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TERM PAPER

OF
MANAGERIAL ECONOMICS
TOPIC:- BUDGET 2009 AN EVALUATION OF
ITS EFFECT ON SERVICE INDUSTRY
SUBMITTED BY:- ARUN SAINI
MBA 1St Sem
ROLL- A25
SUBMITTED TO:- MR.. SACHIN LAL
KASHYAP
BUDGET 2009-2010
INTRODUCTION:-
Presenting the interim Budget for 2009-10 in Lok Sabha, acting
Finance Minister Pranab Mukherjee] claimed in Parliament on
Monday that every effort has been made to fulfil promises made to the
common man.
HIGHLIGHTS OF THE INTERIM BUDGET 2009-10:-
 The Gross Domestic Product increased by 7.5 per cent, 9.5
percent, 9.7 percent and 9 per cent in the first four years from fiscal
year 2004-05 to 2007-08 recording a sustained growth of over 9 per
cent for three consecutive years for the first time. The growth drivers
for the period were agriculture, services, manufacturing along with
trade and construction.
 Fiscal deficit down from 4.5 per cent in 2003-04 to 2.7 per cent
in 2007-08 and Revenue deficit from 3.6 per cent to 1.1 per cent in
2007-08.
 The domestic investment rate as a proportion of GDP increased
from 27.6 per cent in 2003-04 to 39 per cent in 2007-08. Gross
Domestic savings rate shot up from 29.8 per cent to 37.7 per cent
during this period.
 The Gross capital formation in agriculture as a proportion of
agriculture GDP increased from 11.1 per cent in 2003-04 to 14.2 per
cent in 2007-08.
 The tax to GDP ratio increased from 9.2 per cent in 2003-04 to
12.5 per cent in 2007-08.
 Annual growth rate of agriculture rose to 3.7 per cent during
2003-04 to 2007-08. The foodgrain production recorded an increase of
10 million tonnes each year during this period and touched an all time
high of 230 million tonnes in 2007-08.
 While manufacturing sector recorded growth of 9.5 per cent per
annum in the period 2004-05 to 2007-08, communication and
construction sectors grew at the rate of 26 per cent and 13.5 per cent
per annum, respectively.
 Exports grew at an annual average growth rate of 26.4 per cent
in US dollar terms in the period 2004-05 to 2007-08. Foreign trade
increased from 23.7 per cent of GDP in 2003-04 to 35.5 per cent in
2007-08.
OUTLOOK FOR THE YEAR 2009-2010:-
 Despite the global financial crisis which began in 2007
impacting most emerging market economies, 7.1 per cent rate of GDP
growth in the current year makes India the second fastest growing
economy in the world.
 Fallout of global slowdown on Indian economy were countered
with fiscal stimulus packages announced on December 7, 2010 and
January 2, 2009 providing tax relief to boost demand and increasing
expenditure on public projects.
 Government accorded approval to 37 infrastructure projects
worth Rs 70,000 crore from August, 2010 to January, 2009 alone.
 Under PPP mode, 54 Central Sector infrastructure projects with
a project cost of Rs 67,700 crore given in-principal or final approval
and 23 projects amounting to Rs 27,900 crore approved for viability
gap funding in 2010-09.
 India Infrastructure Finance Company Ltd. (IIFCL) to refinance
up to 60 per cent of commercial bank loans for PPP projects involving
total investment of Rs 1,00,000 crore in infrastructure over the next
eighteen months.
 In addition to RBI taking number of monetary easing and
liquidity enhancing measures such as reduction in cash reserve ratio,
statutory liquidity ratio and key policy rates, Government has taken
specific measures which include extension of export credit for labour
intensive exports, improving pre and post shipment credit availability,
additional allocations for refund of Terminal Excise Duty/CST and
export incentive schemes besides removal of export duty and export
ban on certain items. A Committee of Secretaries set up to address
procedural problems faced by exporters.
