By M H Ahssan
The Interim Budget does not have any major announcements that affect the industry, except for some measures such as extension of interest subsidy (on pre- and postshipment credit) to boost exports in sectors such as textiles, leather and gems & jewellery. However, a slew of measures were announced as part of the stimulus packages in early December 2008 and January 2009. While some of these measures are positive for the respective sectors, the excise duty reduction (by 4%) across sectors has been mostly passed on to consumers. In the following sections, we assess the impact of all these measures, including announcements in the Interim Budget, if any
Automobiles
The net impact of various policy changes is marginally positive across auto segments. However, lower economic growth prospects, weak consumer sentiment, high interest rates and stringent disbursement norms will continue to impact automobile demand. Due to the 4% reduction in excise duty announced in December 2008, and lower fuel prices and car finance rates, (partly offset by the increase in prices by some car manufacturers in January 2009), the cost of ownership for a typical compact car has declined by 3%.
Banking
Banks: Several liquidity enhancing measures have been announced since October 2008. However, the relaxation in nonperforming loan norms in real estate and corporate sectors may lead to weakening of asset quality and exert greater stress on the sector. The monetary easing measures combined with fiscal stimulus would be effective provided there is revival in both business and consumer confidence. With economic recovery expected to be protracted, these measures would have limited impact on the banking sector.
HFCs & NBFCs: The fiscal measures announced focus on facilitating credit availability, but implementation and revival in business and consumer confidence remains the key for these measures to be effective. Like banks, the fiscal stimulus would have a limited impact on HFCs and NBFCs.
Cement
The government had lowered the excise duty on packaged and bulk cement by 4% in the fiscal stimulus package announced on December 7, 2008. Cement producers passed on the cutback in duties by reducing prices. Consequently, the impact of lowering of excise duty is neutral for the sector. The imposition of customs duty on imported cement, which was announced in the fiscal stimulus package announced on January 2, 2009, will not have a major impact as India's cement imports are negligible.
Construction
The allocation of Rs11,840 crore under JNNURM will ensure greater focus on urban infrastructure development. The amount sanctioned is higher than Rs 6870 crore sanctioned in the previous budget. However, the crucial factor is the actual outlay. With IIFCL being authorised to raise Rs 10,000 crore via tax-free bonds, delays in order execution of construction companies on account of developers not achieving financial closure will reduce.
Consumer durables/Household appliances
Impact of the reduction in the excise duties on consumer durables from 16% to 12% announced in the government's fiscal stimulus package in December 2008 is neutral, as a significant portion of the production of major consumer durable manufacturers come from excise free zones. Other producers have partly passed on the excise duty cuts.
Housing
The fiscal stimulus package in early December 2008, classified loans under Rs 20 lakh as priority sector lending. The new classification of loans is aimed at encouraging banks to lend. However, due to the deterioration in the job market scenario owing to the prevailing slowdown, especially in the IT/ITeS and financial services sectors, banks may continue to hesitate to increase their advances. However, the Rs 4000 crore re-finance facility for NHB will ensure availability of loans for the sector. The reduction in home loans rates by PSU banks to 8.5% for loans up to Rs 5 lakh (10% margin) and 9.25% for loans in the range of Rs 5-20 lakh (15% margin) has prompted large private players such as HDFC and ICICI Bank to cut rates by 50-75bps.
Paper
The government reduced excise duty on paper from 8% to 4% for most varieties of paper. The overall impact is neutral as producers have passed on the duty cuts. The government also exempted newsprint, uncoated paper and light weight coated paper used for printing newspapers / magazines from customs duty on February 11, 2009. The impact of this is also neutral as domestic newsprint prices are lower than the landed costs even post the duty cuts.
Roads and Highways
IIFCL will refinance 60% of commercial bank loans for PPP projects with an investment of Rs 1,00000 crore over the next 18 months. This will improve the availability of credit for infrastructure projects such as BOT road projects undertaken by private players. Despite a budgetary allocation of Rs 9900 crore for national highways and Rs 4000 crore towards the development of rural roads, the implementation of projects may be slow due to policy ambiguities and land acquisition delays.
Steel
Steel players will benefit marginally from government measures such as bringing HR coils under the restricted category and levy of import duty on flat products. The reduction in excise duty will not have any impact, except in cases where the output is sold directly to the consumer, as most steel sales are MODVAT'able. The withdrawal of export duty on iron ore fines and export duty reduction on iron ore lumps and pellets will encourage iron ore exports.
Textiles
The extension of the interest subvention on pre-shipment and post-shipment credit till September 30, 2009, will benefit exporters through lower interest costs on working capital loans. The impact of the acrossthe-board excise duty cut of 4% is negligible on the cotton textiles chain, as CENVAT is optional; the reduction in excise duty on polyester and other man-made fibres to 4% has been passed on. The increase in the duty drawback rates on fabrics and the extension of the DEPB scheme till December 31, 2009 will benefit exporters.
Tuesday, February 17, 2009
INTERIM BUDGET - WHO’S SMILING AND WHO’S NOT
By M H Ahssan
The Interim Budget does not have any major announcements that affect the industry, except for some measures such as extension of interest subsidy (on pre- and postshipment credit) to boost exports in sectors such as textiles, leather and gems & jewellery. However, a slew of measures were announced as part of the stimulus packages in early December 2008 and January 2009. While some of these measures are positive for the respective sectors, the excise duty reduction (by 4%) across sectors has been mostly passed on to consumers. In the following sections, we assess the impact of all these measures, including announcements in the Interim Budget, if any
Automobiles
The net impact of various policy changes is marginally positive across auto segments. However, lower economic growth prospects, weak consumer sentiment, high interest rates and stringent disbursement norms will continue to impact automobile demand. Due to the 4% reduction in excise duty announced in December 2008, and lower fuel prices and car finance rates, (partly offset by the increase in prices by some car manufacturers in January 2009), the cost of ownership for a typical compact car has declined by 3%.
Banking
Banks: Several liquidity enhancing measures have been announced since October 2008. However, the relaxation in nonperforming loan norms in real estate and corporate sectors may lead to weakening of asset quality and exert greater stress on the sector. The monetary easing measures combined with fiscal stimulus would be effective provided there is revival in both business and consumer confidence. With economic recovery expected to be protracted, these measures would have limited impact on the banking sector.
HFCs & NBFCs: The fiscal measures announced focus on facilitating credit availability, but implementation and revival in business and consumer confidence remains the key for these measures to be effective. Like banks, the fiscal stimulus would have a limited impact on HFCs and NBFCs.
