Budget – F11
The budget is a well balanced one and was much better than the expectations of Various stake holders from the society. Under the circumstances, when the government has to play a major role in sustaining the growth rate of the economy and need to manage its finances to ensure the stability of the economy, steps need to be taken to shore up the finances of the government. The budget has targeted an increase of 18% in tax revenue after registering a maringal growth over 2008 – 2009. The major contributor to the increase in revenue is customs duties Rs.30,000 cr after a loss of Rs.11400 cr in the previous year , Excise duties Rs.30,000 cr after a loss of Rs.6613 cr last year , increase in service tax of Rs.10000 cr and an increase in corporation tax Rs.46,000 cr with an assumption that the corporation tax will grow by 18%. The budget plans for reduction in Income tax of Rs.4400 cr over the previous year. Total tax revenue is expected to increase by Rs.113,000 cr.
They had factored in better compliance in assuming increase in taxes. They are establishing two more tax processing centres apart from Bangalore. IT is planned to be used effectively. A target has to be set to increase the number of non salaried individual assesses by 5% from the present levels.
The growth is expected to continue and the thrust for growth will come from the increased purchasing power of individuals since the tax rates were reduced, continued focus on rural development through NRGEA, increased emphasis on infrastructure , institutional strengthening efforts in the agricultural sector, increased ability of the PSU banks / RRBs to disburse more finance through recapitalization of banks supported by new licenses for Banks and Bank Branch Linceses. The stimulus for exports were continued , small and medium sector were given increased focus and housing development was given its place in the growth momentum.
Rs.1,48,118 cr is expected to be raised from non tax sources, an increase of Rs.35000 cr(3G) over the previous year. Rs.40,000 cr from privatization, Rs.35,000 cr from 3 G auction. It was assumed that dividends received would be lower by Rs.600 cr over FY 10 at Rs.51309 cr. A target increase of 18% could be looked at from Dividends. There was no mention about the use of land bank . Adopting a strategy of capitalizing the land bank with government / government undertakings and PSU’s can provide additional revenue. There has to be an increased focus on raising resources from non conventional sources and a target of at least Rs.25000 cr could be looked at for revenue from Land, in the form of sale/lease/dividends. The revenue from Non tax sources could be increased substantially , if a decision is taken to dilute stake in more profit making PSU’s coupled with sale of land in sick PSUs and declaring dividends. This would help to meet the fiscal deficit targets without much pressure on government finances. The expenditure was planned to be managed well and there should a continuous monitoring of expenses by the government in relation to the budget.
The main contributor to the increase in excise and customs duty are duties on petrol and diesel. Since fuel constitutes about 15% weightage in the index,. Inflation will increase immediately by about 0.5% from the present levels. This will have a cascading effect on all the industries. Hence the cooperation with state governments to bring down the prices of food items should be given increased focus and the infation rate has to be brought down closer to 5% level.
Saturday, February 27, 2010
Sunday, February 7, 2010
Union Budget – F11
Union Budget – F11
The Stimulus by the government has helped to a achieve higher level of economic growth. But inflation could have been kept at a lower level by better demand supply management. The recent initiative by the Central government to co-orindate with the state governments to bring balance in the demand supply is in the right direction.
GDP growth in the first quarter this year was at 6.1%, second quarter was at 7.9% and in third it is likely to be in the range of 8.2 – 8.5%. If we can end the year with a quarter growth of 8.5 – 9.5%, the overall growth for the year could be closer to 8% for the whole year.
Despite greenshoots emerging, there are sporadic reporting of failures of economic systems in a few countries which have an impact on the world Economy. Since India’s economy is more integrated with the global economy than in the past , withdrawal of stimulus has to be handled with caution.
The Budget should focus on growth and there is a need to continue the stimulus and the government should continue the stimulus in sectors which have a greater impact on consumption, investment and higher multiplier effect on the Economy.
The withdrawal should be gradual and we have to prepare a phased plan for withdrawal. We have to identify economic indicators with the target for key indicators and once the target is reached then the corresponding stimulus could be withdrawn. The targets will have corresponding action plans for Finance ministry, Commerce Ministry, RBI and SEBI. A road map could be drawn up for withdrawal of stimulus on the above lines.
The concern regarding the budget deficit could be addressed through raising funds through unconventional measures including Capitalising the land bank of the government and government enterprises in a big way. China had resorted to this strategy in a big way at the State and Central levels in the last year which helped the government to provide a very big stimulus.
The Stimulus by the government has helped to a achieve higher level of economic growth. But inflation could have been kept at a lower level by better demand supply management. The recent initiative by the Central government to co-orindate with the state governments to bring balance in the demand supply is in the right direction.
GDP growth in the first quarter this year was at 6.1%, second quarter was at 7.9% and in third it is likely to be in the range of 8.2 – 8.5%. If we can end the year with a quarter growth of 8.5 – 9.5%, the overall growth for the year could be closer to 8% for the whole year.
Despite greenshoots emerging, there are sporadic reporting of failures of economic systems in a few countries which have an impact on the world Economy. Since India’s economy is more integrated with the global economy than in the past , withdrawal of stimulus has to be handled with caution.
The Budget should focus on growth and there is a need to continue the stimulus and the government should continue the stimulus in sectors which have a greater impact on consumption, investment and higher multiplier effect on the Economy.
The withdrawal should be gradual and we have to prepare a phased plan for withdrawal. We have to identify economic indicators with the target for key indicators and once the target is reached then the corresponding stimulus could be withdrawn. The targets will have corresponding action plans for Finance ministry, Commerce Ministry, RBI and SEBI. A road map could be drawn up for withdrawal of stimulus on the above lines.
The concern regarding the budget deficit could be addressed through raising funds through unconventional measures including Capitalising the land bank of the government and government enterprises in a big way. China had resorted to this strategy in a big way at the State and Central levels in the last year which helped the government to provide a very big stimulus.
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