Indian Union Budget 2010 --- A review

--April,2010---


The Sensex is soaring new heights. The primary market is bombarded with a host of new issues. The mood across industries is upbeat. And most importantly, the “Aam Aadmi” is happy.
Has the Union budget 2010 really delivered more than what people wanted? Or is it that the expectations were low?
The Finance Minister has given a surprising gift to the common man in the form of significant expansion of income tax slabs by enhancing the threshold limit and removing the surcharge. As a result, a person earning Rs 5 lac would be Rs 20,600 richer than before. An additional tax saving tool was provided to the common man in the form of Infrastructure bonds. An investment of Rs 20,000 could be made over and above the Rs 1 lac limit under section 80 C. This would help boost the infrastructure development efforts in our country.
The wallet of “aam aadmi” has become thicker, but will the money sustain in this wallet. The excise duty has been increased from 8% to 10%. The 5% duty on crude petroleum has been restored. This will lead to an increase in the fuel prices. Fuel prices being hiked makes travelling costlier and the soaring rates of cars, electronics and jewellery leaves us sighing. The increase in these costs would increase inflation which would in turn affect the interest rates.
IT industry has given thumbs up to the Budget 2010 owing to the favorable response towards the Special Economic Zones (SEZs). However, they are disappointed over the extension of tax breaks under the Software Technology Parks of India (STPI) scheme. Surcharge for domestic companies reduced to 7.5% from 10%—largely positive. But on the other hand Minimum alternate Tax (MAT) hiked from 15% to 18%—negative for MAT paying companies. Rollout dates for the Goods and Services Tax (GST) and implementation of the Direct Tax Code is impressive. Though, we still can’t be certain. New banking licenses will be issued to NBFC’s. But this again will increase the competition for existing banks which are still fighting the downturn.
Government had provided the much needed fiscal simulation during the financial crisis largely through borrowed money. This has resulted in a large fiscal deficit of 6% in 2008-09. The government’s target is to reduce this to 5.5% in 2011-12 and to 4.8% subsequently. But how does our government plan to implement it? It plans to achieve this largely by funds from auctioning of 3G spectrums and disinvestment of its share in PSU’s. But both of these are just one shot items. What next?