Cement
The government had lowered the excise duty on packaged and bulk cement by 4% in the fiscal stimulus package announced on December 7, 2008. Cement producers passed on the cutback in duties by reducing prices. Consequently, the impact of lowering of excise duty is neutral for the sector. The imposition of customs duty on imported cement, which was announced in the fiscal stimulus package announced on January 2, 2009, will not have a major impact as India's cement imports are negligible.
Construction
The allocation of Rs11,840 crore under JNNURM will ensure greater focus on urban infrastructure development. The amount sanctioned is higher than Rs 6870 crore sanctioned in the previous budget. However, the crucial factor is the actual outlay. With IIFCL being authorised to raise Rs 10,000 crore via tax-free bonds, delays in order execution of construction companies on account of developers not achieving financial closure will reduce.
Consumer durables/Household appliances
Impact of the reduction in the excise duties on consumer durables from 16% to 12% announced in the government's fiscal stimulus package in December 2008 is neutral, as a significant portion of the production of major consumer durable manufacturers come from excise free zones. Other producers have partly passed on the excise duty cuts.
Housing
The fiscal stimulus package in early December 2008, classified loans under Rs 20 lakh as priority sector lending. The new classification of loans is aimed at encouraging banks to lend. However, due to the deterioration in the job market scenario owing to the prevailing slowdown, especially in the IT/ITeS and financial services sectors, banks may continue to hesitate to increase their advances. However, the Rs 4000 crore re-finance facility for NHB will ensure availability of loans for the sector. The reduction in home loans rates by PSU banks to 8.5% for loans up to Rs 5 lakh (10% margin) and 9.25% for loans in the range of Rs 5-20 lakh (15% margin) has prompted large private players such as HDFC and ICICI Bank to cut rates by 50-75bps.
Paper
The government reduced excise duty on paper from 8% to 4% for most varieties of paper. The overall impact is neutral as producers have passed on the duty cuts. The government also exempted newsprint, uncoated paper and light weight coated paper used for printing newspapers / magazines from customs duty on February 11, 2009. The impact of this is also neutral as domestic newsprint prices are lower than the landed costs even post the duty cuts.
Roads and Highways
IIFCL will refinance 60% of commercial bank loans for PPP projects with an investment of Rs 1,00000 crore over the next 18 months. This will improve the availability of credit for infrastructure projects such as BOT road projects undertaken by private players. Despite a budgetary allocation of Rs 9900 crore for national highways and Rs 4000 crore towards the development of rural roads, the implementation of projects may be slow due to policy ambiguities and land acquisition delays.
Steel
Steel players will benefit marginally from government measures such as bringing HR coils under the restricted category and levy of import duty on flat products. The reduction in excise duty will not have any impact, except in cases where the output is sold directly to the consumer, as most steel sales are MODVAT'able. The withdrawal of export duty on iron ore fines and export duty reduction on iron ore lumps and pellets will encourage iron ore exports.
Textiles
The extension of the interest subvention on pre-shipment and post-shipment credit till September 30, 2009, will benefit exporters through lower interest costs on working capital loans. The impact of the acrossthe-board excise duty cut of 4% is negligible on the cotton textiles chain, as CENVAT is optional; the reduction in excise duty on polyester and other man-made fibres to 4% has been passed on. The increase in the duty drawback rates on fabrics and the extension of the DEPB scheme till December 31, 2009 will benefit exporters.
The Interim Budget does not have any major announcements that affect the industry, except for some measures such as extension of interest subsidy (on pre- and postshipment credit) to boost exports in sectors such as textiles, leather and gems & jewellery. However, a slew of measures were announced as part of the stimulus packages in early December 2008 and January 2009. While some of these measures are positive for the respective sectors, the excise duty reduction (by 4%) across sectors has been mostly passed on to consumers. In the following sections, we assess the impact of all these measures, including announcements in the Interim Budget, if any
Automobiles
The net impact of various policy changes is marginally positive across auto segments. However, lower economic growth prospects, weak consumer sentiment, high interest rates and stringent disbursement norms will continue to impact automobile demand. Due to the 4% reduction in excise duty announced in December 2008, and lower fuel prices and car finance rates, (partly offset by the increase in prices by some car manufacturers in January 2009), the cost of ownership for a typical compact car has declined by 3%.
Banking
Banks: Several liquidity enhancing measures have been announced since October 2008. However, the relaxation in nonperforming loan norms in real estate and corporate sectors may lead to weakening of asset quality and exert greater stress on the sector. The monetary easing measures combined with fiscal stimulus would be effective provided there is revival in both business and consumer confidence. With economic recovery expected to be protracted, these measures would have limited impact on the banking sector.
HFCs & NBFCs: The fiscal measures announced focus on facilitating credit availability, but implementation and revival in business and consumer confidence remains the key for these measures to be effective. Like banks, the fiscal stimulus would have a limited impact on HFCs and NBFCs.
Cement
The government had lowered the excise duty on packaged and bulk cement by 4% in the fiscal stimulus package announced on December 7, 2008. Cement producers passed on the cutback in duties by reducing prices. Consequently, the impact of lowering of excise duty is neutral for the sector. The imposition of customs duty on imported cement, which was announced in the fiscal stimulus package announced on January 2, 2009, will not have a major impact as India's cement imports are negligible.
Construction
The allocation of Rs11,840 crore under JNNURM will ensure greater focus on urban infrastructure development. The amount sanctioned is higher than Rs 6870 crore sanctioned in the previous budget. However, the crucial factor is the actual outlay. With IIFCL being authorised to raise Rs 10,000 crore via tax-free bonds, delays in order execution of construction companies on account of developers not achieving financial closure will reduce.
Consumer durables/Household appliances
Impact of the reduction in the excise duties on consumer durables from 16% to 12% announced in the government's fiscal stimulus package in December 2008 is neutral, as a significant portion of the production of major consumer durable manufacturers come from excise free zones. Other producers have partly passed on the excise duty cuts.
Housing
The fiscal stimulus package in early December 2008, classified loans under Rs 20 lakh as priority sector lending. The new classification of loans is aimed at encouraging banks to lend. However, due to the deterioration in the job market scenario owing to the prevailing slowdown, especially in the IT/ITeS and financial services sectors, banks may continue to hesitate to increase their advances. However, the Rs 4000 crore re-finance facility for NHB will ensure availability of loans for the sector. The reduction in home loans rates by PSU banks to 8.5% for loans up to Rs 5 lakh (10% margin) and 9.25% for loans in the range of Rs 5-20 lakh (15% margin) has prompted large private players such as HDFC and ICICI Bank to cut rates by 50-75bps.
