Budget 2011 Assignment Part A

Synopsis: While analyzing the Union Budget and comparing it with the Eleventh Five year plan, it was essential to know the strengths and the deficiencies of the Budget and also take a look at the criticisms it faced. We followed a sector wise approach and compared the Union Budget with the eleventh five year plan. This enabled us to come up with points that highlighted the alignment of the Union Budget with the Five year plan. We have listed each sector and have given a brief description of the places where it aligns with the five year plan. Highlights of the Budget 2011 y y y y y y y Income tax exemption amount has been raised to Rs. 1.8 lakh Senior citizens have been given the incentive of tax exemption of Rs. 2.5 lakh Education sector has received a boom by raise in allocation Agriculture has been given an advantage by raising credit loans for farmers from Rs. 3.75 lakh crore to Rs. 4.75 lakh crore FIIs have been given an entry into mutual funds FII limit has been raised to $40 million as far as corporate bonds is con cerned Housing loans have become attractive with a limit of Rs. 25 lakhs Some criticisms to the Union Budget y The Union Budget has been viewed as an unbalanced one, a far cry from the attempt at being a budget for aamaadmi or the common man. In the words of honourable Finance Minister, Mr Pranab Mukherjee, I have spent more, yet, I have brought down the fiscal deficit for 2010-11 from 5.5 per cent to 5.1 per cent.But the amount of fiscal deficit has gone up by Rs. 20,000 crores, which questions the claim of fiscal deficit actually going down. According to the Medium Term Fiscal PolicyStatement annexed to the Budget obliquely,the higher nominal growth in GDP which is just inflation has helped in reducing the fiscal deficit. The gap between real and nominal GDP is inflation. This inflationary gap between real and nominal GDP has been incrementally increasing. When inflation is high the GDP-fiscal deficit ratio becomes pointless and the claim, comes under doubts. y Farfetched idea of curbing expenditures The growth in total expenditure is projected at 3.4% for 2011-12, compared with 18.7% growth in 2010-11. The budget assumes that nominal GDP will increase by 14% in 2011-12, growth in government expenditure is far below the increase in nominal GDP. The past governments track record shows that curbing expenditure to such an extent is very unlikely. y y y Lack of FDI in retail Impact of the Service Tax Expensive Healthcare The Budget makes health care in private hospitals expensive. Medical check-ups have become dearer because of increase in service tax. Travel and Dining in AC restaurants has become more expensive. For a clearer understanding, let us look at the differences between the Union Budget and the 11th year plan as per different sectors.

Agriculture The 11th Five year plan had proposed the following for the Environment and Forests: y y y y Increase agricultural GDP growth rate to 4% per year to ensure a broader spreadof benefits Agri product export growth at 10 Faster pace of change in food consumption basket The Union Budget proposes y y y y y y Allocation under RashtriyaKrishiVikaasYojna to increase from Rs 6755 crores to Rs 7860 crores Development of the 60,000 pulses villages in India Allocation of Rs 300 crores to bringing 60,000 hectares under oil palm plantations Allocation of ` 300 crore to promote higher production of Bajra, Jowar, Ragi andother millets. Allocation of ` 300 crore to promote animal based protein production through livestock development, dairy farming, piggery, goat rearing and fisheries. Allocation of ` 300 crore for Accelerated Fodder Development Programme tobenefit farmers in 25,000 villages.

Environment and Forests The 11th Five year plan had proposed the following for the Environment and Forests y y y y Increase forest and tree cover by 5 percentage points Attain WHO standards of air quality in all metropolitan cities by 2011-12 Treatment of all urban waste water as an effort to clean up the rivers in this city Increase energy efficiency by 20 percentage points by 2016-17 The current Union Budget states y y y y y y Proposal to allocate Rs 200 crores for Green India Mission from National Clean Energy Fund Rs 200 crores proposed to be allocated for launching Environmental Remediation Programmes from National Clean Energy Fund In an effort to clean up the water sources in the country Rs 200 crores are being allocated for the same The development needs of Jammu and Kashmir have been taken into consideration Allocation made in 2011-12 to meet the infrastructure needs for Ladakh (100 crore) and Jammu region (150 crore) Allocation under Backward Regions Grant Fund increased by over 35 per cent Labor Employment and Manpower y y y y Create 70 million new work opportunities for people Reduce unemployment amongst the educated to below 5%. Raise the wage rate of unskilled workers by 20 percent. Reduce the headcount ratio of consumption poverty by 10 percentage points. The current budget states y y y To provide banking facilities to all 73,000 habitations having a populationof over 2,000 with in this financial year. Exit norms under co-contributory pension scheme Swavalamban to be relaxed. Benefit of Government contribution to be extended from three to five years forall subscribers who enroll during 2010-11 and 2011-12.

