Saturday, February 27, 2010

Knock Knock...Its Budget 2010-11






Budget from critics view, Budget from investor’s view, Budget from industry view, Budget from Aam aadmi’s view etc etc are the variety of TV shows which have surrounded all the news channels since the announcement of Budget 2010. Many folks argue that Budget is not an important event; they say Budget Day is important only to the politicians and vice industrialists. According to them budget makes no big deal difference to the comman man,it’s just a representation of the account details of the country and there’s no need to create so much hype about it as if it’s a patriotic event. But many analysts feel that budget making indifference to the comman man is a myth.

Way back in earlier days, the day prior to budget day, was the day when people filled their kerosene containers, speculating that the prices of kerosene may rise during post budget. But now, things are quite different. Now people discuss,debate, argue, and suggest upon the topics pertaining to the Budget, issues related to it, advantages and its repercussions.

The Budget 2010-11 basically aimed at rolling back the fiscal deficit and controlling the inflationary pressure. Now what do you mean by fiscal deficit? It’s the amount which the government needs to borrow to meet its expenditure, if the revenues are not sufficient.The budget aimed at 8-8.5% growth, 4% inflation and 12.5% nominal GDP growth.

Now let’s have a look upon some of the key implementations of Budget and its repercussions.

Automobile : Automakers experienced a hike in excise duty from 8% to 10% and to 22% for big cars. It is expected that the automakers would the hike the prices ranging from Rs3000-26000

Cement : Also, the rise in excise duty from 8 to 10%, would lead to the rise in prices of cement, thereby leading to an increase in the cost of road building.

Power : Increase in the price of coal would increase the cost of coal generation, thereby would lead to the increase in electricity bills.Also, Suzlon Energy and Shriram EPC would be beneficiaries as excise exemption has been announced on wind energy components.

Oil & Gas : The prices of petrol and diesel increased by Rs 2.67 and Rs 2.58 respectively and thereby have been the cause for untuning the pockets of comman man.

Taxation

There has been widening of tax slabs. The changes in the tax slab are as follows:

Tax Rate

Income

Income Exempt from tax

160000

10%

160000- 500000

20%

500001-800000

30%

800000 and above

MAT (Minimum alternate tax) has been revised from 15% to 18% of the book profits.

CENVAT was increased from 8 to 10%

The increase in excise can lead to an increase in the prices of consumer durables and FMCG goods. Gold and Silver prices set to increase due to an increase in the export duty by 2-3%.Aam Aadmi is quite unhappy with the increase in the price of Petrol and Diesel. Also, we can find that there is an ample widening of the tax bracket, there by increasing the propensity to save, but at the same there has been an increase in the price of commodities thereby acting as compensation to this wide tax bracket and increasing the propensity to consume.

Further, the fiscal consolidation is expected through disinvestment in public sector shares (Rs 40000 cr) and auction of 3G spectrum (35000 cr).Again, the budget 2010-11 was expected to control the inflationary pressure.It has claimed to control inflation to 4%.But with the increased excise duty, the price of commodities would be increasing, the inflationary pressure seems to be out of bound. Taking inflation into consideration some bold steps should have been taken with respect to the Agriculture spendings.In order to curb the inflation; this budget should have announced another green revolution as an important step towards development of supply side economy. With the increase in the prices of goods, the prevailing inflation is expected to increase. Again, this would lead to the short run measure i.e. tightening of monetary policy.Eversince, inflation has been tackled by tinkering the interest rates, so this was the high time to take some vice measures in the direction of agricultural development in order to get out of this vicious circle.

In general, as marked by many analyst and corporate honchos, the Budget turned out to be uneventfull.Some say that the budget was neutral, and some say that it was neither good politics , neither good economics


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