 Record US$ 32.4 billion FDI received in 2007-08 and
notwithstanding financial uncertainty and slowdown, FDI inflows
during April-November, 2010 were US$ 23.3 billion recording a
growth of 45 per cent over the same period in 2007.
 FRBM targets for the current year and for fiscal 2009-10 relaxed
to provide much needed demand boost. However, medium term
objective is to revert to fiscal consolidation at the earliest.
INITIATIVES AND ACHIEVEMENT:-
Agriculture
 Plan allocation for agriculture increased by 300 per cent from
2003-04 to 2010-09. Rashtriya Krishi Vikas Yojna launched in 2007-
08 with an outlay of Rs 25,000 crore to increase growth rate of
agriculture and allied sector to 4 per cent per annum during Eleventh
Plan period.
Agriculture credit disbursement increased three times from Rs
87,000 crore in 2003-04 to about Rs 2,50,000 crore in 2007-08.
 To strengthen short-term cooperative credit structure, revival
package in 25 states involving financial assistance of about Rs 13,500
crore is being implemented.
 Interest subvention to be continued in 2009-10 to ensure that
farmers get short term crop loans upto Rs 3 lakh at 7 per cent per
annum.
 The Agricultural Debt Waiver and Debt Relief Scheme, 2010
was implemented by June 30, 2010 as scheduled. Debt waiver/debt
relief amounting to Rs 65,300 crore covers 3.6 crore farmers.
 Despite higher procurement cost and higher international prices
during the last 5 years, the central issue prices under Targeted Public
Distribution System (TPDS) maintained at July, 2000 level in case of
Below Poverty Line (BPL) and Antyodaya Anna Yojana (AAY)
categories and at July, 2002 levels for Above Poverty Line (APL)
category.
 Minimum Support Price (MSP) for common variety of paddy
increased from Rs 550 per quintal in 2003-04 to Rs 900 per quintal for
the crop year 2010-09. In case of wheat, increase was from Rs 630 per
quintal in 2003-04 to Rs 1080 per quintal for the year 2009. Rural
Development
 The corpus of Rural Infrastructure Development Fund (RIDF)
increased from Rs.5,500 crore in 2003-04 to Rs 14,000 crore for the
year 2010-09. A separate window for rural roads created with a corpus
of Rs 4,000 crore for each of the last three years.
 As against 60 lakh houses to be constructed under Indira Awaas
Yojana by 2010-09, 60 lakh twelve thousand houses constructed
between 2005-06 to December, 2010.
 Panchayat Empowerment and Accountability Scheme (PEAIS)
proposed to be expanded.
EDUCATION:-
 Major initiatives including a new Centrally Sponsored Scheme
launched to universalize education at secondary stage in the year
2010-09.
 Outlay on Higher Education increased 9 fold in the Eleventh
Five Year Plan. Ordinance promulgated for establishing 15 Central
Universities. In addition to 6 new Indian Institutes of Technology
(IITs) in Bihar, Andhra Pradesh, Rajasthan], Orissa, Punjab and
Gujrat which started functioning in 2010-09, two more IITs in
Madhya Pradesh and Himachal Pradesh are expected to commence
their academic session in 2009-10. 5 Indian Institute of Science
Education and Research (IISER) announced earlier have become
functional. 2 new schools of Planning and Architecture at Vijayawada
and Bhopal have started functioning. Teaching is expected to
commence from academic year 2009-10 in four out of six new Indian
Institute of Management proposed for the Eleventh Plan in Haryana,
Rajasthan, Jharkhand and Tamil Nadu.
 Due to revision in Educational Loan Scheme by the
Government number of beneficiaries increased from 3.19 lakh to
14.09 lakh and amount of loan outstanding increased from Rs 4,500
crore as on March, 31, 2004 to Rs 24,260 crore as on September 30,
2010.
 500 ITIs upgraded into centers of excellence. National Skill
Development Corporation created in July, 2010 with initial corpus of
Rs 1,000 crore.

