::IMC::

Strong Economic Reforms Thrust is Hallmark of Union Budget 2010-11, Says Dr Ajit Ranade
Date: 3-Mar-2010

A powerful thrust provided to several key economic reforms measures is the most significant feature of the Union Budget 2010-11, according to Dr Ajit Ranade, Group Chief Economist of Aditya Birla Group.

Dr Ranade was among the three experts who addressed the CH Bhabha Memorial Endowment Public Meeting on "Implications of the Union Budget 2010-11", organized by Indian Merchants’ Chamber on February 27; the two other experts were: Mr Anil Harish, Partner, D.M. Harish & Co. and Mr. Jayraj S. Sheth, Head of Indirect Taxation, Reliance Retail Ltd. IMC President Mr Gul Kripalani welcomed them.

Dr Ranade said that strong economic reforms was indeed the general flavour of the Budget. The Finance Minister’s Budget speech was replete with references to sectoral reforms.

For instance, reforms in the financial sector would help open more private sector banks, aimed at achieving wider financial inclusion. Reforms in the coal mining sector, a government monopoly, would allow entry to private players. Regulators in these sectors would ensure that the players would abide by the rules of the game.

But, certainly, the picture was not all that rosy. For instance, the Mumbaikar would discover that the Budget would push up the cost of a flat worth Rs.40 lakhs, by an additional Rs.1.5 lakhs, as a result of a new tax on construction services.

There was also the inexplicable anomaly that the Budget sought to tax railway freight, but not roadway freight services. There was no budget initiative to contain the problem of inflation. Unlike in the next year, when numerous states would go in for Assembly Elections, the government this year could have taken much bolder initiatives, as it was politically well placed with no constraints.

The Budget this year came riding the strong economic recovery, while most countries were still groaning under the impact of global crisis. Industrial growth, which has been accelerating after April 2009, touched the watermark in December 2009 -- the highest in last 20 years. So also were the booming foreign investment inflows. On the other hand, the inflation rate, particularly in the foodstuffs sector, was becoming a cause of major worry. However as Dr. Ranade put it, "There is also another side to it; the food inflation would at least partially benefit the farmers, though not fully."

Dr Ranade said, the budget succeeded in reducing the fiscal deficit to 5.5% in the current year, and fixed a statistical target of 4.8% for 2011-12 and 4.1% for 2012-13. It accomplished it, even while reducing the rate of income-tax for individuals, maintaining status quo in the service tax rate, but with a marginal increase of 2% in excise duty.

Speaking on direct tax measures in the Budget, Mr Anil Harish said that for a male individual, income upto Rs. 1.60 lakhs was exempt from tax; and tax rate between Rs. 1.60 lakhs and Rs.5 lakhs was 10%; between Rs. 5 lakhs and 8 lakhs it was 20%; and income above Rs.8 lakhs would be taxed at 30%.

The Budget proposed to levy 8% tax of turnover (i.e., presumptive income) under Sec 44AD on small businesses (other than plying goods carriages) run by individuals and HUFs.

The Budget reduced surcharge for domestic companies from 10% to 7.5%; and totally exempted from surcharge those companies with less than Rs.1 crore income.

Those doing research in science, statistics, and social service would be exempt from taxation. For those engaged in research in biotechnology, drugs, pharma, electronic equipment, computers, telecom equipment, chemicals, the proposed deduction of income would be 200%.

The Trusts carrying on business as well as general public utilities would be liable to pay tax on their entire income. But income of the trust would not be taxable, if the receipt of its business income was Rs.10 lakhs or less per year, Mr Harish said.

Mr. Jayraj S Sheth said the Budget effected partial rollback of excise duty incentive package from 8% to 10%, but retained service tax and basic customs duty at current levels.

The Finance Minister in his budget speech promised to introduce GST from April 1 2011. The Budget attempted to generally rationalize, simplify, and expand the indirect taxation base. Its thrust areas included agriculture and food processing, green technology, infrastructure and capital goods, Mr Sheth observed.

In his welcome remarks, Mr Gul Kripalani said that it was truly a Budget of the aam aadmi, aimed at dealing with the issues relevant to the rural and urban poor, farmers, SMEs and environmental concerns.

The Budget also aimed at phasing out the various forms of economic stimulus extended earlier to deal with the impact of global crisis and fiscal consolidation.

He also praised the Budget for improving the quality of both public and private governance by appointing a Technology Advisory Group under the chairmanship of Mr. Nandan Nilekani for developing an electronically enabled mechanism for administration of goods and services tax (GST) system in all states.

Among the other laudable steps in the Budget, Mr. Kripalani listed the following: -
• Increasing the levels of income slabs for personal tax exemption.
• Deciding steps towards implementing GST and DTC.
• Fiscal relief to the solar, wind, geothermal and other forms of clean energy.
* Rationalization of petroleum subsidies
• Plan to extend fertilizer and oil subsidy in cash for bringing in fiscal accounting.
• Switchover to nutrient-based fertilizer subsidy, which is to be directly delivered to farmers
* Steps to improve productivity in the agricultural sector and to improve the entire supply chain by opening retail trade
• Setting up National Council for Micro, Small and Medium Enterprises to encourage self-help groups to facilitate micro financing, and
• Setting up Legal Reforms Commission to reduce litigation period from a maximum of 18 years to 3 years.

But the Budget missed out on some fundamental measures, such as land reforms, input management, wasteland management etc, which were needed for speedy growth of the farm sector, Mr. Kripalani added.

Arvind Pradhan
Director General