A PROJECT ON

ANALYSIS OF BUDGET 2009-2010

Project report submitted in Partial Fulfilment of the requirements one
year post Graduate Diploma in Business Administration

By

MARIA ARUL CHRISTINA

Under the Guidance of

Ms. Lorna Raymonds

MOUNT CARMEL INSTITUTE OF MANAGEMENT

BANGALORE 560052
 CONTENTS

 Introduction

 Economic survey

 Highlights of the Budget 2009-2010

 Impact of the budget on the people

 Impact of the budget in different sectors

 Conclusion
 INTRODUCTION
Budget (from French bougette, purse) generally refers to a list of all
planned expenses and revenues. It is a plan for saving and spending.[1]
A budget is an important concept in microeconomics, which uses a
budget line to illustrate the trade-offs between two or more goods. In
other terms, a budget is an organizational plan stated in monetary terms.

In summary, the purpose of budgeting is to:

1. Provide a forecast of revenues and expenditures i.e. construct a

model of how our business might perform financially speaking if
certain strategies, events and plans are carried out.
2. Enable the actual financial operation of the business to be
measured against the forecast.

Government budget
The budget of a government is a summary or plan of the intended
revenues and expenditures of that government. The United States federal
budget is prepared by the Office of Management and Budget, and
submitted to Congress for consideration. Invariably, Congress makes
many and substantial changes. Nearly all American states are required to
have balanced budgets, but the federal government is allowed to run
deficits.

The Union Budget of India, referred to as the Annual Financial

Statement[1] in Article 112 of the Constitution of India, is the annual
budget of the Republic of India, presented each year on the last working
day of February by the Finance Minister of India in Parliament. The
budget has to be passed by the House before it can come into effect on
April 1, the start of India's financial year.
 ECONOMIC SURVEY
Pre - budget highlights

Expectation from the Budget 2009:

1. There are lot of expectation from the Individuals to provide some

tax relief from this year. Upto Rs.1,50,000 there is no tax at present
should be increased to Rs. 2,50,000.
2. For females the limit should be increased from Rs. 1,80,000 to Rs.
3,00,000 and for senior citizens it should be increased from Rs.
2,25,000 to Rs. 3,50,000.
3. Highest Tax rate of 30% should be increased from Rs. 5,00,000 to
Rs. 10,00,000.
4. Peak rate of 30% should be reduced to 25%
5. Surcharge of 10% was collected to meet certain contingent and
now it should be reduced.
6. Under Sec. 80 C, the investment in Bonds, LIC and Mutual funds
were allowed upto Rs. 1,00,000. This amount should be increased to
Rs. 2,00,000.
7. The non-taxable Medical expenses for salaried class is at present
Rs.15,000 per annum. this amount looks very low and should be
increased to Rs. 50,000.
8. Fringe Benefit Tax should be removed.
9. Transport allowance is allowed upto Rs.800 per month for
travelling from home to office and back. This should be increased to
Rs.2,500 per month.
10. Interest paid for Housing Loan under Sec 24 is Rs.1,50,000 at
present to Rs. 2,50,000 .
11. Senior citizens are considered people aged above 65 years. This
should be reduced to 60 years.
 HIGHLIGHTS OF THE BUDGET
2009-2010

Economy
 India remains second-fastest growing economy in the world
 Economy expected to grow 7.1 percent this fiscal
 Budgetary support increased for Ministries of Rural Development,
Road Transport and Highway, Power, Railways, Industrial Policy
and Promotion and IT. 
 Revised fiscal deficit estimated at 6 per cent of GDP as against 2.5
per cent in the Budget estimate. Revised revenue deficit placed at
4.4 per cent as against 1 per cent in the Budget estimate for 2008-
09.
 Fiscal deficit has gone up from Rs 133,287 crore in the budget
estimates to Rs 326,515 crore in the revised estimates for 2008-09.
 Rs 40,000 crore relief extended through tax cuts to counter
economic slowdown.
 Budget estimate for expenditure for 2009-10 put at Rs 953,231
crore.
 This includes Rs 285,145 crore for plan expenditure while non-
plan spend put at Rs 668,883 crore.
 Need to make economic growth inclusive
 Global economic situation not encouraging
 Extraordinary situation merits extraordinary measures
  Need to consider additional fiscal measures in regular budget
 Financial sector reforms need to be accelerated
 In past three years, India grew by average of over nine per cent
 Per capita income expanded by 4.7 per cent per annum
 Fiscal deficit was brought down from 4.5 per cent to 2.7 per cent
 Revenue deficit was cut from 3.6 per cent to 1.1 per cent
 A record US dollar 32.4 billion FDI received in 2007-08
 Notwithstanding financial uncertainty and slow down, FDI inflows
during April-December 2008 were US dollars 23.3 billion
recording a growth of 45% over the same period in 2007.