SOCIAL SECTOR:-
Authorised capital of National Safai Karamchari Finance and
Development Corporation (NSKFDC) is being raised from Rs 200
crore to Rs 300 crore.
 Scope of the pre-metric scholarship for children of those
engaged in unclean occupations expanded and rates of scholarship
doubled in 2010-09. Annual ad-hoc grant increased by about 50 per
cent as compared to earlier rates.
 Rashtriya Mahila Kosh to be strengthened by enhancing its
authorized capital.
 'Priyadarsini Project' a rural women's employment and
livelihood programme will be implemented as pilot in the district of
Madhubani and Sitamarhi in Bihar and Shravasti, Bahraich, Rai Bareli
and Sultanpur in Uttar Pradesh].
 146 lakh persons benefited under Indira Gandhi National Old
Age Pension Scheme in the current financial year.
 Two new schemes – 'Indira Gandhi National Widow Pension
Scheme' to provide pension of Rs 200 to widows between age groups
of 40-64 years and 'Indira Gandhi National Disability Pension
Scheme' to provide pension for severely disabled persons.
 Widows in the age group of 18-40 years to be given priority in
admission to ITIs, Women ITIs and National/Regional ITIs for
women. Government to bear cost of their training and provide stipend
of Rs 500 per month.
 22 States and Union Territories initiated process to implement
Rashtriya Swasthya Bima Yojana for BPL familities in the
unorganised sector and 60 lakh thirty two thousand persons covered
for death and disability under 'Aam Admni' Bima Yojana (AABY).
Public Sector Enterprises
 Turnover of Central Public Sector Enterprises increased from
Rs 5,87,000 crore in 2003-04 to Rs 10,81,000 crore in 2007-08 and
profits grew from Rs 53,000 crore to Rs 91,000 crore. While number
of loss making enterprises came down from 73 in 2003-04 to 55 in
2007-08, number of profit making enterprises has gone up from 143 to
158 during the same period.
 Government approved implementation of Guidelines on
Corporate Governance in Central Public Sector Enterprises (CPSEs)
in June, 2007.
 Corpus of National Investment Fund created out of
disinvestment proceeds from Central PSUs stood at Rs 1,815 crore as
on December 31, 2010.
Financial Sector Reforms
 NPAs of Public Sector Banks declined from 7.8 per cent on
March 31, 2004 to 2.3 per cent on March 31, 2010.
 As a result of initiating process of amalgamation and
recapitalization of Regional Rural Banks (RRBs) with negative net
worth, 196 RRBs merged into 85 RRBs. The Government has
contributed Rs 652 crore for capitalization of RRBs upto December
31, 2010.
 Number of reforms undertaken in the last four years to deepen
and widen the securities markets and strengthen the regulatory
mechanisms for these markets.
 The Companies Bill, 2010, undertaking comprehensive
revision of Companies Act, 1956 to enable adoption of internationally
accepted best practices, has been introduced in the Parliament.

