009 compared to US$ 21.1 billion during the same period last year.

The Government has taken a number of steps to simplify the FDI regime to make it easily comprehensible to foreign investors. For the first time, both ownership and control have been recognised as central to the FDI policy, and methodology for calculation of indirect foreign investment in Indian companies has been clearly defined. A consistent policy on downstream investment has also been formulated. Another major initiative has been the complete liberalization of pricing and payment of technology transfer fee, trademark, brand name and royalty payments. These payments can now be made under the automatic route.

The Government also intends to make the FDI policy user-friendly by consolidating all prior regulations and guidelines into one comprehensive document. This would enhance clarity and predictability of the FDI policy to foreign investors.

The Government has provided interest subvention of 2 per cent on pre-shipment export credit up to March 31, 2010 for exports in certain sectors. The Finance Minister proposed to extend the interest subvention of 2 per cent for one more year for exports covering handicrafts, carpets, handlooms and small and medium enterprises.

In the wake of spiralling petroleum prices, Government provided full exemption from basic customs duty to crude petroleum and proportionately reduced the basic duty on refined petroleum products in June, 2008. Compared to the international price of the Indian crude basket of US$ 112 per barrel at that time, the prices are much softer at present. In view of the pressing need to move back to a fiscal consolidation path, the Finance Minister proposed to restore the basic duty of 5 per cent on crude petroleum; 7.5 per cent on diesel and petrol and 10 per cent on other refined products. He also propose to enhance the Central Excise duty on petrol and diesel by Re.1 per litre each.

The Government accords the highest priority to capacity addition in the power sector. The framework for induction of super critical technology in large capacity power plants of National Thermal Power Corporation is now in place. The Mega Power Policy has been modified and is now consistent with the National Electricity Policy, 2005 and Tariff Policy, 2006. It will help in lowering the cost of generation and the cost of power purchased by distribution utilities. The Finance Minister has more than doubled the plan allocation for power sector from Rs.2,230 crore in 2009-10 to Rs.5,130 crore in 2010-11. This does not include allocations for RGGVY, which is a part of Bharat Nirman.

Micro, Small and Medium Enterprises (MSMEs) contribute 8 per cent of the country's GDP, 45 per cent of the manufactured output and 40 per cent of our exports. They provide employment to about 6 crore persons through 2.6 crore enterprises. To resolve a number of issues which affect the growth of this sector, Prime Minister constituted a High-Level Task Force which held detailed discussions with all stake holders and drew up an agenda for action. A High Level Council on Micro and Small Enterprises will monitor the implementation of the recommendations and the agenda for action. The  Finance Minister proposes to raise the allocation for this sector from Rs.1,794 crore to Rs.2,400 crore for the year 2010-11.

The Micro Finance programme for linking Self Help Groups (SHGs) with the banking system has emerged as the major micro-finance initiative in the country. It was re-designated as the 'Micro-Finance Development and Equity Fund' in 2005-06 with a corpus of Rs.200 crore. The fund corpus is being doubled to Rs.400 crore in 2010-11.

The Finance Minister proposed two measures under the Central Excise law to ease the cash flow position for small-scale manufacturers hard hit by the economic slowdown. First, they would be permitted to take full credit of Central Excise duty paid on capital goods in a single installment in the year of their receipt. Secondly, they would be permitted to pay Central Excise duty on a quarterly, rather than monthly basis. These measures that come into effect on the April 1, 2010 should provide them considerable relief.

Recognising the need for providing social security to the workers in the unorganised sector, and as a follow up to the Unorganised Sector Workers Social Security Act, 2008, it has been decided to set up a National Social Security Fund for unorganised sector workers with an initial allocation of Rs.1,000 crore. This fund will support schemes for weavers, toddy tappers, rickshaw pullers, bidi workers etc.

The Government had launched Rashtriya Swasthya Bima Yojana on October 1, 2007 to provide health insurance cover to below poverty line workers and their families. It became operational on April 1, 2008 and so far more than 1 crore smart cards have been issued under this scheme. In view of the success of the scheme, it is now proposed to extend its benefits to all such Mahatma Gandhi NREGA beneficiaries who have worked for more than 15 days during the preceding financial year.

To encourage the people from the unorganised sector to voluntarily save for their retirement and to lower the cost of operations of the New Pension Scheme (NPS) for such subscribers, Government will contribute Rs.1,000 per year to each NPS account opened in the year 2010-11. This initiative, "Swavalamban" will be available for persons who join NPS, with a minimum contribution of Rs.1,000 and a maximum contribution of Rs.12,000 per annum during the financial year 2010-11. The scheme will be available for another three years. Accordingly, I am making an allocation of Rs.100 crore for the year 2010-11. It will benefit about 10 lakh NPS subscribers of the unorganised sector. The scheme will be managed by the interim Pension Fund Regulatory and Development Authority.

