Expectations from India's Union Budget 2010-11
February 18, 2010

Balancing budgets is always a challenging task and its no different for Mr. Pranab Mukherjee, India’s Finance Minister who will announce the Union Budget on 26th February, 2010. As India takes center stage in the global economy, this union budget will be critiqued by investors worldwide, Inchin Closer analyzes what you can expect from the Indian Economy in the next year.

The 2010-11 budget is juggling two macro battles – the first that of an unusually high inflation rate (7.3 percent as against the RBI’s projected rate of 6.5 percent for March end) that is crippling the economy and the second of gradually pulling out the stimulus provided earlier in the year while balancing the country’s burgeoning fiscal deficit and continued growth.

While most sectors are pushing for stimulus measures in their industries to remain, New Delhi, is expected to gradually phase out the measures by raising excise duties and taxes on most manufactured items and services by two percent. Softer interest rates and slashed excise and service taxes, from late 2008, have helped the economy beat the slowdown and post 7 percent growth in the first half of 2009-10 and an expected 8+ percent growth this fiscal.  India’s stimulus measures have helped exports to grow by 18 percent after months of decline and  manufacturing grow by 10.3 percent against -0.6 percent a year ago.

Excruciatingly high food prices fueled by low supply is also affecting India’s middle class.  Mr. Mukherjee is expected to introduce exemptions in excise and other taxes on agricultural and water conservation equipment and introduce incentives for private investment in order to drive growth in the rural areas. The public distribution scheme is expected to be revamped and additional funds are expected to be diverted to the primary sector in order to avoid a major food crisis.

Incentives for additional spending are also expected in the rural and infrastructure sectors. Last year the government announced Rs 301 billion for the National rural employment generation scheme (NREGA). Keeping in mind the nation’s high fiscal deficit, rural spending is expected to increase substantially to spurt rural development.

Infrastructure too is expected to receive a major fillip as most believe that development in this sector could significantly boost GDP. Surface Transport Minister Kamal Nath has said he wants the Government to step up public investment in infrastructure from the present 4.6 percent of GDP to 9 percent by 2012.

As for Taxes, New Delhi is expected to increase the exemption limit of individual income tax to Rs. 0.3 million to  Rs0.16 million  for salaried people. The exemption limit for women is expected to be increased from 0.18 million to 0.4 million and for senior citizen from Rs 0.2 million to Rs.0.5 million. While GST, India’s comprehensive indirect tax structure is expected to be implemented sometime in the latter half of this year, Corporate Tax is expected to reduce by 30 percent this budget.

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