REVISED ESTIMATES:-
The total expenditure at Rs 7,50,884 crore in B.E. 2010-09 revised to
Rs 9,00,953 crore in R.E. 2010-09 showing an increase of Rs 1,50,069
crore.
 Plan Expenditure gone up from Rs 2,43,386 crore in B.E. 2010-09
to Rs 2,82,957 crore in R.E. 2010-09.
 Non-Plan expenditure increased by Rs 1,10,498 crore in R.E.
2010-09 over B.E. 2010-09.
 Revised Estimate 2010-09 for Non-Tax Revenues increased from
Rs 95,785 crore in Budget Estimate 2010-09 to Rs 96,203 crore.
 Revised Estimates of gross tax collection projected at Rs 6,27,949
crore as against B.E. 2010-09 of Rs 6,87,715 crore, primarily due to
pro-active fiscal measures initiated to counter the impact of global
slowdown on the Indian economy.
 Revised Revenue deficit to be at Rs 2,41,273 crore (4.4 per cent of
GDP) as against budgeted figure of Rs 55,184 crore (1 per cent of
GDP).
 Fiscal deficit to go up from Rs 1,33,287 crore (2.5 per cent of
GDP) in B.E. 2010-09 to Rs 3,26,515 crore (6 per cent of GDP).
BUDGET ESTIMATES:-
 Total expenditure for fiscal 2009-10 estimated at Rs 9,53,231
crore. Plan expenditure estimated at Rs 2,85,149 crore and Non-Plan
expenditure at Rs 6,68,082 crore.
 Budgetary support in Plan B.E. 2009-10 in comparison to B.E.
2010-09 increased for Department of Rural Development, Department
of Road Transport & Highways, Railways, Ministry of Power,
Department of Industrial Policy and Promotion and Department of
Information Technology to meet the requirements of rural and
infrastructure development along with higher allocation for Ministry
of Youth Affairs & Sports and Ministry of Culture to ensure adequate
resources for hosting of the Commonwealth Games Allocations to
flagship programme which directly impact 'Aam Aadmi' fully
protected.
 Rs.30,100 crore allocated for National Rural Employment
Guarantee Scheme for the year 2009-10. In 2010-09 employment of
138.76 crore person days covering 3.51 crore household already
generated.
 About 98 per cent habitations covered by primary schools under
Sarva Shiksha Abhiyan. Allocation for this programme increased by
571 per cent between 2003-04 and 2010-09. Allocation of Rs 13,100
crore proposed for 2009-10.
 Rs 8,000 crore allocated for Mid-day Meals Scheme for the year
2009-10.
 Allocation of Rs 6,705 crore proposed for Integrated Child
Development Scheme (ICDS) for the year 2009-10. New WHO child
growth standards adopted for monitoring growth of children under
ICDS.
 386 projects amounting to Rs 39,000 crore sanctioned till
December 31, 2010 under Jawaharlal Nehru] National Urban Renewal
Mission (JNNURM). Allocation of Rs.11,842 crore proposed for the
year 2009-10.
 Rs.7,400 crore allocated for Rajiv Gandhi Rural Drinking Water
Mission, Rs 1,200 crore for Rural Sanitation Programme, Rs 12,070
crore for National Rural Health Mission, Rs 40,900 crore allocated for
Bharat Nirman for the year 2009-10.
 A provision of Rs 100 crore in the Annual Plan 2009-10 made for
Unique Identification Authority of India.
 RIDF-XV proposed with a corpus of Rs 14,000 crore. Separate
window for rural roads to continue with a corpus of Rs 4,000 crore.
 Interest subvention of 2 per cent on pre and post shipment credit
for certain employment oriented sectors i.e. Textiles (including
handlooms & handicrafts), Carpets, Leather, Gem & Jewellery,
Marine products and SMEs extended beyond March 31, 2009 till
September 30, 2009 involving an additional financial outgo of Rs.500
crore.
 Government to recapitalize the public sector banks over the next
two years to enable them to maintain Capital to Risk Weighted Assets
Ratio (CRAR) of 12 per cent.
 Allocation for Defence increased to Rs 1,41,703 crore which
includes Rs 54,824 for Capital Expenditure.
 Major subsidies including food, fertilizer and petroleum estimated
at Rs 95,579 crore.
 For the fiscal 2009-10, with Centre's net tax revenue estimated at
Rs 5,00,096 crore and Revenue expenditure at Rs 8,48,085 crore,
revenue deficit is estimated at 4 per cent of GDP and fiscal deficit at
5.5 per cent of GDP.