Paper
The government reduced excise duty on paper from 8% to 4% for most varieties of paper. The overall impact is neutral as producers have passed on the duty cuts. The government also exempted newsprint, uncoated paper and light weight coated paper used for printing newspapers / magazines from customs duty on February 11, 2009. The impact of this is also neutral as domestic newsprint prices are lower than the landed costs even post the duty cuts.
Roads and Highways
IIFCL will refinance 60% of commercial bank loans for PPP projects with an investment of Rs 1,00000 crore over the next 18 months. This will improve the availability of credit for infrastructure projects such as BOT road projects undertaken by private players. Despite a budgetary allocation of Rs 9900 crore for national highways and Rs 4000 crore towards the development of rural roads, the implementation of projects may be slow due to policy ambiguities and land acquisition delays.
Steel
Steel players will benefit marginally from government measures such as bringing HR coils under the restricted category and levy of import duty on flat products. The reduction in excise duty will not have any impact, except in cases where the output is sold directly to the consumer, as most steel sales are MODVAT'able. The withdrawal of export duty on iron ore fines and export duty reduction on iron ore lumps and pellets will encourage iron ore exports.
Textiles
The extension of the interest subvention on pre-shipment and post-shipment credit till September 30, 2009, will benefit exporters through lower interest costs on working capital loans. The impact of the acrossthe-board excise duty cut of 4% is negligible on the cotton textiles chain, as CENVAT is optional; the reduction in excise duty on polyester and other man-made fibres to 4% has been passed on. The increase in the duty drawback rates on fabrics and the extension of the DEPB scheme till December 31, 2009 will benefit exporters.
INTERIM BUDGET - WHO’S SMILING AND WHO’S NOT
By M H Ahssan
The Interim Budget does not have any major announcements that affect the industry, except for some measures such as extension of interest subsidy (on pre- and postshipment credit) to boost exports in sectors such as textiles, leather and gems & jewellery. However, a slew of measures were announced as part of the stimulus packages in early December 2008 and January 2009. While some of these measures are positive for the respective sectors, the excise duty reduction (by 4%) across sectors has been mostly passed on to consumers. In the following sections, we assess the impact of all these measures, including announcements in the Interim Budget, if any
Automobiles
The net impact of various policy changes is marginally positive across auto segments. However, lower economic growth prospects, weak consumer sentiment, high interest rates and stringent disbursement norms will continue to impact automobile demand. Due to the 4% reduction in excise duty announced in December 2008, and lower fuel prices and car finance rates, (partly offset by the increase in prices by some car manufacturers in January 2009), the cost of ownership for a typical compact car has declined by 3%.
Banking
Banks: Several liquidity enhancing measures have been announced since October 2008. However, the relaxation in nonperforming loan norms in real estate and corporate sectors may lead to weakening of asset quality and exert greater stress on the sector. The monetary easing measures combined with fiscal stimulus would be effective provided there is revival in both business and consumer confidence. With economic recovery expected to be protracted, these measures would have limited impact on the banking sector.
HFCs & NBFCs: The fiscal measures announced focus on facilitating credit availability, but implementation and revival in business and consumer confidence remains the key for these measures to be effective. Like banks, the fiscal stimulus would have a limited impact on HFCs and NBFCs.
Cement
The government had lowered the excise duty on packaged and bulk cement by 4% in the fiscal stimulus package announced on December 7, 2008. Cement producers passed on the cutback in duties by reducing prices. Consequently, the impact of lowering of excise duty is neutral for the sector. The imposition of customs duty on imported cement, which was announced in the fiscal stimulus package announced on January 2, 2009, will not have a major impact as India's cement imports are negligible.
Construction
The allocation of Rs11,840 crore under JNNURM will ensure greater focus on urban infrastructure development. The amount sanctioned is higher than Rs 6870 crore sanctioned in the previous budget. However, the crucial factor is the actual outlay. With IIFCL being authorised to raise Rs 10,000 crore via tax-free bonds, delays in order execution of construction companies on account of developers not achieving financial closure will reduce.
Consumer durables/Household appliances
Impact of the reduction in the excise duties on consumer durables from 16% to 12% announced in the government's fiscal stimulus package in December 2008 is neutral, as a significant portion of the production of major consumer durable manufacturers come from excise free zones. Other producers have partly passed on the excise duty cuts.
Housing
The fiscal stimulus package in early December 2008, classified loans under Rs 20 lakh as priority sector lending. The new classification of loans is aimed at encouraging banks to lend. However, due to the deterioration in the job market scenario owing to the prevailing slowdown, especially in the IT/ITeS and financial services sectors, banks may continue to hesitate to increase their advances. However, the Rs 4000 crore re-finance facility for NHB will ensure availability of loans for the sector. The reduction in home loans rates by PSU banks to 8.5% for loans up to Rs 5 lakh (10% margin) and 9.25% for loans in the range of Rs 5-20 lakh (15% margin) has prompted large private players such as HDFC and ICICI Bank to cut rates by 50-75bps.
Paper
The government reduced excise duty on paper from 8% to 4% for most varieties of paper. The overall impact is neutral as producers have passed on the duty cuts. The government also exempted newsprint, uncoated paper and light weight coated paper used for printing newspapers / magazines from customs duty on February 11, 2009. The impact of this is also neutral as domestic newsprint prices are lower than the landed costs even post the duty cuts.
Roads and Highways
IIFCL will refinance 60% of commercial bank loans for PPP projects with an investment of Rs 1,00000 crore over the next 18 months. This will improve the availability of credit for infrastructure projects such as BOT road projects undertaken by private players. Despite a budgetary allocation of Rs 9900 crore for national highways and Rs 4000 crore towards the development of rural roads, the implementation of projects may be slow due to policy ambiguities and land acquisition delays.
Steel
Steel players will benefit marginally from government measures such as bringing HR coils under the restricted category and levy of import duty on flat products. The reduction in excise duty will not have any impact, except in cases where the output is sold directly to the consumer, as most steel sales are MODVAT'able. The withdrawal of export duty on iron ore fines and export duty reduction on iron ore lumps and pellets will encourage iron ore exports.