Infrastructure
 Government spent Rs.70,000 crore on 37 infrastructure projects in
2008-09
 54 central infrastructure projects approved under public-private
partnership (PPP)
 Total expenditure of PPP projects estimated at Rs.67,700 crore
 India Infrastructure Finance Company to raise Rs.10,000 crore by
end-March
 India has weathered inflation crisis, but no room for complacency
 Bharat Nirman, the time-bound plan for building rural
infrastructure receives Rs 40,900 crore. This package has six
components – rural roads, telephony, irrigation, drinking water
supply, housing and electrification.

Agriculture & Rural Development

 Country’s agriculture outlook is encouraging
 Agriculture grew by 3.7 per cent per annum
  Focussed attention to agriculture
 Plan allocation for farm sector hiked 300 percent in past five years
 Three-fold increase in short-term agriculture credit to Rs.250,000
crore
 Farm debt worth Rs.65,300 crore waived
 Government will continue to provide additional subsidy to farmers
 Corpus of Rural Infrastructure Development Fund hiked to
Rs.14,000 crore from Rs.5,500 crore
 Bharat Nirman, the time-bound plan for building rural
infrastructure receives Rs 40,900 crore. This package has six
components – rural roads, telephony, irrigation, drinking water
supply, housing and electrification.

Education
 Outlay for higher education hiked 900 percent for 11th Five Year
Plan
 15 Central Universities, 6 new IITs established in 2008-09 
 Two new schools of Planning and Architecture at Vijayawada in
Andhra Pradesh and Bhopal in Madhya Pradesh have started
functioning.
 6 new IIMs proposed for the 11th Plan in Haryana, Rajasthan,
Jharkhand and Tamil Nadu.
 Number of beneficiaries of educational loan to students extended
from 3.19 lakh to 14.09 lakh 
 Amount of education loan outstanding has increased from Rs.
4,500 crore as on March 31, 2004 to Rs. 24,260 crore as on
September 30, 2008.
 Since 2004-05 nearly 500 ITIs have been upgraded into centres of
excellence
  A National Skill Development Corporation has been created to
stimulate and coordinate private sector participation in skill
development.

Defence
 Defence allocation increased to Rs1,41,703 crore in wake of recent
terror attacks.
 The Plan expenditure will be to the tune of Rs.86,879 crore against
Rs.73,600 crore and will include Rs. 54,824 crore for capital
expenditure as against Rs.41,000 crore in the RE for 2008-09.
 The raise has been made to strengthen the security in view of the
recent Mumbai terror attacks.

Social Sector
 Country’s social security net will be strengthened
 A provision of Rs.100 crore has been made for 2009-10 for the
setting up of Unique Identification Authority of India.
 The Authority, being set up under the aegis of Planning
Commission, will put in place a comprehensive system of unique
identity for resident population of the country.

Trade & Commerce

 Exports increased 26.4 per cent per annum
 Foreign trade increased from 27.3 per cent to 35.5 per cent
 Tax to gross domestic product ratio expanded by 9.2 to 12.5 per
cent
 Agriculture grew by 3.7 per cent per annum
 IMPACT OF THE BUDGET ON THE
PEOPLE

The Budget doesn’t seem to have made much of a difference as far as the finances
of middle-class individuals are concerned. It has, however, benefited individuals in
the higher salary bracket.

The Budget failed to fulfil two major expectations that were pinned on it--increase
in the Section 80C deduction limit and increase in the deduction limit of interest
on a home loan.

Presenting his first Budget after taking over, Finance Minister Pranab Mukherjee
announced two major steps that are set to have a positive impact. It has opened the
ambit of education loans to students opting for vocational courses and has cleared
the air on the taxation process of the New Pension System. Also, the Budget has
paved the way for rolling in tax reforms.

Here are the reactions of the people belonging to different sectors:

Mr. Francis, Entrepreneur.