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
2010-09.
· Whole sale price index rose to nearly 13 per cent in August, 2010
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 2010-09.
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.
TOWARDS ECONOMIC REVIVAL:-
Short-term Measures
To counter the negative fallout of the global slowdown on the Indian
economy, Government responded by providing three focused fiscal
stimulus packages in the form of tax relief and increased expenditure
on public projects along with RBI taking a number of monetary easing
and liquidity enhancing measures.
Fiscal accommodation led to an increase in fiscal deficit from 2.7 per
cent in 2007-08 to 6.2 per cent of GDP in 2010-09.

EFFECT ON SERVICE INDUSTRY:-


The market had high expectations from the Union Budget 2009-10,
especially with the Economic Survey suggesting radical changes --
including review, phase out surcharges, cesses and transaction taxes
and annual target of Rs 25,000 crore per annum from disinvestment of
stake in PSUs for the next five years.
While Union Budget did remove Fringe Benefit Tax, markets found
the hike in Minimum Alternate Tax from 10% to 15% a bigger irritant.
Also, contrary to market expectations, fiscal deficit is set to zoom to
6.8% in the fiscal year 2009-10, up from 6.2% as per provisional
accounts of FY 2010-09.
The markets were expecting inflows from auction of 3G spectrum
auctions and the inflow from divestment of stake in PSUs to ensure
that fiscal deficit does not shoot over 6.0%. However, the budget
documents indicate that the deficit will touch 6.8% for FY 2009-10.
Similarly, revenue deficit is set to increase to 4.8% in FY 2009-10
from 4.6% in FY 2010-09 .
He hike in Minimum Alternate Tax (MAT) from 10% to 15% is an
irritant for the corporate sector. On the positive side, this hike has
come with a benefit of extending the period allowed to carry forward
the tax credit under MAT from 7 years to 10 years.
Also, the hike in MAT will not be 'earnings dilutive', but will only be
'cash flow dilutive'. The increase in liability towards MAT will be
matched by an incremental deferred tax credit.
Hence, the net profit or EPS of a company will not change due to hike
in MAT from 10% to 15%. However, it will lead to an increase in
cash outflow and if the company is not returning to profits as per the
Income tax Act within ten years, then it may have to forego these.
So, from the current year's point of view, the increase in MAT from
10% to 15% is not earnings dilutive but cash flow dilutive.
On the other hand, the removal of Fringe Benefit Tax (FBT) is a major
positive for corporate India.
The finance minister has said that surcharge on income tax for
individuals will be waived.
The finance minister has said that the budget proposals are revenue
neutral as far as direct tax is concerned. This is so despite the fact that
the exemption limit on personal income tax has been hiked by Rs
15,000 to Rs 2.40 lakh for senior citizens.
Similarly, the exemption limit was hiked by Rs 10,000 each to Rs 1.90
lakh for women taxpayers and to Rs 1.60 lakh for all other categories
of individual taxpayers.
As the minimum tax bracket is 10%, this means the benefit for senior
citizens will be Rs 1,500 per annum and for others (including women
tax payers) will be Rs 1,000 per annum. The benefit could be more,
including the surcharge waived.
The Union Budget has increased the deduction under section 80 DD in
respect of maintenance, including medical treatment, of a dependent
with severe disability has been raised from Rs 75,000 to Rs 1 lakh (Rs
100,000).
In a way, the biggest (maximum) and the largest (covering more
people) beneficiary of the Union Budget 2009-10 is the salaried class.
Their disposable income has been increased through hike in IT
exemption limit and removal of surcharge.
The Union Budget has robbed corporates to increase disposable
income of individuals. As a result, while corporate taxes are expected
to rise by 15.6% to Rs 256,725 crore, personal income tax is expected
to fall by nearly 8% to Rs 112,850 crore in FY 2009-10.
Auto sector has to contend with the reduction in excise duty on
vehicles that were left out in the three-stimulus package announced in
2010-09.
The Union Budget 2009-10 has cut the excise duty for petrol trucks to
8% from 20%. In addition, the ad valorem (duty by value) duty on
cars and sports utility vehicles of engine capacity equal and above
2,000cc has been reduced by Rs 5,000/unit to Rs 15,000, auguring
well for vehicle manufacturers.
In addition, the budget has further provided for a more level playing
field between road freight and other modes of transport (including
coastal shipping and railways) by applying a uniform service tax rate.
This will reduce the incremental disadvantage in pricing faced by road
freight operators. Overall the Union Budget 2009-10 is marginally
positive for the sector.
The Indian software industry has something to cheer from the Budget
2009. The budget proposes to abolish FBT, which would mean lower
cash outgo and lower administration hassles. Also, the budget
proposes extension of STPI scheme (sun-set clause) for one more
year, i.e. for FY2010-11.
This would mean one more year of relief on the taxation front for the
IT companies. The budget proposes to exempt the value attributable to
the transfer of the right to use packaged software from excise duty and
CVD.
Finally, the budget proposes to increase the MAT limit from 10% to
15% and extend the period allowed to carry forward the tax credit
under MAT from 7 years to 10 years.
Though this would mean higher cash outgo due to taxes to be paid
on higher tax rate, on an overall basis the impact on earnings would be
neutral.
On the administrative side, the budget proposes set up of alternative
dispute resolution mechanism to be created within the Income Tax
department for the resolution of transfer pricing disputes empowering
the Central Board of Direct Taxes (CBDT) to formulate 'safe harbour'
rules to reduce the impact of judgmental errors in determining transfer
price in international transactions.
The budget proposes to continue with the stimulus package extended
