Aspirants Times: Union Budget 2010-11: An Effort to Boost Up Economy

Finance Minister Pranab Mukherjee presented the Union Budget for 2010-11 in the Lok Sabha on Feb 26. Finance Minister said that Indian economy was facing grave uncertainty. Growth had started decelerating when interim and full budget for 2009-10 were presented. Also he said that at home there was added uncertainty because of subnormal southwest monsoon. Indian economy now in a far better position than it was eight years ago.

India weathered economic crisis well, said Mukherjee, adding, the first challenge before the Government is to quickly revert to high GDP growth path of 9 per cent. According to him second challenge is to harness economic growth to make it more inclusive and consolidate gains. Country has seen impressive recovery in the past few months and can witness faster recovery in the coming months. The Finance Minister added the focus shifted to non-governmental actors, enabling the government to concentrate on supporting and delivering services to the economically backward sections.

Admitting that financial year 2009-10 was challenging for the Indian economy, Mukherjee said 18.5 per cent manufacturing growth in December was the highest in two decades. He said figures for merchandise exports for January are encouraging after turnaround in November and December last year. Reasoning the double digit food inflation last year, the minister said it was due to bad monsoon and drought-like conditions, though "we have strengthened food security".
He said the government is conscious of the situation of price rise and is taking steps to tackle it. The Finance Minister also said there is need to review stimulus imparted to the econony.

Analysing the price rise situation in the country, Mukherjee said there's a need to ensure that the demand-supply imbalance is managed and stressed on the need to make growth more broad-based. He saidPublic spending and mobilising resources need to be reviewed. The government hopes to implement direct tax code and General Sales Tax from April 2011.

Increase in Defence Budget

The government has allocated Rs 1,47,344 crore towards defence in 2010-11 budget, a paltry 4 per cent increase from last year's Rs 1,41,703 crore. Of the allocation provided, Rs 60,000 crore would go for capital expenditure. The four per cent increase in real terms would amount to only Rs 5,641 crore.

Last year, the government had provided a steep hike of about 34 per cent for the defence working out to an increase of Rs 36,103 crore. Mukherjee, however, said considering the importance of defence of the country, more funds would be provided on the basis of requirements in the future.
The defence allocation continues to hover over 2.5 per cent of the GDP, though there have been suggestions to increase it substantially in view of the prevailing security situation.

Fiscal Deficit

The Finance Minister  presented Union Budget with fiscal deficit of 5.5 per cent of GDP as he pegged total expenditure at Rs 11.09 lakh crore while the total tax and non-tax revenue estimated at Rs 6.82 lakh crore for the year 2010-11. The deficit is much lower than the budgeted estimate for the current fiscal at 6.8 per cent, which, however, has been revised to 6.7 per cent.

To meet the shortfall, the government has estimated borrowing of Rs 3.81 lakh crore for fiscal 2010-11, lower than the current fiscal's Rs 4.01 lakh crore. The rolling targets for fiscal deficit are pegged at 4.8 per cent and 4.1 per cent for 2011-12 and 2012-13.

Interest subvention scheme for home loans extended

Finance Minister extended by a year the one per cent interest subvention scheme for housing sector and provided Rs 700 crore for it, in the Union Budget 2010-11. Under the scheme, introduced last year, home buyers get one per cent interest subsidy for banking loans up to Rs 10 lakh, provided the cost of house does not exceed Rs 20 lakh.

Interest subsidy for exporters extended

The government has proposed to extend the concessional export finance regime for select exporters for one more year till March 31, 2011, thus giving the slowdown-hit sector further relief. The scheme was to expire on March 31.
With a view to insulate the employment-oriented sectors like handlooms, handicrafts, carpets and leather from the impact of demand slowdown, the government had extended the scheme for concessional export finance in the last Budget till March 31.

After falling for 13 consecutive months since October 2008, exports turned positive in November 2009. The exports grew 18.2 per cent in November and 9.3 per cent in December. Mukherjee also said that figures for merchandise exports for January were encouraging after turnaround in November 2009 and December 2009.

In January, the country's exports grew by 11.5 per cent over the year ago period. The Prime Minister's Economic Advisory Council (PMEAC) had also forecast a 12 per cent growth at $88 billion in India's exports in the second half of the current fiscal. The exports were valued at $81 billion in the first six months of the current fiscal.

Crop loan at 5% interest for farmers, farm credit up by 16%

In a bonanza to farmers, the government has announced a subsidised 5 per cent interest rate on crop loans on timely repayment, while proposing a 15 per cent hike in credit made available for farm sector. This would be as a result of Finance Minister proposing to increase by 2 per cent the interest subvention provided to farmers, giving them at an effective rate of 5 per cent per annum. Farmers get crop loan of up to Rs 3 lakh, at 7 per cent. In his budget speech for 2010-11, Finance Minister Pranab Mukherjee also allocated Rs 400 crore to raise farm production in the eastern parts of India, comprising Bihar, Chhattisgarh, Jharkhand, Eastern UP, West Bengal and Orissa.