Textiles
The extension of the interest subvention on pre-shipment and post-shipment credit till September 30, 2009, will benefit exporters through lower interest costs on working capital loans. The impact of the acrossthe-board excise duty cut of 4% is negligible on the cotton textiles chain, as CENVAT is optional; the reduction in excise duty on polyester and other man-made fibres to 4% has been passed on. The increase in the duty drawback rates on fabrics and the extension of the DEPB scheme till December 31, 2009 will benefit exporters.
The Interim Budget does not have any major announcements that affect the industry, except for some measures such as extension of interest subsidy (on pre- and postshipment credit) to boost exports in sectors such as textiles, leather and gems & jewellery. However, a slew of measures were announced as part of the stimulus packages in early December 2008 and January 2009. While some of these measures are positive for the respective sectors, the excise duty reduction (by 4%) across sectors has been mostly passed on to consumers. In the following sections, we assess the impact of all these measures, including announcements in the Interim Budget, if any
Automobiles
The net impact of various policy changes is marginally positive across auto segments. However, lower economic growth prospects, weak consumer sentiment, high interest rates and stringent disbursement norms will continue to impact automobile demand. Due to the 4% reduction in excise duty announced in December 2008, and lower fuel prices and car finance rates, (partly offset by the increase in prices by some car manufacturers in January 2009), the cost of ownership for a typical compact car has declined by 3%.
Banking
Banks: Several liquidity enhancing measures have been announced since October 2008. However, the relaxation in nonperforming loan norms in real estate and corporate sectors may lead to weakening of asset quality and exert greater stress on the sector. The monetary easing measures combined with fiscal stimulus would be effective provided there is revival in both business and consumer confidence. With economic recovery expected to be protracted, these measures would have limited impact on the banking sector.
HFCs & NBFCs: The fiscal measures announced focus on facilitating credit availability, but implementation and revival in business and consumer confidence remains the key for these measures to be effective. Like banks, the fiscal stimulus would have a limited impact on HFCs and NBFCs.
Cement
The government had lowered the excise duty on packaged and bulk cement by 4% in the fiscal stimulus package announced on December 7, 2008. Cement producers passed on the cutback in duties by reducing prices. Consequently, the impact of lowering of excise duty is neutral for the sector. The imposition of customs duty on imported cement, which was announced in the fiscal stimulus package announced on January 2, 2009, will not have a major impact as India's cement imports are negligible.
Construction
The allocation of Rs11,840 crore under JNNURM will ensure greater focus on urban infrastructure development. The amount sanctioned is higher than Rs 6870 crore sanctioned in the previous budget. However, the crucial factor is the actual outlay. With IIFCL being authorised to raise Rs 10,000 crore via tax-free bonds, delays in order execution of construction companies on account of developers not achieving financial closure will reduce.
Consumer durables/Household appliances
Impact of the reduction in the excise duties on consumer durables from 16% to 12% announced in the government's fiscal stimulus package in December 2008 is neutral, as a significant portion of the production of major consumer durable manufacturers come from excise free zones. Other producers have partly passed on the excise duty cuts.
Housing
The fiscal stimulus package in early December 2008, classified loans under Rs 20 lakh as priority sector lending. The new classification of loans is aimed at encouraging banks to lend. However, due to the deterioration in the job market scenario owing to the prevailing slowdown, especially in the IT/ITeS and financial services sectors, banks may continue to hesitate to increase their advances. However, the Rs 4000 crore re-finance facility for NHB will ensure availability of loans for the sector. The reduction in home loans rates by PSU banks to 8.5% for loans up to Rs 5 lakh (10% margin) and 9.25% for loans in the range of Rs 5-20 lakh (15% margin) has prompted large private players such as HDFC and ICICI Bank to cut rates by 50-75bps.
Paper
The government reduced excise duty on paper from 8% to 4% for most varieties of paper. The overall impact is neutral as producers have passed on the duty cuts. The government also exempted newsprint, uncoated paper and light weight coated paper used for printing newspapers / magazines from customs duty on February 11, 2009. The impact of this is also neutral as domestic newsprint prices are lower than the landed costs even post the duty cuts.
Roads and Highways
IIFCL will refinance 60% of commercial bank loans for PPP projects with an investment of Rs 1,00000 crore over the next 18 months. This will improve the availability of credit for infrastructure projects such as BOT road projects undertaken by private players. Despite a budgetary allocation of Rs 9900 crore for national highways and Rs 4000 crore towards the development of rural roads, the implementation of projects may be slow due to policy ambiguities and land acquisition delays.
Steel
Steel players will benefit marginally from government measures such as bringing HR coils under the restricted category and levy of import duty on flat products. The reduction in excise duty will not have any impact, except in cases where the output is sold directly to the consumer, as most steel sales are MODVAT'able. The withdrawal of export duty on iron ore fines and export duty reduction on iron ore lumps and pellets will encourage iron ore exports.
Textiles
The extension of the interest subvention on pre-shipment and post-shipment credit till September 30, 2009, will benefit exporters through lower interest costs on working capital loans. The impact of the acrossthe-board excise duty cut of 4% is negligible on the cotton textiles chain, as CENVAT is optional; the reduction in excise duty on polyester and other man-made fibres to 4% has been passed on. The increase in the duty drawback rates on fabrics and the extension of the DEPB scheme till December 31, 2009 will benefit exporters.
INTERIM BUDGET 2009 - WHAT’S THE IMPACT ON ECONOMY?
By M H Ahssan
GROWTH: The main driver in the next few months is going to be lower interest rates and increased credit flows to consumers and companies. The government can help things along by quickly spending whatever money is available. We expect growth during 2009-10 to be less than in the current year, but with a turnaround beginning in the second half.
INFLATION: With energy and commodity prices crashing in the past few months, cost pressures have disappe-ared. Sluggish global growth will ease demand pressures as well, with excess capacities in many sectors. Inflation will not be a threat during 2009-10, but could re-emerge as the global economy recovers due to expansionary monetary policies.
INVESTMENT: Expansion of capacities in most sectors is unlikely to take place for some time. Overall, investment will be subdued. Public spending on infrastructure will be the most significant contributor, while real estate will show signs of recovery during the year in response to low interest rates and falling prices.
INDUSTRIAL PRODUCTION: With all the demand drivers for industrial production moderating, this indicator will be sluggish. Consumption, investment and exports have all been affected by the slowdown. The former two will respond to policy stimuli during the year, while exports will have to wait until conditions in key importing countries change.
