Posts Tagged ‘Aam admi’

BUDGET PREVIEW 2011 – Part 1 :)

At last the much talked topic “BUDGET” among AAM ADMI, CORPORATES or INVESTORS that comes to INDIA – is approaching. “The million dollar question is that will 2010 budget be another year to cheer the economy by giving some relief in indirect taxes, personal income tax and by implementing various schemes to induce social & infrastructure sector in order to maintain high trajectory growth”.

Generally, it is seen that the incentives which are given in the period of recession or slow down and moreover, when the government in power is about to complete its tenure, are above from expectations. It is seen that budget in two years usually comes good when the Govt. is in the last year of power & in the first year of the rule as a vote of thanks.The mid three years out of the five year term usually remains tight on the policies.

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For the common man, we expect that Finance Minister may raise the exemption limit in personal income tax & investment limit Under Sec.80C. The reason to our belief:

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1. The rocketing prices of food articles like sugar, pulses and vegetables have been cutting the pockets of a middle class.

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2. By coming out with these measures (above mentioned) the government will lower the tax incidence on the common man & will also help it to put the opposition on backfoot.

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By & large everyone is aware of the level of fiscal deficits globally and many of us know that it is essential to minimize deficits & returning to fiscal consolidation is necessary. The main question is why it is so important. Let’s look at the consequences of high fiscal deficit:

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A risk to high government borrowings leads to more debt servicing that cuts expenditure on various social welfare schemes, if TAX revenues do not matchup. In the current financial year, out of the 4 lakh crore borrowing, more than 50% has gone towards interest payments.

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Secondly, the higher government borrowing from market means less availability of funds to private borrowers. In the current Fiscal year, due to dismal credit growth, we haven’t seen pressure on Interest rates. But going forward we foresee normal credit growth in the next financial year. However as the government borrowing is expected to remain at same level in the next fiscal, pressure on interest rate is expected.

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So, this year the theme of Budget would any way be to maintain economic recovery through investment for building infrastructure rather than funding the expenses/consumption. But at the same time focus will be to bring down the fiscal deficit.

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The catch here is bringing down deficit by cutting expenditure means risk to growth & the other alternative is to increase revenues. While the direct tax collections are encouraging, on the indirect taxes front the government is still struggling to get desired revenues. This is because after September 2008, when the global financial system collapsed, the government came out with stimulus packages to keep up the desired growth pace.

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Excise rates since December 2008 had been progressively cut from 16, 12 and 8 per cent to 10, 8 and 4 per cent respectively depending on the product in question. Service tax was also reduced from 12 to 10 per cent.

INFLATION – “THE SILENT CREEPER” Final Part

Hello Friends here we come up with an extension of our previous blog, INFLATION

–  “THE SILENT CREEPER” Part 2.

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INFLATION – “THE SILENT CREEPER” Part 3

In previous Blog we had touched upon the possible Measures to check inflation.

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Now in this part we would look into other concerns in Indian economy regarding the parameters to check inflation.

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Concerns in Indian Economy Regarding Inflation :

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Apart from reasons and measures to check inflation, other concern in Indian economy is the parameters to check inflation.

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It is well known that India is the only country which considered WPI (Wholesale Price Index) while rest of the countries measured CPI (Consumer Price Index).

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WPI consists of 435 goods over 1993-94, as base year in which the weightage of food items is only 16%, which has large weightage of consumer spending in India.

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Though WPI in India is still in single digit, if we consider CPI it is already in double digit due to dearer farm articles and their higher weightage in measures.

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In CPI, food articles have 50% weightage.

Hence there is a wide gap between the weightage of food articles of WPI and CPI, which are unable to give the clear pictures.

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Furthermore, 2/3rd of the price quotations used to calculate the WPI are sourced from only four metros.

Hence to get the real picture, area should be widened.

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comparison between food inflation and WPI from January, 2008 to October, 2009.

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In the above chart, it is a comparison between food inflation and WPI from January, 2008 to October, 2009.

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Line chart is representing WPI monthly inflation whereas bar chart is indicating food article inflation.

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It appears that food article inflation is on continuous rise while WPI monthly inflation saw both side movements.

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It has started its northward journey in the month of March-April and it is still continued.

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Arrival of kharif crop is less likely to cool it as we are expecting 18% decline in kharif crop.

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Hence downside will be limited, rather it may move in a range with upside bias.

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The words of future RBI (Reserve Bank of India) has revised its outlook for inflation and expecting that it should be between the range of 5% to 6-6.5% for the year ending March 2010.

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There is a fear in the economy that the real impact of almost 18% drop in kharif rice production is to reflect in inflation.

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It would occur when kharif produce; rice, pulses, oilseeds and cereals would start coming in the market.

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With witnessing favourable weather conditions, economy is expecting strong rabi produce, which may cool off inflation of food articles to some extent.

However, we cannot rule out the possibility adverse weather.

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Ultimately what matters is final produce and yield.

Government has to take care of everything like, demand –supply equilibrium, money supply, distribution etc.

