INDIAN BUDGET
Introduction
About Indian Economy
About India’s Debt Situation
About India’s 10th Five Year Plan
Union Budget 2006-2007
Union Budget 2007-2008
Upcoming Union Budget 2008-2009
Conclusion
Introduction
India has emerged as the second fastest growing major economy in the world with its positive indicators such as a stable 8-9 per cent annual growth, rising foreign exchange reserves, a booming capital market and a rapid rise in FDI in the last year. India’s per capita income has increased at a rapid pace, from US$ 460 in 2000-01 to over US$ 1000 in 2007-08.
About Indian Economy
The Indian Economy has been growing at around 9 per cent in the past two years recording a growth rate of 9 per cent and 9.4 per cent in 2005-06 and 2006-07 respectively. Significantly, the industrial and service sectors have been contributing a major part of this growth. And this process continues in the current fiscal year. On the back of 8.4 per cent and 9.6 per cent growth in GDP in the first quarter of 2005-06 and 2006-07, GDP grew by 9.3 per cent during April-June 2007.
Money Supply (M3) has grown by a robust 22.5 per cent (year-on-year) as of October 26, 2007 compared to 18.4 per cent last year. The annual inflation rate in terms of WPI was 2.97 per cent for the week ended October 29, 2007 as compared to 5.35 per cent a year ago. Fiscal deficit and revenue deficit decreased by 6.1 per cent and 11.8 per cent during April-September 2007-08 over the corresponding period last year.
With significant acceleration in the growth rate of the Indian economy, India’s per capita income has increased at a rapid pace, from US$ 460 in 2000-01 to almost double to US$ 797 by the end of 2006-07. Further, India’s per capita income is estimated to be over US$ 1000 in 2007-08, and is expected to increase to US$ 2000 by 2016-17 and US$ 4000 by 2025. This growth rate will, consequently, propel India into the middle-income category.
Reflecting the favourable prospect of growth of the Indian economy, the orders received by Indian companies have increased by a whopping 68.6 per cent to US$ 32.48 billion during January-October 2007 compared to US$ 19.26 billion in the same period last year. FDI inflows have jumped by almost three times to US$ 15.7 billion in 2006-07 as against US$ 5.5 billion in 2005-06. India’s National Stock Exchange (NSE) ranks first in the stock futures trade in the world.
Another significant aspect is the growth process of new economy industries like information technology and biotechnology have been growing around 30 per cent, old economy sectors like steel have also been major contributors to the Indian growth process. As India has moved up two places to become the fifth largest steel producer in the world. India recorded the world’s largest sales of mobile phones in the third quarter of 2007, selling 24.5 million mobiles phones during June-September 2007 accounting for 8.5 per cent total world-wide sales.
India has the second fastest growing population of high net worth individuals (HNI) in the Asia-Pacific region, which grew by 20.5 per cent from 83,000 in 2005 to 1,00,015 in 2006. The boom in the stock market has contributed to making India’s 48 billionaires the wealthiest group in all of Asia. Mumbai has been ranked tenth among the world’s biggest centres of commerce in terms of the financial flow volumes the city attracts, in a MasterCard Worldwide survey.
About India’s Debt Situation
As per World Bank data India was the 3rd most indebted country in the year 1991 and the nation was the 9th most indebted one in 2001. This indicates that the debt situation in India had rather worsened with years, instead of showing signs of improvement. On 2002 December the total external debt of India comprised government debts worth $42 billions, private sector debts worth $30 billion . The Indian external debt condition became all the more riskier in 2006, when it declined making the country hold 29th position in the world. In 2006, the nation received external debts worth $132.1 billion. Majority of the Indian external debts came as US dollars, which accounted for 46.1% of total external debt of the nation.
The remarkable increase in the Indian external debt in 2006 can be attributed partially to the Reserve Bank of India (RBI) and the decline in the ECB stocks, towards the end of March, 2006. Though the reserves of Indian foreign exchange surpassed the total amount of external debts by about $30.8 billion, yet it was able to make up for only 123.3% of the total external debts, towards the close of June 2006.