EMPLOYMENT: Sectors that had ramped up workforces during the boom years of 2006-08 are likely to see significant attrition. This can happen in both white-collar (finance, IT and ITES) and blue-collar (jewellery, garments and construction) activities. Public spending will be key to restoring blue-collar jobs during the year.
EXPORTS: US, UK, the Euro zone and Japan, which together account for more than half of India's exports, are all in recession and will remain that way for some months at least. Consequently, exports will almost certainly decline during the first half of the year but may stabilize towards the end of 2009.
INFRASTUCTURE: Investment in infrastructure was just beginning to pick up as public-private partnership models in various sectors were being successfully launched. These will be hit by a drying up of private, particularly foreign, funds. The onus on government to keep investment going will increase considerably.
INTEREST RATES: With the Reserve Bank of India able to infuse liquidity and lower short-term rates in a benign inflationary environment, interest rates should remain soft through the year. However, increased pressure from government borrowing will tend to harden rates at the longer end of the yield curve.
CONSUMPTION: With lower growth and increased uncertainty about incomes and jobs in many sectors, consumption spending will be adversely affected. However, agricultural incomes should hold up and government and public sector employees, who have full job security, will earn substantially more. This should help stabilize spending.
FISCAL DEFICIT: The finance minister estimated the fiscal deficit for 2008-09 to be 6% of GDP and expects it to go down to 5.5% on the basis of his projected revenues and expenditures. Since both can change as a result of the new government's policies, in the foreseeable macroeconomic environment, it could end up higher than that.
GROWTH: The main driver in the next few months is going to be lower interest rates and increased credit flows to consumers and companies. The government can help things along by quickly spending whatever money is available. We expect growth during 2009-10 to be less than in the current year, but with a turnaround beginning in the second half.
INFLATION: With energy and commodity prices crashing in the past few months, cost pressures have disappe-ared. Sluggish global growth will ease demand pressures as well, with excess capacities in many sectors. Inflation will not be a threat during 2009-10, but could re-emerge as the global economy recovers due to expansionary monetary policies.
INVESTMENT: Expansion of capacities in most sectors is unlikely to take place for some time. Overall, investment will be subdued. Public spending on infrastructure will be the most significant contributor, while real estate will show signs of recovery during the year in response to low interest rates and falling prices.
INDUSTRIAL PRODUCTION: With all the demand drivers for industrial production moderating, this indicator will be sluggish. Consumption, investment and exports have all been affected by the slowdown. The former two will respond to policy stimuli during the year, while exports will have to wait until conditions in key importing countries change.
EMPLOYMENT: Sectors that had ramped up workforces during the boom years of 2006-08 are likely to see significant attrition. This can happen in both white-collar (finance, IT and ITES) and blue-collar (jewellery, garments and construction) activities. Public spending will be key to restoring blue-collar jobs during the year.
EXPORTS: US, UK, the Euro zone and Japan, which together account for more than half of India's exports, are all in recession and will remain that way for some months at least. Consequently, exports will almost certainly decline during the first half of the year but may stabilize towards the end of 2009.
INFRASTUCTURE: Investment in infrastructure was just beginning to pick up as public-private partnership models in various sectors were being successfully launched. These will be hit by a drying up of private, particularly foreign, funds. The onus on government to keep investment going will increase considerably.
INTEREST RATES: With the Reserve Bank of India able to infuse liquidity and lower short-term rates in a benign inflationary environment, interest rates should remain soft through the year. However, increased pressure from government borrowing will tend to harden rates at the longer end of the yield curve.
CONSUMPTION: With lower growth and increased uncertainty about incomes and jobs in many sectors, consumption spending will be adversely affected. However, agricultural incomes should hold up and government and public sector employees, who have full job security, will earn substantially more. This should help stabilize spending.
FISCAL DEFICIT: The finance minister estimated the fiscal deficit for 2008-09 to be 6% of GDP and expects it to go down to 5.5% on the basis of his projected revenues and expenditures. Since both can change as a result of the new government's policies, in the foreseeable macroeconomic environment, it could end up higher than that.
INTERIM BUDGET 2009 - WHAT’S THE IMPACT ON ECONOMY?
By M H Ahssan
GROWTH: The main driver in the next few months is going to be lower interest rates and increased credit flows to consumers and companies. The government can help things along by quickly spending whatever money is available. We expect growth during 2009-10 to be less than in the current year, but with a turnaround beginning in the second half.
INFLATION: With energy and commodity prices crashing in the past few months, cost pressures have disappe-ared. Sluggish global growth will ease demand pressures as well, with excess capacities in many sectors. Inflation will not be a threat during 2009-10, but could re-emerge as the global economy recovers due to expansionary monetary policies.
INVESTMENT: Expansion of capacities in most sectors is unlikely to take place for some time. Overall, investment will be subdued. Public spending on infrastructure will be the most significant contributor, while real estate will show signs of recovery during the year in response to low interest rates and falling prices.
INDUSTRIAL PRODUCTION: With all the demand drivers for industrial production moderating, this indicator will be sluggish. Consumption, investment and exports have all been affected by the slowdown. The former two will respond to policy stimuli during the year, while exports will have to wait until conditions in key importing countries change.
EMPLOYMENT: Sectors that had ramped up workforces during the boom years of 2006-08 are likely to see significant attrition. This can happen in both white-collar (finance, IT and ITES) and blue-collar (jewellery, garments and construction) activities. Public spending will be key to restoring blue-collar jobs during the year.
EXPORTS: US, UK, the Euro zone and Japan, which together account for more than half of India's exports, are all in recession and will remain that way for some months at least. Consequently, exports will almost certainly decline during the first half of the year but may stabilize towards the end of 2009.
INFRASTUCTURE: Investment in infrastructure was just beginning to pick up as public-private partnership models in various sectors were being successfully launched. These will be hit by a drying up of private, particularly foreign, funds. The onus on government to keep investment going will increase considerably.
INTEREST RATES: With the Reserve Bank of India able to infuse liquidity and lower short-term rates in a benign inflationary environment, interest rates should remain soft through the year. However, increased pressure from government borrowing will tend to harden rates at the longer end of the yield curve.
CONSUMPTION: With lower growth and increased uncertainty about incomes and jobs in many sectors, consumption spending will be adversely affected. However, agricultural incomes should hold up and government and public sector employees, who have full job security, will earn substantially more. This should help stabilize spending.
