AN ANALYSIS OF THE INCOMES AND EXPENDITURES PROPOSED IN THE UNION BUDGET 2008-09 PREPARED BY: NAYAN BHATIA & ANUJA SHAH

Name of the Scheme Rs.(in crores) Bharat Nirman 31280 National Rural Employment Guarantee Scheme 16000 Jawaharlal Nehru National Urban Renewal Mission 6866 Rajiv Gandhi Drinking Water Mission 7300 Total Sanitation Campaign 1200 Rajiv Gandhi Grameen Vidyutikaran Yojana 5500 Backward Regions Grant Scheme 5800

Name of the Scheme Rs.(in crores)

Bharat Nirman 31280

National Rural Employment Guarantee Scheme 16000

Jawaharlal Nehru National Urban Renewal Mission 6866

Rajiv Gandhi Drinking Water Mission 7300

Total Sanitation Campaign 1200

Rajiv Gandhi Grameen Vidyutikaran Yojana 5500

Backward Regions Grant Scheme 5800

Rs 100 crore to build National Knowledge Network to connect all knowledge centres via broadband Ministry of Science and Technology to start a new scholarship scheme Two Schools of Planning and Architecture in Bhopal and Vijaywada Three new IITs in Andhra Pradesh, Bihar and Rajasthan Central Universities for all states; 16 Central Universities this year A Model School Programme to be started 410 new Kasturba Gandhi Balika Vidyalayas to be set up Mid-day Meal Scheme to be extended to all govt and govt-aided schools Education outlay increased by 20% to Rs 34,400 crore EDUCATION

Rs 100 crore to build National Knowledge Network to connect all knowledge centres via broadband

Ministry of Science and Technology to start a new scholarship scheme

Two Schools of Planning and Architecture in Bhopal and Vijaywada

Three new IITs in Andhra Pradesh, Bihar and Rajasthan

Central Universities for all states; 16 Central Universities this year

A Model School Programme to be started

410 new Kasturba Gandhi Balika Vidyalayas to be set up

Mid-day Meal Scheme to be extended to all govt and govt-aided schools

Education outlay increased by 20% to Rs 34,400 crore

Integrated Child Development Scheme allocation increased to Rs 6,300 crore A National Programme for the Elderly, with an outlay of Rs. 400 crore Rashtriya Health Bima Yojana to be launched in Delhi, Haryana, Rajasthan on April 1, 09 Rs 993 crore for combatting AIDS, Rs 1042 crore for combatting Polio Rs 12,050 crore for National Rural Health Mission More than 300 district hospitals to be upgraded Health outlay increased by 15% to Rs 16,534 crore HEALTH

Integrated Child Development Scheme allocation increased to Rs 6,300 crore

A National Programme for the Elderly, with an outlay of Rs. 400 crore

Rashtriya Health Bima Yojana to be launched in Delhi, Haryana, Rajasthan on April 1, 09

Rs 993 crore for combatting AIDS, Rs 1042 crore for combatting Polio

Rs 12,050 crore for National Rural Health Mission

More than 300 district hospitals to be upgraded

Health outlay increased by 15% to Rs 16,534 crore

Four crore farmers expected to benefit . FARM SECTOR * Farms of up to 2 hectares will have a complete waiver of loans. * Debt waiver scheme will cover 500 billion rupees of loans. * Implementation of farm debt scheme will be completed by June 30, 2008. * Government determined to be self-sufficient in food grains. * Farm credit target at 2.8 trillion rupees. * Government sets aside 200 billion rupees for irrigation. * Government will give special attention to coconut, cashew and pepper sectors * Government to give 400 million rupees for special purpose tea fund. * Crop insurance scheme will be introduced. Weather-based crop insurance scheme to continue

Budget increased by 10% to Rs 1,05,600 crore Allocation of Rs. 44 crore for improvement in the infrastructure of Sainik schools DEFENCE

Budget increased by 10% to Rs 1,05,600 crore

Allocation of Rs. 44 crore for improvement in the infrastructure of Sainik schools