FBT - most entrepreneurs (SME) in India take refuge of avoiding taxes by
expensing under the FBT expense heads. - Travel/Entertainment/Misc Allowances.
Now most or nearly about 90% of employees of small, large and medium sized
companies get tax relief from IT under the FBT provisions. (Companies absorb the
FBT tax outgo) and the tax results in barely a 6-7% taxable income as opposed to
33% in employees cases.I doubt this will be moved out as the government does get
some revenue, yes marginal but yes, it does loose out if it had taxed employees as
compared before the FBT regime came into place. There are more people who will
be negatively impacted by the FBT being abolished.
Mr.Padmanadan, PSU.
The disinvestment of PSU's was not made clear which PSU's to be divested. He
tried to woo the investors by extending the tax exemptions limit by Rs.10000 and
waived of the 10% surcharge on the tax by seems it didnt had a deep effect on the
investors. A taxpayer merely saves 1030 on tax if his income is under 10lakh
rupees.

As well he should more focus on implementation of the policies declared rather

than only declaring policies as "actions speaks better than words". So the govt.
needs to have a clarity on the implemtations of the policies by streamlining the
process and monitoring the progress in all the plans and policies declared by
setting a deadline for the working committee to submit their reports on the
progress of the work.

Mr.Sharma , Professor
This budget was just a formality by our FM., nothing much is been announced, this
seems as a vote of account.The government did not gave any concerete measures
for revival of the economy, not much in the infra space too, 10k incerese in IT
limit was like people are demanding to incerease so it is incereased, it is not even
1000/ month, the FBT was scraped but the MAT was incereased by 5% to
15%.Even the most awaited was the scrap of SST , that too did not happen, what
was scraped was Comodity Tax, which does not affect us at all.

So i believe that the FM has given the budget just for the sake of giving it, and the
markets have reacted sharply to that...

Jyothi , associate , Barclays

I think the Budget should have given more incentive to infrastructure sector.The
kind of fillip that the market was expecting is missing.No policy announcement on
divestment was dampener for the stock market.Even the raised exemption limit of
Rs.10,000 in personal income tax is hardly any relief given the high prices in the
markets, though the abolition of fringe benefit tax is a good step.
The finance minister should have initiated bold measures to boost economic
revival given the current circumstances and especially since the economy is on a
comeback trail.
Mr. Shyam , Real Estate Owner
The sector was expecting measures such as extension of incentive for affordable
housing, measures to boost capital funding and eliminating liquidity crunch,
providing a mechanism for taxation of REMF, increasing available deduction for
interest on housing loans and so on but the budget fell short on such expectations.

Overall, budget 2009 failed to make an impact on the real estate sector and has left
it wanting for more. Hopefully, the new Income tax code to be released in the next
45 days will have measures, which shall provide much needed impetus to the
Indian real estate sector.

Miss. Ranita , HDFC

On taxes, the simplicity of the approach is endearing. The FM has talked of stable
tax rates, and that are simple to administer. Though the market started coming off
once it was announced that there were no reductions in corporate tax, there was
actually little hope for cuts this year considering the fiscal situation. In fact, to
leave taxes untouched, and yet provide so much for social welfare is a big
achievement. It’s pragmatic and reasonable.

One wish though, is to take taxes progressively down by 2% all the way to 20%
over say 6-8 years. This may look difficult now, but many micro industries, whose
entire chain works in cash, may start paying taxes, and this may well offset the loss
of income. This will directly add to official GDP numbers, will strengthen the
balance sheets of those companies and help them leverage to grow. More so, this
will help global investments, as it will make India more competitive in terms of
return on their equities.

Many observers may have expressed discomfort that the fiscal deficit is high. In
fact, contrary to expectations, the fiscal stimuli on customs and excise continue.
But this is actually a great decision, as growth will bring in taxes to address the
fiscal deficit. Higher growth and buoyant stock markets will help divestments, and
all this can address fiscal deficit. Notice that he is taking the fiscal deficit
seriously, it’s only that his prescription is one founded on growth.

Mr. Manoj Agrawal , Metaliks ltd.

It's a growth budget with emphasis on generating consumption and investment by

increasing money in the hands of individuals. The Finance minister has made a
bold statement of getting the GDP growth rate back to 9 %, which in itself will
provide impetus by way of large spending in infrastructure projects.

The plan to increase investment in infrastructure to 9% will boost infra related

sectors like steel, cement, power sectors and few others.