FISCAL DEFICIT: The finance minister estimated the fiscal deficit for 2008-09 to be 6% of GDP and expects it to go down to 5.5% on the basis of his projected revenues and expenditures. Since both can change as a result of the new government's policies, in the foreseeable macroeconomic environment, it could end up higher than that.
GROWTH: The main driver in the next few months is going to be lower interest rates and increased credit flows to consumers and companies. The government can help things along by quickly spending whatever money is available. We expect growth during 2009-10 to be less than in the current year, but with a turnaround beginning in the second half.
INFLATION: With energy and commodity prices crashing in the past few months, cost pressures have disappe-ared. Sluggish global growth will ease demand pressures as well, with excess capacities in many sectors. Inflation will not be a threat during 2009-10, but could re-emerge as the global economy recovers due to expansionary monetary policies.
INVESTMENT: Expansion of capacities in most sectors is unlikely to take place for some time. Overall, investment will be subdued. Public spending on infrastructure will be the most significant contributor, while real estate will show signs of recovery during the year in response to low interest rates and falling prices.
INDUSTRIAL PRODUCTION: With all the demand drivers for industrial production moderating, this indicator will be sluggish. Consumption, investment and exports have all been affected by the slowdown. The former two will respond to policy stimuli during the year, while exports will have to wait until conditions in key importing countries change.
EMPLOYMENT: Sectors that had ramped up workforces during the boom years of 2006-08 are likely to see significant attrition. This can happen in both white-collar (finance, IT and ITES) and blue-collar (jewellery, garments and construction) activities. Public spending will be key to restoring blue-collar jobs during the year.
EXPORTS: US, UK, the Euro zone and Japan, which together account for more than half of India's exports, are all in recession and will remain that way for some months at least. Consequently, exports will almost certainly decline during the first half of the year but may stabilize towards the end of 2009.
INFRASTUCTURE: Investment in infrastructure was just beginning to pick up as public-private partnership models in various sectors were being successfully launched. These will be hit by a drying up of private, particularly foreign, funds. The onus on government to keep investment going will increase considerably.
INTEREST RATES: With the Reserve Bank of India able to infuse liquidity and lower short-term rates in a benign inflationary environment, interest rates should remain soft through the year. However, increased pressure from government borrowing will tend to harden rates at the longer end of the yield curve.
CONSUMPTION: With lower growth and increased uncertainty about incomes and jobs in many sectors, consumption spending will be adversely affected. However, agricultural incomes should hold up and government and public sector employees, who have full job security, will earn substantially more. This should help stabilize spending.
FISCAL DEFICIT: The finance minister estimated the fiscal deficit for 2008-09 to be 6% of GDP and expects it to go down to 5.5% on the basis of his projected revenues and expenditures. Since both can change as a result of the new government's policies, in the foreseeable macroeconomic environment, it could end up higher than that.
INTERIM BUDGET 2009 - WHAT’S THE IMPACT ON ECONOMY?
By M H Ahssan
GROWTH: The main driver in the next few months is going to be lower interest rates and increased credit flows to consumers and companies. The government can help things along by quickly spending whatever money is available. We expect growth during 2009-10 to be less than in the current year, but with a turnaround beginning in the second half.
INFLATION: With energy and commodity prices crashing in the past few months, cost pressures have disappe-ared. Sluggish global growth will ease demand pressures as well, with excess capacities in many sectors. Inflation will not be a threat during 2009-10, but could re-emerge as the global economy recovers due to expansionary monetary policies.
INVESTMENT: Expansion of capacities in most sectors is unlikely to take place for some time. Overall, investment will be subdued. Public spending on infrastructure will be the most significant contributor, while real estate will show signs of recovery during the year in response to low interest rates and falling prices.
INDUSTRIAL PRODUCTION: With all the demand drivers for industrial production moderating, this indicator will be sluggish. Consumption, investment and exports have all been affected by the slowdown. The former two will respond to policy stimuli during the year, while exports will have to wait until conditions in key importing countries change.
EMPLOYMENT: Sectors that had ramped up workforces during the boom years of 2006-08 are likely to see significant attrition. This can happen in both white-collar (finance, IT and ITES) and blue-collar (jewellery, garments and construction) activities. Public spending will be key to restoring blue-collar jobs during the year.
EXPORTS: US, UK, the Euro zone and Japan, which together account for more than half of India's exports, are all in recession and will remain that way for some months at least. Consequently, exports will almost certainly decline during the first half of the year but may stabilize towards the end of 2009.
INFRASTUCTURE: Investment in infrastructure was just beginning to pick up as public-private partnership models in various sectors were being successfully launched. These will be hit by a drying up of private, particularly foreign, funds. The onus on government to keep investment going will increase considerably.
INTEREST RATES: With the Reserve Bank of India able to infuse liquidity and lower short-term rates in a benign inflationary environment, interest rates should remain soft through the year. However, increased pressure from government borrowing will tend to harden rates at the longer end of the yield curve.
CONSUMPTION: With lower growth and increased uncertainty about incomes and jobs in many sectors, consumption spending will be adversely affected. However, agricultural incomes should hold up and government and public sector employees, who have full job security, will earn substantially more. This should help stabilize spending.
FISCAL DEFICIT: The finance minister estimated the fiscal deficit for 2008-09 to be 6% of GDP and expects it to go down to 5.5% on the basis of his projected revenues and expenditures. Since both can change as a result of the new government's policies, in the foreseeable macroeconomic environment, it could end up higher than that.
GROWTH: The main driver in the next few months is going to be lower interest rates and increased credit flows to consumers and companies. The government can help things along by quickly spending whatever money is available. We expect growth during 2009-10 to be less than in the current year, but with a turnaround beginning in the second half.
INFLATION: With energy and commodity prices crashing in the past few months, cost pressures have disappe-ared. Sluggish global growth will ease demand pressures as well, with excess capacities in many sectors. Inflation will not be a threat during 2009-10, but could re-emerge as the global economy recovers due to expansionary monetary policies.
INVESTMENT: Expansion of capacities in most sectors is unlikely to take place for some time. Overall, investment will be subdued. Public spending on infrastructure will be the most significant contributor, while real estate will show signs of recovery during the year in response to low interest rates and falling prices.
INDUSTRIAL PRODUCTION: With all the demand drivers for industrial production moderating, this indicator will be sluggish. Consumption, investment and exports have all been affected by the slowdown. The former two will respond to policy stimuli during the year, while exports will have to wait until conditions in key importing countries change.
