The Union Budget 2009-10

Summary

This Forum of Free Enterprise booklet, edited by Sunil S. Bhandare, gathers three presentations on the Union Budget for 2009-10 — the first budget of the newly re-elected Congress-led coalition — under the heading ‘Three Critical Dimensions’. Bhandare’s Editor’s Note frames the volume around the high expectations that the ‘Left being left out’ would let the government push aggressive long-pending reforms, and concedes the budget conveyed ‘different perspectives for different experts’. The three contributors approach the budget from complementary angles: Amitha Sehgal offers a macro-fiscal critique measuring the budget against the Planning Commission’s Vision 2020; Divya Vasantharajan reads the micro, sector-by-sector impact on the capital market; and the chartered accountant Kanu H. Doshi works through the direct-tax proposals clause by clause. Across the three, the booklet balances alarm over India’s mounting fiscal deficit and debt against cautious optimism about growth, employment and market revival.

Essays

The Union Budget 2009-2010: Does It Dovetail With Vision 2020?

By Amitha Sehgal*

Amitha Sehgal asks whether the 2009-10 budget dovetails with the Planning Commission’s Vision 2020 report, opening with the claim that ‘a country needs to dream’ and invoking Lord Macaulay’s and the report’s framing of India’s latent greatness. Her macro-fiscal audit is sobering: a fiscal deficit headed toward 6.8 per cent of GDP (with combined Centre-state borrowing pushing the deficit toward 13 per cent), revenue deficit rising, interest payments consuming 56 per cent of the fiscal deficit, and tax-to-GDP ratios falling. She credits the government with sustaining capital expenditure during the global meltdown but argues the budget fails on employment generation — citing declining organised-sector jobs since the reforms, the centrality of SMEs (which generate the bulk of jobs internationally), and the limits of NREGA, whose wages she warns crowd out private farm labour. Her conclusion: the budget is ‘flawed on two major counts: huge debt and a lack of focus on generating meaningful employment’.

• Measures the budget against the Planning Commission’s Vision 2020 report and finds it short on employment and debt control.
• Flags a fiscal deficit toward 6.8% of GDP, combined Centre-state deficit near 13%, and interest payments at 56% of the fiscal deficit.
• Credits sustained capital expenditure during the global meltdown as a positive.
• Argues organised-sector employment has declined post-reform and SMEs are the real job engine.
• Criticises NREGA wages for crowding out private farm labour and neglecting livestock/agricultural investment.

Impact on Capital Market

By Divya Vasantharajan*

Divya Vasantharajan assesses the budget’s micro impact on the capital market, opening with an India past-performance table and budget-estimate breakdown. She reads the equity markets as bullish on post-election political stability even though, on Budget day (3 August), markets initially fell as a ‘major let down’ before recovering. Sector by sector she maps winners and losers: power and IIFCL refinancing draw a neutral verdict, oil and gas gains from extended Section 80-IB holidays, roads benefit from a 23 per cent NHDP rise, white goods and housing from customs and duty cuts, while pharmaceuticals, telecom, textiles and auto components each get targeted relief. Her optimistic close holds that good-monsoon hopes, disinvestment signals and rising FII inflows position the Indian capital market for a major revival in IPOs, mutual-fund NFOs and retail participation — predicting the next year ‘promises to be bullish for the capital market which may see the Sensex again at 21,000’.

• Reads equity markets as bullish on political stability despite an initial Budget-day fall on 3 August.
• Maps sectoral winners: oil & gas (Section 80-IB), roads (23% NHDP rise), white goods, housing, pharma, telecom, textiles, auto components.
• Treats power and IIFCL infrastructure refinancing as broadly neutral.
• Sees disinvestment signals, monsoon hopes and rising FII inflows driving a market revival.
• Predicts a bullish year ahead with the Sensex potentially returning to 21,000.

Direct Tax Proposals

By Kanu H. Doshi*

The chartered accountant Kanu H. Doshi provides a clause-by-clause summary of the budget’s direct-tax proposals under the Finance (No.2) Bill, 2009, framing them as an effort to lower the burden on individual taxpayers by raising the basic exemption, introduce a presumptive scheme for small businesses, encourage foreign investment, and simplify dispute resolution and TDS. He details the revised slabs (basic exemption raised to Rs.1,60,000, with higher thresholds for women and senior citizens), the unchanged 30 per cent company rate, the abolition of the Fringe Benefit Tax and its replacement under new section 115WM, the raised Minimum Alternate Tax rate to 15 per cent under section 115JB, the enlarged section 80-E education-loan deduction, wealth-tax threshold changes, the new statutory definition of ‘manufacture’ (section 2(29BA)), and LLP-conversion provisions. His conclusion registers ‘a mixed feeling of some joy, some disappointment and some hope’ — joy at the abolition of the 10 per cent personal surcharge and FBT, disappointment at the continued 10 per cent company surcharge and 3 per cent education cess, and hope for a Direct Tax Code and the reintroduction of the SARAL return form.

• Walks through the Finance (No.2) Bill, 2009 direct-tax proposals: aimed at lowering individual burden, aiding small business and foreign investment.
• Basic exemption raised to Rs.1,60,000 (higher for women and senior citizens); 30% company rate retained.
• Fringe Benefit Tax abolished (new section 115WM); Minimum Alternate Tax raised to 15% under section 115JB.
• New statutory definition of ‘manufacture’ (section 2(29BA)), enlarged section 80-E and weighted R&D deduction provisions.
• Mixed verdict: joy at surcharge/FBT abolition, disappointment at continued company surcharge and education cess, hope for a Direct Tax Code and SARAL’s return.

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