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Otherwise it will become nightmare for “aam admi” and hamper the economic growth.

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KEY FEATURES OF BUDGET 2009-2010

UNION BUDGET 2009-2010

CHALLENGES

To lead economy to high GDP growth rate of 9 per cent per annum at the earliest

• To deepen and broaden the agenda for inclusive development to improve delivery mechanisms of the government.

OVERVIEW OF THE ECONOMY

• Growth rate of Gross Domestic Product dipped from an average of over 9 per cent in the previous three fiscal

years to 6.7 per cent during 2008-09.

• Whole sale price index rose to nearly 13 per cent in August, 2008 and had an equally sharp fall to zero per

cent in March, 2009.

• The structure of India’s economy changed over the last ten years with contribution of the services sector to

GDP at well over 50 per cent and share of merchandise trade doubling to 38.9 per cent of GDP in 2008-09.

• Recognising economic recovery and growth as co-operative effort of the Central and State Governments,meeting with Finance Ministers of States held as part of preparation of the Budget. This is intended to become an annual feature.

Highlights of Union Budget 2009-10

* Govt plans to bring back economy to high growth of 9%

* GDP growth dipped to 6.7% in FY’09

* FM to make pre-budget talks with state FMs annual affair

* Fiscal deficit up from 2.7% to 6.8% of GDP

* Return to fiscal prudence at the earliest

* ‘Aam admi’ is focus of all programmes and schemes

* IT exemption limit raised; Rs 15,000 for Sr.citizens

* Limit raised by Rs 10,000 for tax payers, including women

* 10% surcharge on personal income tax scrapped

* Fringe Benefit Tax abolished

* No change in corporate tax

* Defence gets Rs 1,41,703 cr, up 34%

* Total fiscal stimulus in 2008-09 amounts to Rs 1,86,000 cr

* IIFCL to evolve mechanism for increased funding of infra

* IIFCL to re-finance commercial bank loans up to 60 per cent in critical projects through PPP to tune of Rs 1,00,000 cr

* Allocations for highways being stepped up by 23 per cent

* Funds for housing, amenities for urban poor up Rs 3,973 cr

* Funds for JN Urban Renewal Mission up 87% to Rs 12,887 cr

* Assistance for storm-water drainage project up by Rs 300 cr

* Farm credit target up at Rs 3,25,000 cr from Rs 2,87,000 cr

* Interest rates incentive to farmers to repay loans on time

* Additional Rs 1,000 crore for accelerated irrigation scheme

* Export Credit Guarantee scheme extended till March 2010

* 2% interest subvention (IS) scheme extended till March 2010

* IS scheme to cover 7 job-oriented sectors, including textile, handicrafts and handlooms.

* Commodity Transaction Tax abolished

* New pension system trust exempted from STT; DDT

* Minimum Alternate Tax hiked to 15% from 10%

* Tax holiday on petro sector extended to natural gas.

* 100% tax deduction on political donation * Stimulus for print media for another six months

* Fertiliser subsidy to be nutrient-based, not price

* Expert Grp to form viable pricing for imported petro goods

* Banks and insurance firms to remain in public sector

* Rs 100 cr one-time grant to expand banks in unbanked areas

* Govt committed to provide Rs 100 a day as wages under NREGA

* Allocation of Rs 39,100 cr to be made for NREGA

* NREGA coverage increased to 4.74 crore households in FY’09

* Work National Food Security scheme has begun

* Allocation for Bharat Nirman being raised by 45 per cent

* Rs 2,000 cr rural housing fund under National Housing bank

* Mission for female literacy with focus on minorities, SC/ST

* 50% of all rural women to be brought into SHG programmes

* Full interest subsidy for students in select institutions

* Five lakh students to benefit

* Modernisation of national exployment exchanges

* Action for social security to unorganised sector workers

* New pension benefits for 12 lakh jawans and JCOs from July

* One lakh dwelling units for paramilitary forces personnel

* Unique Identification Card to citizens in 12-18 months

* Provision of Rs 120 crore for UIC project

* Rs 2,113 crore allocated for IITs and new IITs

* Rs 3472 cr for Commonwealth Games from Rs 2112 cr

* Customs, excise and service tax base rates unchanged

* For Indira Awas Yojana, allocation increased 63%

* IT returns to be made simpler

* 8 missions being launched under Plan on climate change

* Allocation for market development assistance scheme up 148%

* Allocation for Rural Health Mission raised by Rs 257 cr above interim budget

* Rs 500 cr for rehabilitation of Sri Lankan Tamils

* Rs 1,000 cr for infrastructure in cyclone-hit area in WB

* Total expenditure crosses Rs 10 lakh cr for first time

* Share of direct taxes in revenue increased to 56% in FY’09

However, the failure of Finance Minister Pranab Mukherjee’s Budget in slashing securities transaction tax, the status quo when it came to short-term capital gains tax, no substantial increase in exemption level for calculating personal income tax and no complete tax exemption on interest income earned by senior citizens was a huge letdown.

I would rate this Budget at 5 on a scale of 1 to 10.