The Finance Minister also appealed to the State Governments to contribute a similar amount to the scheme and participate in providing social security to the vulnerable sections of the society.

The Prime Minister's Council on National Skill Development has laid down the core governing principles for operating strategies for skill development. The Council has a mission of creating 50 crore skilled people by 2022. Of these, the target for the National Skill Development Corporation, which has  started functioning from October, 2009, is 15 crore. It has completed a comprehensive skill gap study of 21 high growth sectors and approved three projects worth about Rs.45 crore to create 10 lakh skilled manpower at the rate of one lakh per annum. Other projects are in advanced stages of consideration.

In the ensuing year, the Government intends to formalise a symbol for the Indian Rupee, which reflects and captures the Indian ethos and culture. With this, Indian Rupee will join the select club of currencies such as the US Dollar, British Pound Sterling, Euro and Japanese Yen that have a clear distinguishing identity.

The Gross Tax Receipts are estimated at Rs. 7,46,651 crore. The Non Tax Revenue Receipts are estimated at Rs.1,48,118 crore. The net tax revenue to the Centre as well as the expenditure provisions in 2010-11 have been estimated with reference to the recommendations of the Thirteenth Finance Commission.

The total expenditure proposed in the Budget Estimates for 2010-11 is Rs.11,08,749 crore, which is an increase of 8.6 per cent over the total expenditure in BE 2009-10. The Plan and Non Plan expenditures in BE 2010-11 are estimated at Rs.3,73,092 crore and Rs.7,35,657 crore, respectively. While there is a 15 per cent increase in Plan expenditure, the increase in Non Plan expenditure is only 6 per cent over the BE of previous year. With this level of Plan expenditure, the Finance Minister is confident that the total Plan expenditure would be very close to 100 per cent of the expenditure envisaged in the Eleventh Five Year Plan.

The fiscal policy has to be guided by the required framework for fiscal prudence. In the Medium Term Fiscal Policy Statement presented along with Budget 2009-10, the Finance Minister had laid down a road map for fiscal deficit. He has been able to present the Budget for 2010-11 with a fiscal deficit of 5.5 per cent. In the Medium Term Fiscal Policy Statement being presented to the House, along with other Budget documents, the rolling targets for fiscal deficit are pegged at 4.8 per cent and 4.1 per cent for 2011-12 and 2012-13, respectively. These projections improve upon the recommendations of the Thirteenth Finance Commission.

The fiscal deficit of 5.5 per cent of GDP in 2010-11 works out to Rs. 3,81,408 crore. Taking into account the various other financing items for fiscal deficit, the actual net market borrowing of the Government in 2010-11 would be of the order of Rs. 3,45,010 crore. There will be enough space to meet the credit needs of the private sector. The Government will plan the borrowing programme in consultation with the RBI.

The President, in her address to the Parliament in June 2009, had declared this decade as the Decade of Innovation. Last year, the Finance Minister extended the scope of weighted deduction on expenditure incurred on in-house research and development (R&D) to all manufacturing businesses except for a small negative list. To further encourage R&D across all sectors of the economy, he now proposed to enhance the weighted deduction on expenditure incurred on in-house R&D from 150 per cent to 200 per cent. He also proposed to enhance the weighted deduction on payments made to National Laboratories, research associations, colleges, universities and other institutions, for scientific research from 125 per cent to 175 per cent.

The threshold limits of payments below which tax is not deductible at source have remained unchanged for a long time. The Finance Minister proposed to rationalise these thresholds.  Relaxing the current provisions on disallowance of expenditure, he proposed to allow deduction of such expenditure, if tax has been deducted at any time during the financial year and paid before the due date of filing the return. This will allow most deductors additional time up to September of the next financial year. At the same time, he proposed to increase the interest charged on tax deducted but not deposited by the specified date, from 12 per cent to 18 per cent per annum. Last year, he had provided for the taxation of the newly introduced Limited Liability Partnership (LLP) on the same lines as exists for a general partnership firm. To facilitate the conversion of small companies into LLPs, he proposed that this will not be subject to capital gains tax.

The Finance Minister’s proposals on Direct Taxes are estimated to result in a revenue loss of Rs.26,000 crore for the year. Proposals relating to Indirect Taxes are estimated to result in a net revenue gain of Rs.46,500 crore for the year. Taking into account the concessions being given in my tax proposals and measures taken to mobilise additional resources, the net revenue gain is estimated to be Rs.20,500 crore for the year.

India has emerged from the global slowdown faster than any other nation. This Budget belongs to Aam Aadmi. It belongs to the farmer, the agriculturist, the entrepreneur and the investor. The opportunity is great. The time is right. The Finance Minister has placed his faith in the hands of the people who, he knows, can be depended upon to rise to any occasion in national interest. He has placed my faith in the collective conscience of the nation that can be touched to scale undreamt of heights in the coming years.



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