Eligibility for pension under Indira Gandhi National Old Age Pension Schemefor BPL beneficiaries reduced from 65 years of age to 60 years. Financial Resources The 11th year plan:

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Accelerate growth rate of GDP from 8% to 10% and then maintain at 10% in the 12th Plan in order to double per capita income by 2016 - 17. Increase agricultural GDP growth rate to 4% per Year to ensure a broader spread of benefits The Union Budget for the current year emphasis on the following things. Indirect Taxes

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Cont8nue with the plans of bringing the GST into action Central Excise Duty to be maintained at standard rate of 10 per cent Reduction in number of exemptions in Central Excise rate structure. Direct Taxes

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Exemption limit for the general category of individual taxpayers enhanced from Rs. 1,60,000 to Rs 1,80,000 giving uniform tax relief of Rs 2,000. Exemption limit enhanced and qualifying age reduced for senior citizens. Higher exemption limit for Very Senior Citizens, who are 80 years or above. Tax incentives extended to attract foreign funds for financing of infrastructure. Additional deduction of Rs 20,000 for investment in long-term infrastructure bondsproposed to be extended for one more year. Other features Duty reduced on hybrid electric cars Sugam, a new tax for small businesses has been launched Power and Energy, Energy Policy and Rural Energy The Govt. of India has come up with the following key points while setting the five year plan (2007-2012) for the energy sector. Five year plan for the energy sector:

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To increase energy supply in the cost effective manner. Safe, clean and convenient forms of energy must be developed at the minimum cost in a technically efficient and economically way. Key features in budget 2011-12 for energy sector:

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Pay excise duty @of 5% or 1% - made available on manufacture of coal, lignite. Surcharge reduced from 7.5 to 5 percent for domestic companies on corporate tax; from 2.5% to 2% for foreign companies will help power companies.

A Comparison of the Union Budgets 2007- 2011 Agriculture y y y y 2008-2009 - agriculture credit flow was at Rs. 2, 87,000 crore. Allocation under Accelerated Irrigation Benefit Programme (AIBP) increased by 75% 2009-2010 -The interest subvention scheme for short term crop loans up to Rs. 3 lakh per farmer at 7 % p.a. interest rate to be continued. 2010-2011 - Period of repayment of loan amount by farmers extended by six months under Debt waiver and Debt relief scheme for farmers. 2011 -12 -Credit flow for farmers raised.In view of enhanced target for flow of agriculture credit, capital base of NABARD to be strengthened in phased manner. Rs 10,000 crore to be contributed to NABARDs Short-term Rural Credit fund for 2011-12.

Labour, Employment and Manpower y y 2009-10 - Action initiated to ensure implementation of social security schemes under occupations like weavers, fishermen and women etc. 2010-11 -The fund corpus for the 'Micro-Finance Development and Equity Fund is being doubled. National Social Security Fund for unorganised sector workers to be set up with an initial allocation of Rs. 1,000 crore. 2011-12 - Womens SHGs Development Fund to be created with a corpus of Rs 500 crore. Rs 3,000 crore to be provided to NABARD to provide support to handloom weavers cooperative societies. Exit norms under contributory pension scheme Swavalamban to be relaxed.

Power & Energy, Energy Policy and Rural Energy y y y 2009-10- Allocations for Rural Water Supply has shown a very marginal increase but not sufficient to ensure watersecurity. IT issue not addressed specifically. 2010-11 - Provision of Rs. 66,100 crore for Rural Development. Allocation of Rs. 48,000 crore for programmes under Bharat Nirmanproposed. 2011- 12 -Outlays for Bharat Nirmanproposed to be increased. Plan to provide Rural Broadband Connectivity toPanchayatsin the country in three years Provision under Rural Housing Fund enhanced.

Financial Resources y y y 2009-10- Goods and service tax will be implemented from April 2010. 2010-11- The government is holding discussions with the Empowered Committee of the State Finance Ministers to finalise the structure of GST as well as the modalities of its expeditious implementation. 2011-2012 -Areas of divergence with States on proposed Goods and Services Tax (GST) have been narrowed.

References for the preparation of the report: y y y y y www.planningcommission.nic.in www.economictimes.com www.moneycontrol.com www.dst.gov.in www.indiatimes.com