India's Interim Budget 2009-10 : Wasted Opportunity

. 2/17/09

Presenting the interim budget for 2009-10, External Affairs Minister Pranab Mukherjee, who is holding charge of Finance, stuck to past practice even in these unusual times and did not announce tax cuts or any other stimulus that some sections of trade and industry were expecting. With the UPA government’s mandate due to lapse and the general election scheduled to be held in less than three months, the basic objective was of course to secure just a vote on account, leaving the successor regime to formulate the regular budget. The interim budget provides for Rs.9,53,231 crore of expenditure, of which plan expenditure accounts for Rs.2,85,149 crore and non-plan expenditure Rs.6,68,082 crore. Mr. Mukherjee has said that an additional plan expenditure of 0.5-1 per cent of the GDP will need to be considered in the regular budget, which will be left with the challenge of mobilising the resources. Anticipating lower tax revenues, the budget has provided for a higher fiscal deficit. Revenue and fiscal deficits are estimated at 4 per cent and 5.5 per cent of the GDP respectively. Though lower than in 2008-09, these will not meet the canons of fiscal prudence but clearly in a downturn rigid fiscal targets that seemed achievable when the economy was on a high-growth path cannot be mechanically adhered to.

The interim budget has disappointed the stock markets, with the Sensex falling by over 300 points. Clearly it is a case of exaggerated expectations on the part of the market. Also, having announced two stimulus packages in December and January and having secured Parliamentary approval in October for huge supplementary grants, the government was left with little fiscal headroom. The UPA’s flagship programmes have been promised adequate funds — the National Rural Employment Guarantee Scheme is to get Rs.30,100 core and the Integrated Child Development Services programme Rs.6,705 crore. Infrastructure which was expected to get a big boost has received very little attention. Some public sector banks will be recapitalised over the next two years so that their capital adequacy levels are brought in line with international norms. The provision for major subsidies, including those on petroleum, food and fertilizer, has been increased to Rs.95,479 crore. If the interim budget has set a rather limited role for itself, it would seem to be as much because the government has run out of options as from considerations of propriety and tradition. Yet the economy is in a crisis that warrants a much bolder effort and it is difficult to get away from the feeling that the interim exercise has turned out to be a wasted opportunity.

Interim budget at a glance
Interim budget seeks to enable the government to meet the expenditure for the first four months of the next financial year in the sixth budget of the UPA Government.

It also sought a massive allocation of Rs 409 billion for its flagship programme - Bharat Nirman for the coming financial year. The interim Budget seeks Rs 301 billion for the National Rural Employment Guarantee Scheme (NREGS) to benefit the rural households.

The interim budget proposed Rs 140 billion amount for rural infrastructure projects including Rs 40 billion for rural roads. Considering the significant contribution of the Sarva Sikhsha Abhiyan programme to boost elementary education, the interim budget seeks an allocation of Rs 131 billion for 2009-2010.

The world`s largest mid-day meals programme in schools, will get Rs 80 billion and the Integrated Child Development Scheme over Rs 67 billion.

Another Aam Amadi programme Jawaharlal Nehru National Urban Renewal Mission (JNNURM) for development of urban infrastructure and services is proposed to get an expenditure of over Rs 118 billion.

The interim budget proposes an outlay over Rs 120 billion for National Rural Health Mission, Rs 740 billion for Rajiv Gandhi Rural Drinking water Mission and Rs 12 billion for rural sanitation programme.

It suggested sustaining of a growth rate of 9% per annum, creating 12 million new job opportunities a year, bringing down the proportion of people living below poverty line to less than half by 2014 from the current fiscal, ensuring of agriculture growth of 4%, bridging of infrastructure gap by increasing investment to more than 9% of GDP in five years and support for Indian industry to meet global competition.

The interim budget also suggested strengthening and improving economic regulatory framework, expansion of the range and reach of social safety nets and strengthening of the delivery mechanism for primary health care facilities. It says a competitive, progressive and well regulated education system of global standards should be established and the nation should move on towards energy security to all.

