Indian Budget 2010-2011

Fiscal Consolidation Has Had Its Stake



So finally all that fuss about huge government borrowings and fiscal deficits seems to be subsiding as the new budget 2010-2011 slowly unravels its promising effects.

Amid growing concerns about a possible fiscal crisis (which definitely had Pranab Mukherjee tensed), what we saw was a perfect blend of partial stimulus rollbacks and increased allocations to what was really required.

What really chinned-up the investors and corporate was the revised fiscal deficit figure which has been pegged at 5.5% of the GDP for the fiscal year 2010-2011, 4.8% for 2011-2012 and 4.1% for 2012-2013.

Unlike the last year, where the figures hovered around 6.8% of the GDP and had pronounced huge government borrowings which had in-turn crowded out the corporate sector from borrowing spree, the scenario’s more hopeful this time.

And the firms hardly took any time in understandin’ it. The result: sensex upped 175 points only moments after the budget announcements.



What really were the steps taken for fiscal consolidation?


1.) New figures for fiscal deficit pegged at 5.5% of the GDP.


2.) Raising of around Rs. 40,000 crores through divestment.


3.) Another Rs. 35,000 crores through spectrum sales.


4.) Cenvat rose from 8% up to 10%. (Illustrating a partial stimulus rollback as the new figure is still 4% down of the 14%, its pre-stimulus state.)


5.) MAT has been raised to 18%. (Previous figure being 15 %.) Though this is what took companies by plight.


6.) Custom duties for petrol and diesel, which had been abolished previously, have been re-imposed.


7.) Crude petroleum will bear a 5% custom, petrol and diesel 7.5% and other refined ones a 10% custom duty.


8.) Excise duties on petrol and diesel, previously abolished, have been revived too.


9.) The non-plan spending has been upped only by 6% and the planned one by 15%.


10.) Surcharge has been lowered by a petty 2.5 %. (From 10 to 7.5.)


11.) Custom duty on gold levied at around Rs. 840 per ounce.


And just making sure that these measures don’t mar demand and consumption, the finance minister has given the tax slab a quantum shift.

As per the new norms, income up to Rs. 1,60,000 bears no tax. (Of course it’s 1,90,000 for women and 2,40,000 for senior citizens.)

1,60,000 to 5,00,000-------------10%
5,00,000 to 8,00,000-------------20%
Above 8,00,000---------------------30%

So, overall, well done Mr. Pranab, 9% growth rate ain’t no far-cry.