Noting that banks are consistently meeting the targets set for agriculture credit flow in past few years, Mukherjee said that for 2010-11, target has been raised to Rs 3,75,000 crore from Rs 3,25,000 crore in the current year. In view of drought and severe floods in some parts of the country, he extended the period for repayment of loan amount by farmers under the Rs 71,000 crore debt waiver scheme by six months till June 30.

To give impetus to food processing, Mukherjee said five more mega food parks would be established to provide latest infrastructure facilities, in addition to the 10 already being set up. Mukherjee said external commercial borrowings would be available for cold chain sector for preservation or storage of agricultural and allied produce, marine products and meat. Listing the four-pronged strategy to spur growth in the farm sector, Mukherjee said the government would focus on raising agriculture production, reduction in wastage, credit support to farmers and thrust to the food processing sector.

According to budget the first element of the strategy is to extend the green revolution to the eastern region of the country comprising Bihar, Chhattisgarh, Jharkhand, Eastern UP, West Bengal and Orissa, with the active involvement of Gram Sabhas and the farming families. For the year 2010-11, I propose to provide Rs 400 crore for this initiative. The Finance Minister proposed to organise 60,000 "pulses and oil seed villages" in non-irrigated areas during 2010-11, in order to raise output of pulses and oilseeds where there is a deficit and country is dependent on import.

For this purpose, he has provided Rs 300 crore in the budget and said the initiative will be an integral part of the Rs 25,000 crore Rashtriya Krishi Vikas Yojana.

Mukherjee has earmarked Rs 200 crore for launching climate resilient agriculture initiative, which involves concurrent attention to soil health, water conservation and preservation of biodiversity. This fund will benefit states like Punjab and Haryana which were the centre of action during green revolution but due to excessive use of chemicals and fertilisers, the soil condition has deteriorated over the years.

Pointing out that there is wastage of grains procured for buffer stocks due to acute shortage of storage capacity, he said that the government has extended the guarantee period given by Food Corporation of India to private parties for hiring godowns to seven years from the current five years.

Budget Summary:

» Government will raise Rs 25,000 cr from disinvestment in PSUs. 
» Market cap of five PSUs listed since October, up 3.5 times.
» Fuel price deregulation proposal will be taken up.
» Nutrient-based fertiliser subsidy from April 1.
» FDI inflows steady; government simplifying FDI regime.
» To set up Financial Stability and Development Council.
» 2% interest subvention on handicraft exports for 1 more year.
» Rs 200 crore for climate resilient agriculture initiative.
» Committed to growth of Special Economic Zones.
» Need for firm view on opening up retail sector.
» Farm loan repayment eased by 6 months till June 30.
» Crop loan interest subsidy for timely payment raised to 2%.
» IIFCL authorised to refinance infrastructure projects while Rs 1,73,552 crore provided for infrastructure development
» Railways allocation increased by Rs 950 crore to Rs 16,752 crore.
» Government proposes to set up Coal Development Regulatory Authority.
» Mega power plant policy modified to lower generation cost while allocation to power sector more than doubled to Rs 5,130 crore.
» Rs 500 crore for solar and hydro projects in Ladakh region.
» New Clean Energy Fund for research in new energy sources and Renewable Energy Ministry allocation up 61% to Rs 1000 crore.
» Rs 200 crore one-time grant to Tirupur textile cluster in Tamil Nadu.
» Outlay for Ganga River Basin Authority doubled to Rs 500 crore.
» Alternative port at Sagar Island in West Bengal.
» Draft of Food Security Bill ready; in public domain soon.
» Outlay for social sectors pegged at Rs 1,37,674 crore.
» Social sector outlay 37 per cent of total plan allocation.
» Planned allocation for school education at Rs 31,036 crore.
» Allocation for health and family welfare at Rs 22,300 crore.
» Allocation for rural development at Rs 66,100 crore.
» Indira Awas Yojana unit cost raised to Rs 45,000 in plains & Rs 48,500 in hilly areas.
» Allocation for urban development raised 75% to Rs 5,400 crore.
» 1% loan interest subsdiy for houses upto Rs 20 lakh.
» Outlay for micro & small scale sector raised to Rs 2,400 crore.
» Rs 1,270 crore for slum development programme, up 700%.
» National Social Security Fund with Rs 1000 crore outlay.
» Allocation for women and child development hiked 80%.
» Rs 1,000/yr to account holders under New Pension Scheme.
» Outlay for Minority Affairs Ministry raised to Rs 2,600 crore.
» Rs 1,900 crore for Unique Identification Authority of India