ECONOMICS OF BUSINESS-II

PROJECT REPORT

ON

BUDGET 2010-2011
SUBMITTED TO:

DR. R. K. OJHA

JAIPURIA INSTITUTE OF MANAGEMENT

LUCKNOW
INTRODUCTION

Indian economy is likely to grow by around 6.5-7% in the current fiscal, against 9% in
the previous fiscal despite two rounds of stimulus packages announced by the Centre.
The growth outlook for the next two quarters and for the whole year is expected to be in
the upper bound range of most predictions for the Indian economy.

The stronger growth is expected to allow the government to start rolling back fiscal
stimulus measures that were put in place when the global economic crisis erupted in
2008. India had a record gross borrowing of Rs 4.51 trillion ($97 billion) in 2009-10.
Stronger economic growth could help the government fight a 16-year high fiscal deficit,
thus lowering borrowing needs and easing pressure on bond yields.

Central bankers have said the government's net borrowings for 2010-11 would be
broadly in line with the current fiscal's net borrowing.

BUDGET IN DETAIL

The budget can be implemented on the basis of following grounds :-

Taxes:

The most consistent tax payers in India are the salaried class as their salaries are subject
to TDS (tax deducted at source)..

The common men and the corporates are looking for decrease in taxes. We will increase
exemption limit of individual taxes to Rs 3 lakh from Rs1.60 lakh for salaried people.
Exemption limit for women will be increased from 1.80 lakh to 4 lakh and for senior
citizen from Rs 2 lakh to 5 lakh.

However, taxes levied on the perks availed by income earners are expected to be
restructured on higher level. This arrangement may satisfy junior employees and senior
citizens. But, it may not go well with the people belonging to higher position.

Corporate Tax:

A reduction of 30% is expected in the corporate tax. The expectation is found in line with
the introduction of Direct Tax Code (DTC) suggesting a 25% rate. The individual rate
was lowered by 30% previous year also.

Capital Gains Tax:

As far as the 2010 India Budget expectation in the area of capital gain tax is concerned,
it is unlikely to bring any reform in this category of tax. It is predicted to be included
under the Direct Tax Code, to be implemented from April 2011.
Re-fixing of Tax Slabs:

As mentioned earlier, the tax slab for women is expected to be revised to 4 lakh and
senior citizens to Rs 5 lakh. However, second and third slabs of tax would see significant
change.

The second tax slab is expected to be augmented from the existing Rs 3 lakh to Rs 1
million to be taxed at 20%. The third slab is likely to be increased from Rs 5 lakh to Rs
25 lakh to be taxed at the rate of 30%.

Gratuity Limit:

The gratuity limit of the income class is to be raised to Rs10 lakh in the budget 2010
from Rs 3.5 lakh. Both the upper as well as middle level executives will benefit a lot,

Employees are paid gratuities in the government as well as corporate organizations

during the time of their retirement. The amount that is dished out as gratuity falls outside
the tax regime. If the gratuity limit is enhanced, the employees will surely benefit from it.

Stimulus:

It is not the right time for the government to roll back stimulus packages, despite the fact
that GDP growth of the nation in the Q2 (July – September) of the current fiscal stood at
7.9%.

However, we would withdraw few of the subsidies from the market. The oil companies
were aided with the stimulus package to check loss. We will not allow the Oil companies
to raise product costs of kerosene and diesel, which would have forced the common men
to pay more.

As high prices of diesel and petrol would bear adverse effect on the transport rates of
food products, the stimulus packages are expected to continue in the oil industry.
However, partial withdrawal of the stimulus aid will be implemented in this sector to
tackle the situation of increasing fiscal deficit.

Agriculture Sector:

The agriculture sector would be the highlight of the session. This sector is likely to
receive enormous boost from the government.
Infrastructure and Social Sector:

We believe that development in this sector would account for massive growth in GDP of
our country. However, it is unlikely to ease monetary policy to better infrastructure.
Interest rate will not be reduced as well.

Railways:

The transportation charges for bulk commodities in railway industry are likely to be
increased. The turnaround in the economic conditions of India is expected to boost the
transport costs of cement, coal, iron ore and steel. Previous year, the Ministry of Railway
refrained from raising transportation costs to help sector tackle the scenario of global
meltdown. The ministry has not come up with its plan for hikes yet. But, the range will
be fixed somewhere between 5 and 10%. After this one would need to pay Rs. 100 to 200
per tonne.

Other Sector:

An increase in Garment sector

We will enhance the textiles and garment industry of India. The budget proposal will
prove profitable for man-made fibers and natural fibers sectors which in turn will reduce
the costs of garments.

An increase in food processing industry

This Budget will have substantial impact on the Food processing business. The
accelerated growth in the prices of fruits and vegetables can be prevented by controlling
the food wastage. The budget is focused to resolve this issue besides dealing with the
issue of heavy excise duty on branded items.

Goods and Service Tax (GST) Implementation

We are going to employ the Goods and Service Tax (GST). The implementation was
adjourned for some reason or the other, but this year it will come into effect and will
prove cost-effective for both common man and the government of India, resulting a
significant decline in the costs of goods and services. But this decline can only come in
to effect after considerable reduction in numerous taxes charged on products and
services.

Getting more corporate firms and services under GST will be profitable for the
government as participation of increased number of individuals will facilitate greater
revenue generation and income. Execution of the Direct Taxes Code and GST will lead
to increase of tax revenue, simplified tax structure and renewed compliance for tax
payments.
Development in Foreign Investment

This budget will futher improve the foreign investment in India. Restructuring of Foreign
Direct Investment will bring in more finance to the financial services sector. Foreign
investment in publishing media and education industry is also expected to be introduced.
FDI in education sector will allow Indian students to benefit from the international
standard of education at reasonable prices in India itself.

Security of Indian students during their overseas stay is another key issue which has
taken into consideration in this Union Budget. In short, improvement in foreign
investment will be profitable for the government in controlling the depletion of foreign
currency for overseas education and ushering funds to India.