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BUDGET 2009-10
The return of the Congress-led UPA government at the Centre with a firmer mandate and Dr. Manmohan Singh, the world-renowned economist, as Prime Minister have raised expectations from Budget 2009-10, to be presented by Union Finance Minister Pranab Mukherjee on July 6. The wishlist of businessmen and industrialists include the reintroduction of investment allowance; reduction in corporate taxes; removal of dividend distribution tax and fringe benefit levy; hikes in import duties and reductions in export duties; tax reforms including early introduction of uniform GST; simplification and rebates in Cenvat; and fiscal sops for selected sectors that have sunk due to declining exports. In addition, they also want a sustained push to infrastructure investment-putting vital projects on fast track; a major boost to PPP infra projects in roadways, power, ports and urban development as also social services like education and public health; removing hassles in land acquisition for sanctioned mega projects; and alignment of petrol and diesel prices with global crude prices, to name a few of the demands.
The construction industry expects to get infra status and subsidies to enable economical houses. The common man expects a hike in the income tax exemption limit, reintroduction of standard deduction for the salaried class, relief in particularly CPI-based inflation, and a social safety net that takes care of sudden job losses. Economists would not like the budget to have non-plan disbursement splurges, particularly subsidies that cannot be justified on social grounds, and escalating fiscal deficit.
Now, against this wishlist that a politician finance minister would obviously like to fulfill, there are some harsh realities that impose constraints. Thus, the economy significantly underperformed in 2008-09 and would perform ditto in the current fiscal in terms of the forecasts. This would set a ceiling on revenue mobilisation, particularly taxes, which would in turn place a ceiling on disbursement hikes if the fiscal deficit is to be maintained, if not brought down. Here, a non-repeat of the fiscal stimulus assessed at around 3 per cent of GDP last year could help reshuffle disbursements. However, the southwest monsoon has played truant till June-end and unless it progresses well in the next two-three crucial months, the same could push up inflation and put a strain on plan account spending, as the drought would require substantial non-plan expenditure to help farmers and build up supply lines of essentials. Among the receipts, PSU equity disinvestment and mobilisation through G3 Spectrum and NELP auctions could help. Thus, on the whole, we believe there would be less action particularly in tax breaks or disbursement hikes, barring on rural, social and public health counts.
Accordingly, we would caution not to expect the moon in budget announcements that impinge on the public exchequer. Nevertheless, there will still be substantial scope for the finance minister to come out with announcements of reforms in physical and social infra investments, health insurance, entry and exit provisions for industrial units, removing bureaucratic interference etc. Already, the Central government has announced a 100-day agenda to fast track several sectors to shore up the economy. Even if this agenda is expanded in scope and extended to the next 100, 200 or 300 days and effectively implemented, the nation will benefit substantially, both economically and socially.
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