At the outset, I would like to thank Mr. Chidambaram for his generosity towards common man. Undoubtedly it’s a precursory budget laying foundation for 2009 Union elections. However, for common man, budget is like a new dawn. As a salaried employee, when I got to know about restructuring of Income Tax slabs, I was zapped ecstatic. I couldn’t believe the scoop for a while. If figures are anything to go by, it’s a landmark change in income tax slab for Individual Assesses. As far as agriculture sector is concerned’ I don’t see any big boost for the sector except a flicker of Rs. 60,000 loan waiver for small and marginal farmers.
Agriculture:
Agriculture:
I am grossly disappointed by the amount of attention given to agriculture sector. A pro-farming country coveting for double digit growth is doing well in all sectors except agriculture. Finance Minister accepted in his budget speech that agriculture has struck a disappointing note and unlikely to go beyond 2.6% growth against projected 7% growth. Announcing Rs. 60,000 crore loan waiver for small and marginal farmers is no more than a political gimmick and thereby FM tried to project UPA’a Pro-farmer image for coming elections. Patchwork won’t work anymore in this sector; it is badly waiting for a revolutionary step by government. How insufficient is the relief package to uplift the status of farmers is evident from Mr. Pawar’s comment after budget “I can’t tell if farmers would stop committing suicide as a result of loan waiver package”. The loan waiver scheme has also got a threshold limit of land (2 hectare) to be eligible for the benefit. If any area is suffering from lack of irrigation/drought problem, it is sheer unjust keeping other farmers at bay? It’s not a vindicated move. FM also left few questions unanswered like the arrangement of waiver money and the way it will be implemented. Media reports shows that UPA’s flagship programs are facing implementation problem due to excessive involvement of bureaucracy. PPP model is must for this sector and if Government is really serious towards the plight of the farmers they should devise a pragmatic plan.
Education:
Budget gives fillip to education sector earmarking Rs. 344 billion for promotion of existing schemes and insertion of new plans as well. Government’s flagship programs Sarva Shiksha Abhiyan and Mid-day meal got extended with additional outlay. Especially Mid-day Meal definition got expanded with inclusion of upper primary classes; set to benefit 139 million students. In order to have Model Schools in each block in the country, the government has earmarked Rs 6.50 billion. This would help in providing quality education in rural areas. Navoday Vidyalay Network to be expanded for SC/ST in 20 educationally backward blocks. Rajiv Gandhi scholarship programme enhanced to Rs. 39.66 billion for Scheduled Caste (SC) and Scheduled Tribe (ST) students. Budget acknowledges the importance of higher education by proposing to increase the number of IITs (Bihar, AP and Rajsthan), IIMs (Shillong and Meghalaya), IIIT at Kanchipuram in Tamilnadu. Also two new Indian Institutes of Science Education and Research (IISERs) will be set up at Bhopal and Thiruvananthapuram.
Common Man:
1. Salaried employees were expecting a hike in Tax Exemption limit but they wouldn’t have anticipated a complete new set of Tax Slabs and now they have got some additional cash in their pockets to dispose off which in turn would help economy.
2. Expanding the limit of Section 80 D by 15000 for parents’ health insurance (20000 if parents are Senior Citizens) opens a new avenue for individuals to get relief from taxes.
3. Inclusion of two more saving instruments (Post office scheme and Senior Citizen savings scheme) in Section 80 C has nullified their effect on taxes by not expanding the limit of Section 80 C.
4. It’s a win-win situation for senior citizens. Their exemption limit is increased; health is doubly covered by extending the definition of Section 80 D. In a country which has approx. 100 million aged population (Above 60 years) and may get tripled by the first half of this century; any initiative making this country a better place for senior citizens is a welcome move. Government’s sensitivity towards Senior Citizens is already supported by Railway Ministry by increasing fare concession up to 50% for woman senior citizens. Last year introduced Reverse Mortgage scheme failed to attract enough takers because of ambiguity on the tax treatment. Now, the budget has made it clear that transfer of capital assets will not be considered for capital gains tax and similarly resulting loan amount will be exempt from Income Tax. One another move which has gone unnoticed is that, for financial sector FM has offered to allow Individuals such as retired bank officers, ex-servicemen etc to be appointed as business facilitator or business correspondent or credit counselor for commercial banks.
5. Tour plans might need to be redrafted as tour operators have been caught in service tax net and the burden of service tax may impact your tour budget.