Sharvan , Student
I hope the total public spending on education is increased. We keep fretting about
all kinds of issues but education, which can become our tool in slaying most of
those issues like unemployment, is not given much attention. To enable students
from economically weaker sections to access higher education, the Budget
proposed to introduce a scheme to provide education loans full interest subsidy
during the moratorium period. The scheme will cover loans taken by students from
scheduled banks to pursue any of the approved courses of study in technical and
professional streams from recognised institutions in India. Education loans is low
be available to a larger section of students. It is estimated that over 5 lakh students
would avail this benefit.Section 80E of the Income Tax Act provides for a
deduction in respect of interest on loans taken for pursuing higher education in
specified fields of study. Even the parents can avail Section 80E benefit.  
 IMPACT OF THE BUDGET IN
DIFFERENT SECTORS

IT COMPANIES
Extension of tax holiday – Short-term respite!
One of the positives is the extension of tax holiday for Software Technology Park
of India (STPI) scheme. The industry was eagerly awaiting the announcement of
extension to the tax exemption given to export income under the STPI scheme.
The extension of the STPI scheme provides short-term relief to the industry, which
is facing tremendous margin pressures due to the economic slowdown. This will
have a significant impact on almost all IT and BPO companies in the immediate
future. However, extension of the 10A benefit for a period of five years could have
done the industry much more good and a reason to celebrate.
In addition to this, the budget has cleared the long standing ambiguity in Section
10AA on the 100% tax holiday. Until now, tax holiday applies to the profits of a
company’s operation within the special economic zone (SEZ). However, the
Finance Minister has now extended the tax benefits to the total earnings of the
‘undertaking’
Some other positives
Some of the recommendations by the Finance Minister of relevance to the BPO/IT
sectors include the following.
Removal of Multiple Taxation on ‘Packaged Software’: A move towards removal
of multiple taxation on ‘packaged software’ will help in adoption of IT in general,
and also reduce costs for all businesses, and especially IT and BPO companies
which are big buyers/users of technology. However, clarifications are awaited on
issues of defining transfer of rights to use, software valuation and coverage of the
current exemption that will enable better quantification of the extent of benefits.
Abolition of Fringe Benefit Tax: This is another positive for the companies,
though marginal (FBT accounts for not more than 5% of the total tax provisions of
these companies). This however will reduce the administrative burden for
companies and might bring back the popularity of ESOPs.
Increased Outlay for Institutions: The Finance Minister has given special attention
to the education sector and has proposed increased outlay for institutions such as
IITs and National Institutes of Technology (NITs) to Rs 20,000 m. This will
benefit the industry in the long term with the availability of a larger and
employable talent pool.
Safe-harbor Mechanism for Captive Centers: The Central Board of Direct Tax
(CBDT) will formulate a safe-harbor mechanism for the captive centers (software
and back office) of multinational companies. The safe-harbor provisions are
expected to provide a degree of certainty to the captives of foreign companies in
matters of taxation as the results declared by taxpayer who fulfill some prescribed
conditions are accepted without detailed scrutiny. However, this is just a proposal
at this stage and benefits will depend on its implementation.

EDUCATION SECTOR
For the education sector, a slew of schemes to leverage literacy rate in India along
with helping students to study higher education has been announced. A new
Centrally Sponsored Scheme to centralize education at higher secondary level has
been introduced. The outlay on Higher Education has been increased 900 percent
in the eleventh five year plan. Along with the six IIT universities that were
inaugurated last fiscal year, two more new campuses will be setup at Madhya
Pradesh and Himachal Pradesh.The Education Loan Scheme (ELS) has been
revised and increases four times to facilitate students to avail more loan accounts.
The ITIs upgraded into centres of excellence will be funded to promote skill
development in the education sector.

REAL ESTATE
On the positive side, measures such as increased outlay on schemes such as
JNNURM/Rajiv Awas Yojana, allocation of Rs 2,000 crores for Rural Housing
Fund, launch of programme of housing to create 1 lakh dwelling units for Central
Para-Military Forces personnel, increased allocation for common wealth games are
all welcome initiatives. Introduction of 100% deduction for capital expenditure
incurred for setting up and operating warehousing facilities for storage of
agricultural produce should result in investments in the segment. Reduction of
TDS rates on rental payments from 20% to 10% on use of land, building or
furniture and unconditional excise duty exemption to prefabricated structures for
building and so on are steps that should have a positive impact on the cash flows
of real estate companies. Rationalisation of tax holiday provisions in respect of
deductions available to developers of affordable housing, deemed valuation for
property transfers not registered for stamp duty purposes are steps that would go a
long way in promoting transparency in the sector. However, not all measures
which were announced are applauded by the sector. Benefits of the composition
scheme of 4% under ‘works contract service’ would now be available only if tax is
paid on the entire value of goods and services (whether under the same contract or
any other contract including goods received free of cost). CENVAT credit has
been denied on specific goods used for construction of shed, building or structure
for support of capital goods, which would further add to the cost of construction.
These could have an adverse impact on the costs and consequently sales in the
current market.

