Union Budget 2010-11: Higher Spending Plan in Key Areas, Divestment Road Map and Tax Reforms
Union Budget 2010-11: Higher Spending Plan in Key Areas, Divestment Road Map and Tax Reforms
Union Budget 2010-11: Higher Spending Plan in Key Areas, Divestment Road Map and Tax Reforms
(a) Clear plan to improve health of public finances- Over the last two years, several factors have pushed the fiscal deficit to
unsustainably high levels. Some of these factors include: (a) large increase in government expenditure prior to the general
elections in May 2009, (b) sharp rise in oil and fertilizer subsidy due to the rise in commodity prices, and (c) fiscal stimulus. The
high level of fiscal deficit is weighing on longer-term growth potential. We believe the government will take the first step
towards reducing the deficit to more sustainable levels in the February 2010 budget.
(b) Acceleration in infrastructure spending, particularly in roads and power- With focus on improving infrastructure and
developing road network across India, we expect that the momentum of issuing new road contracts and in implementation
of electricity projects likely to pick up further.
(c) Confirm its plan to initiate meaningful steps toward divestment of the government’s stakes in PSUs - The current high
level of fiscal deficit will likely make it difficult for the government to increase its spending on rural infrastructure and other
development expenditure. We believe that in such an environment, the government will need to augment its financial
resources though divestment of stakes in government companies.
(d) Social/rural sector push- Higher allocation towards the social and rural sectors has been the key feature of the UPA
government over the last few years. The government gave a big rural sector push under the National Rural Employment
Guarantee Act (NREGA) with spending under this scheme increased to US$8.1 billion in F2010. In this year’s budget, we
expect the central government to continue its push increasing expenditure on social welfare such as education, health and
rural support.
(e) Direct tax reforms - The Ministry of Finance has already put out a draft of new code for direct taxation. Still in the
consultation stage, finance minister will lay a roadmap for implementation, Key measure of the new code that markets will
focus on are : Lowering of corporate tax rate.
(f) Roadmap for implementation of the Goods and Services Tax system - The current system taxes production whereas the
GST will aim to tax consumption. Current law levies tax on movement of goods from one state to another, effectively creating
borders within borders. Transition to GST will be an important milestone from a macro perspective. While the government
had earlier announced its intention to implement it from April 1, 2010, it appears that it will be delayed and we expect the
government to provide clear a guideline regarding the timing and implementation of GST in the upcoming Union Budget.
In addition, we expect the government to hike excise duty rates by 2 percentage points on almost all products and announce
other tax measures in the February 2010 budget. Overall, we expect the central government deficit to reduce to 5.5% of GDP
in F2011 from 6.8% of GDP in F2010. We expect building in robust economic growth of 8.5-9% is likely to lead the government
to project a lower deficit (of 5.5%).
2010 Budget Expectations and Impact on the various Sectors and Stocks
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