The condition of India’s external debts have further worsened in 2007, compared to the previous financial years. Today, the total outstanding loan on the Indian government is worth 41.57 billion US dollars, among which some portions belong to global financial organizations and some are meant for bilateral financial assistances. World Bank will receive 25.49 billion dollars and 14.05 billion dollars will go to the bilateral assistances.
About India’s 10th Five Year Plan
The 10th Five Year Plan (2002-2007) targets at a GDP growth rate of 8% per annum. Taking note of the inabilities of the earlier Five Years Plans, especially that of the 9th Five Year Plan, the Tenth Five Year Plan decides to take up a resolution for immediate implementation of all the policies formulated in the past. This amounts to making appeals to the higher government authorities, for successful completion of their campaigns associated with the rapid implementation of all past policies.
The primary aim of the 10th Five Year Plan is to renovate the nation extensively and to initiate an economic growth of 10% on an annual basis. In fact, this decision was taken only after the nation recorded a consistent 7% GDP growth, throughout the past decade. The 7% growth in the Indian GDP is considered to be considerably higher that the average growth rate of GDP in the world. This enabled the Planning Commission of India to extend the GDP limit further and set goals, which will drive India to become one of the best industrial countries in the world. Like all other Five Year Plans, the 10th Five Year Plan is also devised, executed and supervised by the Planning Commission of India.
The Chief Objectives of the 10th Five Year Plan are the Tenth Five Year Plan proposes schooling to be compulsory for children, by the year 2003. All main rivers should be cleaned up between 2007 and 2012. Reducing the poverty ratio by at least five percentage points, by 2007. Ensuring persistent availability of pure drinking water in the rural areas of India, even in the remote parts. Making provision for useful and lucrative employments to the population, which are of the best qualities. The rate of literacy must be increased by at least 75%, within the tenure of the Tenth Five Year Plan. There should be a decrease in the Maternal Mortality Ratio (MMR) to 2 per 1000 live births by 2007. The Plan also intended to bring down the Maternal Mortality Ratio to 1 per 1000 live birth by the year 2012.
Union Budget 2006-2007
Economy
Total Spending estimated at 5,639.91 billion rupees ($126.7 billion) in 2006/07. Tax revenues estimated at 4,034 billion rupees ($90.61 billion) in 2006/07. The government borrowing seen at 1.53 trillion rupees in 06/07. GDP growth likely to be 8.1 per cent in 05/06. India’s Oct-Dec 2005 quarterly GDP growth was at 7.6 per cent. Government aims to raise GDP growth to 10 per cent.
Income and Expenditure
Fiscal deficit in 2006/07 likely to be 3.8 per cent of GDP, compared to an estimated 4.1 per cent the previous year. Government revenue deficit seen at 2.1 per cent of GDP in 2006/07, compared to 2.6 per cent the year before. Gross budgetary support for 2006/07 at 1.73 trillion rupees. Finance Minister says services sector expected to contribute 54 per cent of GDP in 06/07.
Investments
In case of Investments, investment rate are up from 25.3% in FY03 to 30.1% in FY05 and Equity support of Rs10,901 crore to PSUs and and Rs 2,789 crore via loans in 2006-07. MAT rate has been increased from 7.5% to 10% and credit period has been increased to seven years.
Finance
In case of Financial Sector, FII investment in G-secs has increased from $1.7 billion to $2 billion and in case of corporate bonds has increased from $0.5 to $1.5 billion. And Mutual funds are allowed to invest $1bn in Overseas Exchange Rated Fund.
Agriculture
In case of Agriculture, Agricultural growth is at 2.1% and Non-food credit growth is at over 2.5%. The Foodgrain output is at 209.5 MT. And Rs 944 crore to be privided for irrigation under the Bharat Nirman Project.
Trade and Industry
In the Auto sector, Chidambaram has given special incentive to small car manufacturers by halving excise duty to 16%. Small car manufacturers are also rejoicing with this announcement of a sizebale excise duty cut. In case of Manufacturing, Manufacturing sector growth was seen at 9.4% in FY07 and Grant to Textile Upgrade Fund upped from Rs 435 cr to Rs 535 cr.