Rural Development
The Indian Government continues to accord highest priority to rural development.
A number of programmes have been designed to help improve the living
conditions of the rural population. The programs designated under the Indian
Interim Budget 2009 are:

(i) The Rural Infrastructure Development Fund (RIDF). The RIDF is the main
instrument to channel bank funds for financing rural infrastructure, through State
Governments. The corpus of RIDF was increased from Rs.5,500 crore in 2003-04
to Rs.14 thousand crore for the year 2008-09 to ensure greater availability of funds
for its activities. A separate window for rural roads was created under RIDF with a
corpus of Rs.4 thousand crore for each of the last three years.

(ii) Indira Awaas Yojana (IAY). Given the importance of housing for the weaker
sectors of the rural population, 60 lakh houses were to be constructed under the
Indira Awaas Yojana by 2008-09. In the period between 2005-06 and December
2008, 60.12 lakh houses have already been constructed.

(iii) Panchayat Empowerment and Accountability Scheme (PEAIS). The

PEAIS is an existing scheme under the central sector plan which has been
recognized as a powerful instrument to incentivise States to empower the
Panchayats and put in place accountability systems to make their functioning
transparent and efficient. The Interim Budget acknowledges the need to build in
incentives for encouraging States to devolve funds, functions and functionaries and
set up an institutional framework for such devolution. The Indian Government has
proposed to substantially expand the scheme through State allocations.

(iv) Project Arrow. The Department of Posts has launched “Project Arrow” to
revitalize its core operations and to provide new technology enabled services to
both rural and urban Indians. So far this has been successfully implemented in 500
post offices in the country. This Project will receive full government support as it
will enhance the services offered to India and will also lay the foundation for a
vibrant delivery mechanism for many social sector schemes such as Pensions, and
the National Rural Employment Guarantee Scheme (NREGS).
 CONCLUSION
In a global scenario where the major economies continue to contract, even if more
slowly than before, there is no way the government could have taken the pedal off
fiscal expansion, to keep India’s growth momentum going. Thus, the largest ever
fiscal deficit, measuring 6.8% of GDP for 2009-10 and a tax burden on the
economy that is lower, proportionate to GDP, than in the last fiscal, is a plus,
rather than a negative.

In fact, 6.8% of GDP is the Centre’s deficit alone. Take into account the states’
deficit of nearly 4% of GDP and likely, albeit unstated, off-budget borrowings to
finance fertiliser and food subsidies, the combined government borrowing
requirement would be a little under 12% of GDP. That is a huge piece of fiscal
stimulus.

To avert the risk of this huge borrowing requirement pushing up interest rates and
choking off growth, the government should proactively announce an intention to
raise a sizeable part of it outside the country. That should settle domestic jitters
over a liquidity crunch.

An unheralded medium term fiscal policy statement put up on the Finmin web site
targets a fiscal deficit of 5.5% of GDP next year and 4% of GDP in the year after.
It is surprising that Mr Mukherjee failed to flag this off.

Then there is the infrastructure agenda. The government’s direct spending on roads
and railways is slated to go up sharply. Financial engineering is on the cards - take-
out finance and refinancing by IIFCL - to ensure that enough credit would be
available for infrastructure projects. The government continues to swear by public-
private partnership.

For all their flaws, PPP projects are enhancing India’s infrastructure right now.
And there are sufficient mechanisms outside the Budget for one to hope that future
PPP projects would be better designed and less vulnerable to post-contract abuse.
Many people tend to dismiss the entire inclusion, rural development and
empowerment agenda as so much political fluff. On the contrary, this is the core of
lasting reform.

To appreciate this, one must have clarity on what constitutes reform. Reform is
ultimately about freeing up the creative energies of the people at large. Not just of
people who are entrepreneurs and would-be entrepreneurs now. But also of the
hundreds of millions of those who currently focus just on subsistence.

Financial sector, tax and administrative reforms are means to this end. True, India
has a demographic dividend to reap even with existing levels of output per worker.
But imagine the bounty if one billion plus Indians can afford to think beyond
subsistence, think creatively. For that to happen, we need not only the kind of
inclusive policies being pursued by the government but also complementary
political mobilisation to empower people. That, of course, goes beyond the
Budget.