INFRASTRUCTURE AND INDUSTRY SECTOR SCHEME ALLOCATION (Rs. in crore) Power Accelerated Power Dev. & Reforms Project 800 Roads National Highway Development Programme 12966 IT Common Service Centers 75 State Wide Area Networks 450 State Data Centers 275 Textiles Scheme For Integrated Textile Parks 450 Textile Upgradation Fund 1090

Rs. 50 crores allocated to the National Tiger Conservation Authority for Tiger Protection. Rs. 624 crores allocated for the Commonwealth Games. Rs. 750 crore set apart for upgrading Industrial Training Institutes Rs. 75 crore for promoting India’s soft power

Rs. 50 crores allocated to the National Tiger Conservation Authority for Tiger Protection.

Rs. 624 crores allocated for the Commonwealth Games.

Tax Revenues for central government

Direct taxes- Personal tax As a result of amendment in income tax slabs an individual earning Rs.5 lakhs per annum will have a tax saving of Rs. 45320. Section 80D is also amended so that individual could get deduction upto Rs. 15000 for medical insurance premium paid for parents. Capital gain tax under section 111A increased from 10 to 15% However, it is estimated that income tax revenue of government will rise from Rs. 103470 crores in 2007-08 to 120604 crores in 2008-09.

As a result of amendment in income tax slabs an individual earning Rs.5 lakhs per annum will have a tax saving of Rs. 45320.

Section 80D is also amended so that individual could get deduction upto Rs. 15000 for medical insurance premium paid for parents.

Capital gain tax under section 111A increased from 10 to 15%

However, it is estimated that income tax revenue of government will rise from Rs. 103470 crores in 2007-08 to 120604 crores in 2008-09.

Direct taxes- Corporate tax As there are no changes in tax rates, government estimates the corporate tax revenue to rise from Rs.186125 crores to Rs. 226361 crores. Allowance of preliminary expenses u/s 35D is extended to all the assesses in service sector. Securities transaction tax will be an allowable expense and hence provision of rebate u/s 89 is removed. A five year tax holiday is granted to 2/3/4 star hotels setup (in specified districts), as well as to hospital having more than 100 beds (except in certain urban agglomerations) applicable form April 1,2008 to March 13,2013.

As there are no changes in tax rates, government estimates the corporate tax revenue to rise from Rs.186125 crores to Rs. 226361 crores.

Allowance of preliminary expenses u/s 35D is extended to all the assesses in service sector.

Securities transaction tax will be an allowable expense and hence provision of rebate u/s 89 is removed.

A five year tax holiday is granted to 2/3/4 star hotels setup (in specified districts), as well as to hospital having more than 100 beds (except in certain urban agglomerations) applicable form April 1,2008 to March 13,2013.

Other provisions A holding company can set off DDT paid by its subsidiary to the extent it recieves dividend from it. This provision will benefit companies like SBI, ICICI, etc. BCTT to be withdrawn effective from April 1, 2009. In 2007-08 it generated a revenue of Rs.550 crores for the government. A new tax called Commodity transaction tax is being introduced which will be charged @ 0.017% on option premium and @ 0.125% on settlement price. FBT paid by employers on ESOPs and recovered from employee would be treated as tax paid by the employee.

A holding company can set off DDT paid by its subsidiary to the extent it recieves dividend from it. This provision will benefit companies like SBI, ICICI, etc.

BCTT to be withdrawn effective from April 1, 2009. In 2007-08 it generated a revenue of Rs.550 crores for the government.

A new tax called Commodity transaction tax is being introduced which will be charged @ 0.017% on option premium and @ 0.125% on settlement price.

FBT paid by employers on ESOPs and recovered from employee would be treated as tax paid by the employee.

Indirect taxes The proposals of budget estimate a loss of Rs. 5900 crores in indirect taxes. Customs duty: Positive change for number of sectors (having imports by projects) like airport development, port development, railway electrification,etc as BCD reduced from 7.5 to 5% for project imports. Negative for power sector as 4% CVD will be applicable on few specified projects of power sector. Tax revenue from custom duty is estimated to increase from Rs. 100766(2007-08) crores to 118930(2008-09) crores.