in February, 2009 up to December 31, 2009 to the print media,
comprising waiver of 15% agency commission on DAVP
advertisements and a 10% increase in the DAVP rates to be paid as a
'special relief' subject to documentary proof of loss of revenue in non-
governmental advertisements.
This will spell relief for the print media sector, which is reeling due to
slowing advertising revenues. With the election season over, DAVP
advertising would begin and is likely to fill up some of the revenue
shortfall created by the slowing economy.
However, the benefit would not be major as the share of DAVP of the
total advertising revenues is 10-20%.
Looking at the opportunity and growth in rural sector, FMCG
companies are now focussing on the rural region for their volume
growth.
The focus on rural sector in the budget -- like increase in agriculture
credit flow to Rs 325,000 crore, allocation of loan to farmer up to 3
lakh at the rate of 7%, and144% increase in allocation for National
Rural Employment Guarantee Scheme to Rs 39,100 crore -- will give
the required boosts to the FMCG industry.
Along with it, an increase in teh exemption limit in personal income
tax by Rs 15,000 to Rs 2.40 lakh for senior citizens; by Rs 10,000 to
Rs 1.90 lakh for women tax payers; and by Rs 10,000 to Rs.1.60 lakh
for all other categories of individual taxpayers, eliminating the
surcharge of 10% on personal income-tax, abolition of Fringe Benefit
Tax (FBT) and introduction of the Goods and Services Tax with effect
from April 1, 2010 will the help the FMCG sector to continue it
moment for the FY09.
The paper sector didn't receive any much attention from the finance
minster in the budget. However, the paper industry is thankful to the
finance minister for not increasing the excise duty, which was cut by
600 basis points in the first two-stimulus packages to the current level
of 4%.
The paper industry, which is suffering from low cost export, was
expecting a rise in basic custom duty (BCD) from 10% to 15% on
paper/paperboards along with re-introduce component of special
additional duty to save the domestic manufacturer.
The finance minister has not heard their request. The scrips to be
watch will be Ballarpur Industries (BILT), JK Paper, Tamil Nadu
Newsprint & Papers (TNPL).
ENTERTAINMENT:- (Customs duty imposed on STB at 5%)
The budget proposes to levy basic customs duty of 5% on Set-Top
Boxes. This would be a negative for the cable and DTH operators who
are already reeling under losses on the back of higher customer
acquisition cost as compared to revenue per customer.
In order to ensure balanced application of fertilizers to increase
agricultural productivity, the government intends to move towards a
nutrient-based subsidy regime so as to cover larger basket of fertilizers
with innovative fertilizer products available in the market at
reasonable prices.
Besides, the government also intends to move to a system of direct
transfer of subsidy to the farmers. The system of direct transfer of
subsidy to farmers is laudable, but only if competition is allowed
amongst fertilizer companies to price their products.
Here the problem arises due to substantial difference in cost of
production depending on the feedstock used, like natural gas,
regassified LNG, naphtha, other alternate fuels etc. So, while it was
the government which encouraged fertilizer capacity additions through
feedstock other than gas, it cannot shy away from its responsibility.
Also, if Indian fertilizer production comes down and domestic
consumption continues to rise, the country may have to pay heavy
price of sharp spike in global prices and import in larger quantities at
such high prices.
We have seen this in wheat, sugar, etc, and hope we shall not see it in
fertilizers. How the government achieves this remains to be seen.
Customs duty on rock phosphate was reduced to 2% from 5% earlier.
Excise duty on naphtha was also reduced to 14%. Although the lower
customs duty and excise duty on rock phosphate and naphtha
respectively will enable the fertilizer manufacturers to reduce their
production cost, important issues like the timely subsidy payment,
measure to attract new investment went unaddressed.
There was also no time slab announced within which the nutrient-
based subsidy regime and the direct payment of subsidy to the farmers
are implemented. Thus the budget was really a dull affair for the
fertilizer sector.
PESTICIDES FEELS UNCARED FOR:-
Although Fringe Benefit Tax (FBT) was abolished, there was no
clarity on the other demand of the industry body. The pesticides
industry had requested for reduction in excise duty on pesticides from
8% to 4%, besides lowering excise duty to 4% from the current level
of 16% for furnace oil.
The industry had also requested for zero import duty for major fuels
like fuel oil, LSHS, coal, etc. None of these, however, materialised in
the budget.
Request for lower import duty on inputs and fuels for captive power
plants and reduction of service tax was also denied. Thus, the budget
for the pesticides industry is negative as far as immediate impact is
concerned.
In the Budget 2009-10, full exemption from 4% special CVD on parts
for manufacture of mobile phones and accessories has been proposed
to be reintroduced for one year.
The proposal is positive for the telecom services industry as it will
help in achieving the key objective of the government to ensure fast
spread of affordable connectivity to the rural areas.
But whether the cost of mobile phones will come down is a moot
point.
The finance minister made few announcements for the oil and gas
sector and one of the major ones was the extension of tax holiday
under Section 80 IB (9) for production of natural gas too.
The demand for deregulation of the oil sector, however, was not
fulfilled. But the government set up an expert group to advise on a
viable and sustainable system of pricing petroleum products.
The announcements made in the budget are marginally positive for the
sector in spite of major expectations remaining unfulfilled.
Slew of initiatives for the oil and gas sector have been proposed in the
budget. These include:

• The government shall set up an expert group to advise on a viable and


sustainable system of pricing petroleum products.
• Tax holiday under section 80-IB(9) of the Income Tax Act, which was
hitherto available in respect of profits arising from the commercial
production or refining of mineral oil, to be extended to natural gas. This tax
benefit to be available to undertakings in respect of profits derived from the
commercial production of mineral oil and natural gas from oil and gas
blocks which are awarded under the NELP-VIII round of bidding. The
section to be retrospectively amended to provide that "undertaking" for the
purposes of section 80-IB(9) will mean all blocks awarded in any single
contract.
• The government shall prepare a blueprint to be developed for long
distance gas pipelines leading to a National Gas Grid to facilitate
transportation of gas across the length and breadth of the country.
• The outlay for Assam Gas Cracker Project stepped up suitably in B.E.
2009-10.
• Excise duty on naphtha to be reduced to 14%.
• Duty paid High Speed Diesel blended with upto 20% bio-diesel to be
fully exempted from excise duties.
• The ad valorem component of excise duty of 6% on petrol intended
for sale with a brand name to be converted into a specific rate.
Consequently, such petrol would now attract total excise duty of Rs.14.50
per litre instead of '6% + Rs.13 per litre'.
• The ad valorem component of excise duty of 6% on diesel intended
for sale with a brand name to be converted into a specific rate.
Consequently, such diesel would now attract total excise duty of Rs.4.75
per litre instead of '6% + Rs.3.25 per litre'.
• Customs duty on bio-diesel to be reduced from 7.5% to 2.5%
• The steel industry was expecting an increase in import duty on
certain steel and steel products and was also hopeful of a hike in
export tax on iron ore.
• None of these two demands of the industry was met. However,
focus on infrastructure is expected to provide indirect demand push.
• From a medium-term perspective, the government plans to
increase the investment in infrastructure to more than 9 per cent of
GDP by 2014. Overall, with industry demands not met the Budget is
neutral for the steel sector with a negative bias.
• The real estate sector looked up to to the budget with great hope
for measures to resurrect the housing demand. It had asked for
increase in 80C benefit to Rs 3 lakh and of which 2 lakh exclusively
for principal repayment, extension of 100% deduction of interest on
payment for owner occupied house as well like rented house,
extension of sunset clause u/s 10A and 10B, etc.
• While the extension of 10A and 10B benefits were granted for
one more year, auguring well for commercial real estate -- especially,
STPI space -- with no major change in tax benefits for investment in
real estate sector, the budget has not done any thing concrete to
resurrect the demand for the realty sector.
• However, removal of surcharge for income up to Rs 10 lakh (Rs
1 million), increase in tax exemption by Rs 15,000 for senior citizens
and by Rs 10,000 for women and other assesses will improve
disposable income.
• But this will largely be inadequate considering the current
property prices in urban centers and interest rates and will hardly be
any incentive for pushing up demand for real estate sector.
Capital Goods :-( No clear measures to encourage
investments)
• The increased allocation for central funded schemes such as
APDRP, Rajiv Gandhi Grameen Vidyutikaran Yojana has been good
for the electrical equipment industry.
• On the flipside, the budget has not clearly spelt out any measures
to encourage private investment in infrastructure or the manufacturing
sector.
• Rajiv Gandhi Grameen Vidyutikaran Yojana (RGGVY) to be
continued during the Eleventh Plan period with a capital subsidy of Rs
28,000 crore. Allocation of Rs 5,500 crore for 2010-09.
• Corpus for the Rural Infrastructure Development Fund (RIDF-XIV) to
be raised in 2010-09 to Rs 14,000 crore, with a separate window for rural
roads.
• Increase in short term capital gains from 10 per cent to 15 per cent.
• Change in treatment of securities transaction tax (STT) from rebate to
an expenditure.

Impact on sector :-
• No relief to the infrastructure financing sector in terms of tax rates.
• Infrastructure financing companies to benefit under the public private
partnerships proposed under various infrastructure schemes. The corpus for
the Rural Infrastructure Development Fund will facilitate such PPP projects
in the rural segments as well.
• Companies that finance rural electrification will benefit from the
additional subsidy offered to RGGVY.