Infrastructure
In case of Infrastructure, Allocation to National Highway Plan was increased from Rs 9,320 cr to Rs 9,945 cr. And to raise power generation capacity by 15,000 MW by March 2005. In Telecommunication sector 250 million new connections was proposed.
Education
In case of Education University of Calcutta, University of Mumbai, and University of Madras to get grant of Rs 100 crore each. And Punjab Agriculture University, Ludihana will get a grant of Rs 100 cr. ITIs will be granted Rs 97 crore for their upgradation.
Tax and Duty
In case of Indirect Tax, Customs duty peak reduced from 15% to 12.5% , Excise duty on small cars has also reduced from 24% to 16% .Excise duty on packaged software was charged at 8% .DVD, flash, combo drives exempted from excise duty. Service Tax has increased from 10% to 12%. And in Direct Tax no new tax or change in personal or corporate income tax structure was implemented. 1/6 scheme of filing tax returns abolished.
Defence
Other proposals are Defence allocation up from Rs 83,000 crore to 89000 crore in 2006-07. Govt to spend Rs 11,700 cr on rural employment in FY06. 5% customs duty imposed on iron, steel melting scrap. And to provide Rs 3,000 cr as VAT compensation to states.
Union Budget 2007-2008
Economy
Total spending in 2007-08 was Rs 6.81 trillion. 9.2 per cent GDP growth rate estimated in 2006-07. Average inflation in FY’07 to be 5.2-5.4 per cent; govt confident of managing inflation. Gross budgetary support in 2007-08 raised to Rs 2,05,100 crore from 1,72,728 crore in 2006-07. Of this, budgetary support to the Central plan will go up to 1,54,939 crore against 1,72,728 crore.
Income and Expenditure
Fiscal deficit for 2007-08 is Rs.1,50,948 crore seen at 3.3 per cent of GDP compared to 3.7 per cent in previous year and Revenue deficit for 2007-08 is Rs.72,478 seen at 1.5 per cent of GDP compared to 2.0 per cent in previous year. The average inflation rate seen at between 5.2 and 5.4 per cent in 2006-07. VAT revenues increased by 24.3 per cent in the first nine months of 2006-07. VAT revenue a success and yields revenues upto 24% in ‘07. Per capita income grew 7.5% last year.
Investments
Foreign Direct Investment was seen at USD 12.5 billion on April 2006-Jan 2007. Exports seen crossing USD 125 billion in 2006-07. Dividend distribution tax raised from 12.5 to 15 per cent. Benefits of investment in venture capital funds confined to IT, bio-technology, nano-technology, seed research, dairy among some others.
Finance
The ceiling of loans for weaker sections under deferential rate of interest scheme will be raised from Rs 6500 to Rs 15,000 and in housing loan from Rs 5000 to Rs 20,000. Foreign exchange reserves stand at 180 billion dollars. World Bank loan to TN - Rs2182cr to restore water bodies.
Rural and Social sector
Spending on healthcare and family welfare has raised by 21.9 per cent to Rs 152.9 billion for 2007-08. Spending on rural job guarantee scheme in 2007-08 set at Rs 120 billion; plan expanded to 330 districts. Backward Regions Grant Fund to be raised to Rs 5800 crore. 15,054 villages have been covered under rural telephony and efforts to be made to complete the target of covering 20,000 villages by 2006-07.
Agriculture
Farm credit for 2007-08 seen at Rs 2.25 trillion compared to 1.90 trillion in the previous year and spending on irrigation to be increased to Rs 110 billion in 2007-08. National Bank for Agriculture and Rural Development to issue farm bonds worth Rs 50 billion. Rs 100 crore for recognising excellence in the field of agricultural research. Rs 2,25,000 crore farm credit proposed in the new budget. 24 lakh hectares under new irrigation projects. A target of additional 50 lakh farmers to be brought under farm credit. Farmers’ credit likely to reach Rs.1,90,000 crore as against the targeted Rs.1,75,000 crore during 2006-07.