EMPLOYMENT: Sectors that had ramped up workforces during the boom years of 2006-08 are likely to see significant attrition. This can happen in both white-collar (finance, IT and ITES) and blue-collar (jewellery, garments and construction) activities. Public spending will be key to restoring blue-collar jobs during the year.
EXPORTS: US, UK, the Euro zone and Japan, which together account for more than half of India's exports, are all in recession and will remain that way for some months at least. Consequently, exports will almost certainly decline during the first half of the year but may stabilize towards the end of 2009.
INFRASTUCTURE: Investment in infrastructure was just beginning to pick up as public-private partnership models in various sectors were being successfully launched. These will be hit by a drying up of private, particularly foreign, funds. The onus on government to keep investment going will increase considerably.
INTEREST RATES: With the Reserve Bank of India able to infuse liquidity and lower short-term rates in a benign inflationary environment, interest rates should remain soft through the year. However, increased pressure from government borrowing will tend to harden rates at the longer end of the yield curve.
CONSUMPTION: With lower growth and increased uncertainty about incomes and jobs in many sectors, consumption spending will be adversely affected. However, agricultural incomes should hold up and government and public sector employees, who have full job security, will earn substantially more. This should help stabilize spending.
FISCAL DEFICIT: The finance minister estimated the fiscal deficit for 2008-09 to be 6% of GDP and expects it to go down to 5.5% on the basis of his projected revenues and expenditures. Since both can change as a result of the new government's policies, in the foreseeable macroeconomic environment, it could end up higher than that.
Double jeopardy for budget maths
By M H Ahssan
Slowdown Squeezes Revenues, Deficits Balloon As Pay Panel Hikes Spending
The global economic slowdown and the Sixth Pay Commission’s recommendations have between them made a mess of the budget arithmetic for the current year, more than quadrupling the revenue deficit from 1% of GDP in the budget estimates (BE) to 4.4% in the revised estimates (RE). The fiscal deficit too has more than doubled from 2.5% of GDP in BE to 6% in RE.
When the Budget was announced by the then finance minister P Chidambaram in February last year, it had been pointed out that the Pay Commission’s award had not been adequately factored in, but the FM believed there was enough cushion in his estimates to absorb some extra spending if the need arose.
What he could not have anticipated then was the global meltdown and its impact on India’s own economy. The result of the slowdown has been that gross tax revenues are over Rs 65,000 crore lower in RE than in BE. The sharpest decline has been in excise duties, which in the BE were supposed to fetch Rs 137,874 crore but are now projected to rake in only Rs 108,359 crore.
Part of the nearly Rs 30,000 crore shortfall on this account is a natural outcome of a rapidly slowing industrial sector in the second half of the year. But in part it must also be because one of the measures adopted to stimulate a recovery involved a 4% across-theboard cut in excise duties.
Customs collections are almost Rs 11,000 crore lower in RE than in BE, corporate income tax are now expected to yield roughly Rs 4,400 crore less than earlier estimated and personal income tax, North Block now believes, will fetch about Rs 15,700 crore less than the BE. That’s the bad news on the receipts side. On the expenditure side, an increase of almost Rs 58,000 crore in the subsidy bill – largely due to fertilizers – of about Rs 15,000 crore in pay and allowances for civilian Central government staff and another Rs 18,000 crore in defence salaries and perk have all contributed to the BE going completely awry.
Thus, while revenue expenditure in BE was pegged at Rs 658,119 crore, it is now estimated that the figure would be Rs 803,446 crore. That’s an increase of over Rs 1.5 lakh crore. Put the higher expenditure and the lower revenue receipts together and the revenue deficit which was supposed to be just Rs 55,000-odd crore has crossed Rs 2.4 lakh crore.
This, in turn, has meant that the government has had to borrow about twoand-a-half times the amount it had originally intended to do — Rs 3.3 lakh crore rather than Rs 1.3 lakh crore.
For the coming year, the FM has preferred to play it safe in projecting income. Though the Budget assumes a 7% growth in GDP and no changes in tax rates, excise and customs duty collections are projected to rise by just about 2% over the RE for the current year. Surprisingly, though, taxes on both corporate and personal incomes are projected to go up by around 10%.
This is because of recent experience when indirect taxes proved less buoyant than direct taxes. From a situation in early 1990s when less than one in five tax rupees came from direct taxes, there has been a seachange to one in which these taxes are expected to contribute almost 57% in the BE for 2009-10.
Slowdown Squeezes Revenues, Deficits Balloon As Pay Panel Hikes Spending
The global economic slowdown and the Sixth Pay Commission’s recommendations have between them made a mess of the budget arithmetic for the current year, more than quadrupling the revenue deficit from 1% of GDP in the budget estimates (BE) to 4.4% in the revised estimates (RE). The fiscal deficit too has more than doubled from 2.5% of GDP in BE to 6% in RE.
When the Budget was announced by the then finance minister P Chidambaram in February last year, it had been pointed out that the Pay Commission’s award had not been adequately factored in, but the FM believed there was enough cushion in his estimates to absorb some extra spending if the need arose.
What he could not have anticipated then was the global meltdown and its impact on India’s own economy. The result of the slowdown has been that gross tax revenues are over Rs 65,000 crore lower in RE than in BE. The sharpest decline has been in excise duties, which in the BE were supposed to fetch Rs 137,874 crore but are now projected to rake in only Rs 108,359 crore.
Part of the nearly Rs 30,000 crore shortfall on this account is a natural outcome of a rapidly slowing industrial sector in the second half of the year. But in part it must also be because one of the measures adopted to stimulate a recovery involved a 4% across-theboard cut in excise duties.
Customs collections are almost Rs 11,000 crore lower in RE than in BE, corporate income tax are now expected to yield roughly Rs 4,400 crore less than earlier estimated and personal income tax, North Block now believes, will fetch about Rs 15,700 crore less than the BE. That’s the bad news on the receipts side. On the expenditure side, an increase of almost Rs 58,000 crore in the subsidy bill – largely due to fertilizers – of about Rs 15,000 crore in pay and allowances for civilian Central government staff and another Rs 18,000 crore in defence salaries and perk have all contributed to the BE going completely awry.
Thus, while revenue expenditure in BE was pegged at Rs 658,119 crore, it is now estimated that the figure would be Rs 803,446 crore. That’s an increase of over Rs 1.5 lakh crore. Put the higher expenditure and the lower revenue receipts together and the revenue deficit which was supposed to be just Rs 55,000-odd crore has crossed Rs 2.4 lakh crore.