Impact on companies :-
• Rural Electrification Corporation will benefit from the additional
subsidy offered to RGGVY.
• IDFC to benefit from private participation in infrastructure projects.
• HDFC to benefit from the subsidies offered to rural housing due to the
company’s focus on the same.
• Broking firms like Indiainfoline, India Bulls to be impacted by
reduction in trading volumes arising out of higher short term tax.
• Treatment of STT is expected to impact brokers especially those who
are involved in proprietary book trading and arbitrage. Overall volume in
the market can be impacted due to reduction in volmes and can thus
increase impact cost

BUDGET IMPACT ON SERVICE TAX:-


1.Threshold annual exemption limit:

• The threshold limit for small service providers has been


increased from Rs.800,000 to Rs.10,00,000/-
• Amendment shall come into effect from April 1, 2010
1. Registration:_
• Annual turnover limit for obtaining Service tax registration has
been increased from Rs.700,000 to Rs.900,000/-
• Amendment shall come into effect from April 1, 2010
2.Service tax net widened to include the following services:

• Stock exchange, commodity exchange and processing and


clearing house services
 Stock exchange and commodity exchange perform duties
and functions of processing and clearing of transactions
 The above services provided by them to be chargeable to
service tax

Information technology software services


 Interalia, includes, development, up-gradation,
enhancement, adaptation, implementation and other services
 Provision of advice and assistance on matters related to IT
software
 Acquiring the right to use, including the right to reproduce
and sell and software supplied electronically

Investment management service provided under Unit Linked


Insurance Plan (‘ULIP’)
 Charges covered by insurance companies from policy
holders such as premium allocation charges, fund management fees,
fund switching charges, surrender charges etc. (by whatever name
called), chargeable to service tax
 However, the risk premium under ULIP would be taxable
under Insurance services

• Supply of tangible goods for use services


 Transfer of right to use any goods, in case when both the
possession and control of goods is transferred, is leviable to Value
Added Tax (‘VAT’)
 Transaction of allowing another person to use the goods
without giving legal right to possession and effective control, not
being treated as sale of goods, is treated as service, thereby chargeable
to Service tax under this head

Internet telecommunication services


 In the budget of 2007-08, six separate taxable services,
related to telecommunication were merged into single taxable service,
viz., Telecommunication service
 Telecommunication services are also provided through
internet, which would be covered under Internet telecommunication
services
 This will interalia include, internet back bone services
(including carrier service of internet traffic by one Internet Service
Provider (‘ISP’) to another ISP, internet access service

2. Amendments in existing services:

Foreign exchange broker service:


 To include purchase or sale of foreign currency, including
money changing, by an authorized dealer or an authorized money
changer under banking and other financial services
 To include purchase or sale of foreign currency, including
money changing, by an authorized dealer or an authorized money
changer under foreign exchange broker services provided by an
individual

Cargo handling service:


 To include packing together with transportation of cargo or
goods, with or without one or more services like loading, unloading,
unpacking

Tour operator services: -


 To include services provided in relation to a journey from
one place to another, in a contract carriage vehicle

Business auxiliary services:-


 To omit, reference to information technology service
3. Others:

• Time limit for filing revised returns increased from 60 days to 90


days
• Monetary limit on self adjustment of excess service tax paid,
increased from Rs. 50,000 to Rs.100,000/-
• General penalty upto Rs. 5,000, in case of any contravention of
any of the provisions of the CENVAT Credit Rules, 2004

4.Service Tax Dispute Resolution Scheme,


• Scheme applicable for resolution of dispute relating to Service
tax arrears pending as on March 1, 2010
• For amounts not exceeding Rs.25,000/-

CONCLUSION:-
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Finance minister Pranab Mukherjee will present the Union Budget for
2009-10 to Parliament in July first week. The budget text is not a
speech of financial records; it is also a agreement of the government
cost-effective policies. The government will give focused on flowing:
1. Agriculture
2. Rural Development
3. Internal Security
4. Primary Education
5. Industry Growth
6. Natural Resource
While making of budget so many surveys and analysis is doing like
pre budget survey, Industry key persons meetings, different
government departments head & important persons seat together,
financial organizations talk, in that way the budget is making.