Trade and Industry
Manufacturing growth rate estimated at 11.3 per cent. Small-scale industries excise duty exemption raised from Rs one crore to Rs 1.5 crore. A scheme for modernisation and technological upgradation of choir industry for which Rs 23.55 crore has been earmarked. 1,396 Indian Technical Institutes to be upgraded to achieve technical excellence.
Infrastructure
Spending on national highway programme increased to Rs 106.67 billion for next fiscal year from 99.45 billion in previous year. Tourism infrastructure to get an allocation of Rs.520 crore as against Rs.423 crore last year. Northeastern region will get Rs 405 crore for highway development. Road-cum-rail project over Brahmaputra in Bogibil, Assam. Mutual Funds to be allowed to launch infrastructure funds. Import duty on medical equipment cut to 7.5 per cent
Education
Education cess to be raised by one percent. Spending on education has raised by 34.2 per cent to Rs 323.5 billion for 2007-08.
Tax and Duty
Tax to GDP ratio seen at 11.4 per cent in 2006-07; tax rates to be moderate and stable. And Direct tax revenue to increase Rs 30 billion rupees in next fiscal year. Additional revenue from direct taxes yields Rs 3000 crore and indirect taxes revenue is neutral. Excise duty on cement cut to Rs 350 per tonne based on price. And Petroleum excise duty cut to 6 per cent. Import duty of 3 per cent on private aircraft. Export duty of Rs 300 per tonne on iron ore. Excise duty on cement sold for more than Rs 190 per bag raised to Rs 600 per tonne from 400. No change in general CENVAT rate. Ad valorem duty on petrol and diesel to be brought down from eight to six per cent. Export duty on Cromium proposed at Rs 2000 tonne. PAN mandatory for all security transactions
Defence
Defence budget increased from Rs 78,000 crore to Rs 96,000 crore when compared to last year.
Upcoming Union Budget 2008-2009
The Union budget 2008-2009 is to be on 29 th Feb, 2008. The Finance Minister P Chidambaram , will present his last formal budget on 29 th February 2008 as the Lok Sabha elections are due in 2009. And he called for banks to be more liberal and lenient in case of passing loans to urban poor section of society for education, housing, consumer goods and medical needs, while keeping in mind the fact that their repayment history is highly commendable in comparison to other categories of loan seekers.
Several points that are most likely to be covered in the upcoming budget includes Control of indirect taxes on consumer goods to enhance consumption, Imported set top boxes may attain a customs duty of 5 percent, in a move to encourage domestic goods. Public sector banks might become relieved of fringe benefit tax on their contribution to statutory pension funds, Reduction of duties on consumer electronics goods from 16 percent to 12 percent, Relieve of personal income tax level to be increased from 1.1 lakh rupees to 1.25 lakh rupees a year and Exemption of 5 percent customs duty for liquefied natural gas that comes in use for power generation projects.
Income Tax Exemption From Budget 2008 entails several issues concerning different sections of the taxation system in the country. This kind of income tax exemption is probably to be removed. There are speculations that there would be modifications or alterations in the tax exemption plan availed by several companies. Since under this tax exemption plan, many companies in the year 2006-07 became nontaxable. Because of this exemption plan, corporate sector suffered a revenue loss of Rs 50,000 crores. It is expected that the limit for the tax exemption would also be increased from Rs 40,000 to Rs 1,50,000 and it is very much likely to be included in the forthcoming budget of 2008-09.
The Federation of Indian Chambers of Commerce and Industry and Associated Chambers of Commerce and Industry of India in a meeting with Finance Minister P Chidambaram proposed that the basic exemption level for individuals should be increased from Rs 1,10,000 to 1,50,000 whereas the peak income rate should be lowered to 25 per cent from 30 per cent and seems to be implemented on upcoming budget of 2008-09.
Conclusion
There are great expectations about the forthcoming Budget, to be presented on February 29. Direct tax collections are at an all-time high, and the target of Rs 3,00,000 crore is likely to be breached. And it is said that for the first time, the direct tax collections will represent 50 per cent of total tax collections. And the tax structure is adjusted, so that the middle-class and lower middle-class segments deserve a sizable tax relief in the forthcoming Budget.
Tags: budget 2008-2009, Indian budget, p.chidambaram, Union Budget