6. Banking cash transaction tax is taken away by this budget.
7. Breakfast items Like Cereals, Sharbat, Tea, Coffee mixes, Puffed rice and processed foods that enjoyed a huge duty cut is definitely good news for your kitchen. However, mere 2% duty reduction against 6%-8% hike in commodity prices in past one year would hardly leave any impact and processed food prices are likely to be constant.
Business & Stock Market:
1. Reduction in overall peak rate of Excise Duty is a welcome move and will affect the complete economic cycle.
2. Exemption limit for small service providers is increased from Rs. 8 lakhs per year to Rs. 10 Lakhs per year.
3. Budget did away with double taxation of DDT (Dividend distribution Tax). It’s a great help for business conglomerates.
4. Aggregate cash payments exceeding Rs. 20,000 to the same person in a single day is no more available as a business deduction. This is a good move towards transparency of business practices.
5. Introduction of Commodity Transaction Tax on futures and options.
6. Share Market: Tumbled stock market has got a big blow in the form of increased STCG (Short Term Capital Gains) upto 15%. FM said in his speech that this increase is aimed to discourage short term investors. However, I am of a different view that this step would rather discourage High Networth Individuals and pulling money back by them would cause further pressure on rupee. Treating STT (Security Transaction Tax) as normal business expenditure was another setback causing a gigantic downfall in stock market at the very first trading session soon after the budget proposals.
7. Service Tax: Services to come under Service Tax net are - Asset management service provided under ULIP, Services provided by stock/commodity exchanges and clearing houses, Customized software, money changers, persons running games of chance, and tour operators using contract carriage vehicles.
8. Automobile Industry: Budget provisions brought big cheer for automobile sector and for middle class as well by slashing excise duty by 4% on small cars. Emphasis on small cars in this budget is a testimony to the fact that govt. is firm determined about their plans to make India global hub of small cars. However, in my view, the big booster is removing excise duty 8% for electric cars and 16% for its specified parts would encourage manufacturing of such nature friendly vehicles which is the need of our in the age of global warming.
9. Banking Industry: Banking stocks have been in limelight for quite sometime. The only concern they have in their fundamentals is the sum of NPA accounts. However, this budget offered them a chance by announcing Rs. 60,000 loan waiver for farmers to clean up their Balance Sheets thereby increase their valuations. People gearing up to invest in banking stocks should keep their step on hold until any clarification comes from finmin over disbursal mechanism.
10. Cement Industry: Budget proposes an additional duty on bulk cement to bring parity in the excise duty on bulk cement and packaged cement. This may push realty prices upward.
11. Hotel and Hospitality Industry: Both have got an uplift in this budget. The Hotel industry was waiting for infrastructure status and disappointed for not getting that but at least they have succeeded to fetch Finmin’s attention. Budget proposes a 5-year tax holiday to 2, 3 and 4 star hotels in NCR region and near Unesco recognized world heritage sites. Inclusion of Unesco sites in this provision shows that India is getting serious over travel tourism. Hospitals have also got 5-year tax holiday for expansion in Tier-2 and Tier-3 areas which is a good move towards betterment of healthcare infrastructure. At the same time hospitality industry is not content over service tax levy on tour operators.
12. Software Industry: FM proposes to hike in excise duty from 8% to 12% on packaged software and pulled in the customized software services under service tax net. The combined effect of both provisions will hit software industry badly. Apart from rupee appreciation problem; the industry is combating with piracy devil which is wide spread in India. Increasing prices of packaged software may give a boost to piracy business.
13. Telecom Sector: Being a third largest wireless market in the world; the benefits of wireless telephony needed to be reaped. Now, it’s done in this budget by removing complete 16% excise duty from Wireless Data cards. At the time when cell phone prices are falling drastically; additional 1% National Calamity Contingent Duty which was previously levied on Textile Industry (Polyester Filament Yarn) would cause a minor impact. It seems a wise move to shift such duties from troubled sector to a shining sector.
14. Textile Industry: The industry already facing fierce competition from China is sailing through the troubled waters on domestic front. It had kept its eyes on reduction of 12.4% service tax on rentals which has a negative impact on domestic revenues coupled with reducing export revenues due to appreciation in rupee. A 2% dip in excise duty and removal of National Calamity Contingent duty might be a good step but unlikely to have a significant impact on industry as a whole. Industry sources opine that at a time when they are struggling for survival; they can’t even think of any expansion plans which the budget is trying to promote.
15. Power Sector: This sector was expecting some positive news especially when country is in deep crisis of power and corporates want to come forward to address the issue. However, Budget sets aside Rs. 800 Crore for the Accelerated Power Development and Reforms Project. It’s a welcome move considering the poor state of transmission and distribution (T&D) which has been a drag on the sector.
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