This, in turn, has meant that the government has had to borrow about twoand-a-half times the amount it had originally intended to do — Rs 3.3 lakh crore rather than Rs 1.3 lakh crore.
For the coming year, the FM has preferred to play it safe in projecting income. Though the Budget assumes a 7% growth in GDP and no changes in tax rates, excise and customs duty collections are projected to rise by just about 2% over the RE for the current year. Surprisingly, though, taxes on both corporate and personal incomes are projected to go up by around 10%.
This is because of recent experience when indirect taxes proved less buoyant than direct taxes. From a situation in early 1990s when less than one in five tax rupees came from direct taxes, there has been a seachange to one in which these taxes are expected to contribute almost 57% in the BE for 2009-10.
Double jeopardy for budget maths
By M H Ahssan
Slowdown Squeezes Revenues, Deficits Balloon As Pay Panel Hikes Spending
The global economic slowdown and the Sixth Pay Commission’s recommendations have between them made a mess of the budget arithmetic for the current year, more than quadrupling the revenue deficit from 1% of GDP in the budget estimates (BE) to 4.4% in the revised estimates (RE). The fiscal deficit too has more than doubled from 2.5% of GDP in BE to 6% in RE.
When the Budget was announced by the then finance minister P Chidambaram in February last year, it had been pointed out that the Pay Commission’s award had not been adequately factored in, but the FM believed there was enough cushion in his estimates to absorb some extra spending if the need arose.
What he could not have anticipated then was the global meltdown and its impact on India’s own economy. The result of the slowdown has been that gross tax revenues are over Rs 65,000 crore lower in RE than in BE. The sharpest decline has been in excise duties, which in the BE were supposed to fetch Rs 137,874 crore but are now projected to rake in only Rs 108,359 crore.
Part of the nearly Rs 30,000 crore shortfall on this account is a natural outcome of a rapidly slowing industrial sector in the second half of the year. But in part it must also be because one of the measures adopted to stimulate a recovery involved a 4% across-theboard cut in excise duties.
Customs collections are almost Rs 11,000 crore lower in RE than in BE, corporate income tax are now expected to yield roughly Rs 4,400 crore less than earlier estimated and personal income tax, North Block now believes, will fetch about Rs 15,700 crore less than the BE. That’s the bad news on the receipts side. On the expenditure side, an increase of almost Rs 58,000 crore in the subsidy bill – largely due to fertilizers – of about Rs 15,000 crore in pay and allowances for civilian Central government staff and another Rs 18,000 crore in defence salaries and perk have all contributed to the BE going completely awry.
Thus, while revenue expenditure in BE was pegged at Rs 658,119 crore, it is now estimated that the figure would be Rs 803,446 crore. That’s an increase of over Rs 1.5 lakh crore. Put the higher expenditure and the lower revenue receipts together and the revenue deficit which was supposed to be just Rs 55,000-odd crore has crossed Rs 2.4 lakh crore.
This, in turn, has meant that the government has had to borrow about twoand-a-half times the amount it had originally intended to do — Rs 3.3 lakh crore rather than Rs 1.3 lakh crore.
For the coming year, the FM has preferred to play it safe in projecting income. Though the Budget assumes a 7% growth in GDP and no changes in tax rates, excise and customs duty collections are projected to rise by just about 2% over the RE for the current year. Surprisingly, though, taxes on both corporate and personal incomes are projected to go up by around 10%.
This is because of recent experience when indirect taxes proved less buoyant than direct taxes. From a situation in early 1990s when less than one in five tax rupees came from direct taxes, there has been a seachange to one in which these taxes are expected to contribute almost 57% in the BE for 2009-10.
Slowdown Squeezes Revenues, Deficits Balloon As Pay Panel Hikes Spending
The global economic slowdown and the Sixth Pay Commission’s recommendations have between them made a mess of the budget arithmetic for the current year, more than quadrupling the revenue deficit from 1% of GDP in the budget estimates (BE) to 4.4% in the revised estimates (RE). The fiscal deficit too has more than doubled from 2.5% of GDP in BE to 6% in RE.
When the Budget was announced by the then finance minister P Chidambaram in February last year, it had been pointed out that the Pay Commission’s award had not been adequately factored in, but the FM believed there was enough cushion in his estimates to absorb some extra spending if the need arose.
What he could not have anticipated then was the global meltdown and its impact on India’s own economy. The result of the slowdown has been that gross tax revenues are over Rs 65,000 crore lower in RE than in BE. The sharpest decline has been in excise duties, which in the BE were supposed to fetch Rs 137,874 crore but are now projected to rake in only Rs 108,359 crore.
Part of the nearly Rs 30,000 crore shortfall on this account is a natural outcome of a rapidly slowing industrial sector in the second half of the year. But in part it must also be because one of the measures adopted to stimulate a recovery involved a 4% across-theboard cut in excise duties.
Customs collections are almost Rs 11,000 crore lower in RE than in BE, corporate income tax are now expected to yield roughly Rs 4,400 crore less than earlier estimated and personal income tax, North Block now believes, will fetch about Rs 15,700 crore less than the BE. That’s the bad news on the receipts side. On the expenditure side, an increase of almost Rs 58,000 crore in the subsidy bill – largely due to fertilizers – of about Rs 15,000 crore in pay and allowances for civilian Central government staff and another Rs 18,000 crore in defence salaries and perk have all contributed to the BE going completely awry.
Thus, while revenue expenditure in BE was pegged at Rs 658,119 crore, it is now estimated that the figure would be Rs 803,446 crore. That’s an increase of over Rs 1.5 lakh crore. Put the higher expenditure and the lower revenue receipts together and the revenue deficit which was supposed to be just Rs 55,000-odd crore has crossed Rs 2.4 lakh crore.
This, in turn, has meant that the government has had to borrow about twoand-a-half times the amount it had originally intended to do — Rs 3.3 lakh crore rather than Rs 1.3 lakh crore.
For the coming year, the FM has preferred to play it safe in projecting income. Though the Budget assumes a 7% growth in GDP and no changes in tax rates, excise and customs duty collections are projected to rise by just about 2% over the RE for the current year. Surprisingly, though, taxes on both corporate and personal incomes are projected to go up by around 10%.
This is because of recent experience when indirect taxes proved less buoyant than direct taxes. From a situation in early 1990s when less than one in five tax rupees came from direct taxes, there has been a seachange to one in which these taxes are expected to contribute almost 57% in the BE for 2009-10.
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