The proposals of budget estimate a loss of Rs. 5900 crores in indirect taxes.

Customs duty:

Positive change for number of sectors (having imports by projects) like airport development, port development, railway electrification,etc as BCD reduced from 7.5 to 5% for project imports.

Negative for power sector as 4% CVD will be applicable on few specified projects of power sector.

Tax revenue from custom duty is estimated to increase from Rs. 100766(2007-08) crores to 118930(2008-09) crores.

Indirect Taxes (contd..) Excise duty: In order to provide a stimulus to the manufacturing sector CENVAT rate on all goods reduced from 16% to 14%. Additional benefits given to companies manufacturing pharmaceutical products, small cars, two wheelers, paper and water purification devices. Negative news for companies manufacturing bulk and packaged cement, packaged software and non-filter cigarettes. However the tax revenue from excise is estimated to increase from Rs. 127947 crores(2007-08) to 137874 crores(2008-09)

Excise duty:

In order to provide a stimulus to the manufacturing sector CENVAT rate on all goods reduced from 16% to 14%.

Additional benefits given to companies manufacturing pharmaceutical products, small cars, two wheelers, paper and water purification devices.

Negative news for companies manufacturing bulk and packaged cement, packaged software and non-filter cigarettes.

However the tax revenue from excise is estimated to increase from Rs. 127947 crores(2007-08) to 137874 crores(2008-09)

Indirect Taxes (contd..) Service tax: About 65000 small service providers will go out of the tax net of service tax as a result of increase in exemption limit from Rs. 8 lakhs to Rs. 10 lakhs. Asset management services, services provided by stock/commodity exchanges and clearing houses, right to use goods, customized software services will be covered under the purview of services tax. As a result, services tax revenues are expected to increase tremendously from Rs.50603 crores (2007-08) to Rs.64460 crores (2008-09)

Service tax:

About 65000 small service providers will go out of the tax net of service tax as a result of increase in exemption limit from Rs. 8 lakhs to Rs. 10 lakhs.

Asset management services, services provided by stock/commodity exchanges and clearing houses, right to use goods, customized software services will be covered under the purview of services tax.

As a result, services tax revenues are expected to increase tremendously from Rs.50603 crores (2007-08) to Rs.64460 crores (2008-09)

Fiscal and Revenue Deficits The revenue deficit for 2007-08 is estimated to be 1.4 % of GDP and that for 2008-09 to be 1% of GDP at Rs. 55184 crore. The fiscal deficit is estimated at 3.1% for 2007-08 and 2.5% (Rs.133287 crore) for 2008-09 However, the above fiscal deficit is underestimated as central government of India periodically issues special bonds to oil marketing companies , Food corporation of India and fertilizer companies. These bonds do not involve any cash flows and hence they are treated as deficit neutral.

The revenue deficit for 2007-08 is estimated to be 1.4 % of GDP and that for 2008-09 to be 1% of GDP at Rs. 55184 crore.

The fiscal deficit is estimated at 3.1% for 2007-08 and 2.5% (Rs.133287 crore) for 2008-09

However, the above fiscal deficit is underestimated as central government of India periodically issues special bonds to oil marketing companies , Food corporation of India and fertilizer companies. These bonds do not involve any cash flows and hence they are treated as deficit neutral.

Fiscal and Revenue Deficits(Contd..) During 2007-08, special bonds amounting to Rs 75 billion and Rs 234.6 billion are envisaged to be issued. Issuance of debt through budget would have pushed up the fiscal deficit by 0.7 per cent of GDP in 2007-08. Further, the value of outstanding bond implies that the figure for the debt/GDP would be underestimated by 1.7 per cent this year.(as seen in table 4 and 5)

During 2007-08, special bonds amounting to Rs 75 billion and Rs 234.6 billion are envisaged to be issued.

Issuance of debt through budget would have pushed up the fiscal deficit by 0.7 per cent of GDP in 2007-08.

Further, the value of outstanding bond implies that the figure for the debt/GDP would be underestimated by 1.7 per cent this year.(as seen in table 4 and 5)