On the budget estimates, the interim budget predicted a fiscal deficit of 5.5% and a total expenditure of Rs 9,532.31 billion for the coming financial year. This includes Rs 2,851.49 billion under plan and Rs 6,680.82 billion under non-plan.

Of the total income, 22% comes from corporate tax, 12% from Income Tax and 10% each from customs and excise. Of the allocations, 18% goes to central plan, 14% for non-plan and 13% for defense. States share of taxes and duties works out to 15% on subsidies get 9%, and interest payment 20%.

Commending the budget, Pranab said that India has arrived on the international economic scene with an impressive 8.6% growth of its economy, which is much faster than ever before. The creative energies of farmers, entrepreneurs, businessmen, scientists and engineers have been unleashed. Increased global competitiveness of Indian enterprise, its resilience to global shocks and a positive economic outlook has contributed to this growth.

India has also successfully launched Chandrayaan mission to moon and found its rightful place in the comity of nations dismantling nuclear apartheid. He said the nuclear deal has opened up new opportunities for civil nuclear cooperation and cleared the way for rapid industrialization. He said the people will soon be called upon to exercise their democratic right o choose the next government. The Indian people have repeatedly shown that they can be relied upon to make sound decisions to make the nation`s future.

Main points of the interim budget
  • 2008/09 fiscal deficit seen at 6 percent of GDP, higher than initial plan of 2.5 pct.
  • Fiscal deficit seen at 5.5 pct of GDP in 2009/10.
  • Mukherjee says fiscal deficit situation is worrying.
  • Plan spending for 2009/10 may have to be increased substantially after elections.
  • There may be a need for additional measures in the post-poll budget.
  • There is a clear need for counter-cyclical policies.
  • There is a need to accelerate policy reforms, including in the financial sector.
  • Mukherjee says tax rates must fall in times of stress.
  • GDP growth seen at 7.1 pct in 08/09. Government assumes real GDP growth of 7 percent in 09/10, 8 percent in 2010/11 and 9 percent in 2011/12.
  • India has weathered inflation crisis, but there is no room for complacency.
  • Now is the time for extraordinary measures.
  • Civil service pay rise to support demand.

2009/10 FORECAST:

  • Revenue deficit seen at 4 pct of GDP in 2009/10. Government hopes to wipe out revenue deficit by 2010/11.
  • Total plan spending in 2009/10 seen at 9.53 trillion rupees.
  • Additional plan expenditure has to increase by 0.5-1 percent post-poll.
  • 2009/10 gross budgetary support 2.85 trillion rupees.
  • Gross market borrowing seen at 3.62 trillion rupees in 2009/10.
  • Net market borrowing for 09/10 seen at 3.09 trillion rupees.
  • Government expects to raise 11.2 bilion rupees from stake sales in 09/10.
  • 2009/10 profits, dividends from state-run companies seen at 369.85 billion rupees.
  • Major subsidy spending for 09/10 at 955 billion rupees.
  • Need to go back to fiscal targets once economy is revived.


  • Substantial relief of about 400 billion rupees due to tax cuts in 2008/09.
  • New technology has enhanced tax compliance.
  • Total tax receipts seen at 6.71 trillion rupees in 09/10.
  • Corporate tax receipts estimated at 2.44 trillion rupees in 09/10.
  • Income tax receipts seen at 1.35 trillion rupees in 09/10.
  • Excise receipts in 09/10 seen at 1.11 trillion rupees.
  • Custom duty receipts estimated at 1.10 trillion rupees in 09/10.
  • Government assumes tax-to-GDP ratio at 11.1 percent in 09/10, while sees the same at
  • 14.4 percent in 2010/11 and 15 percent in 2011/12.
  • Export interest subsidy extended for some sectors.


  • Defence spending for 2009/10 at 1.42 trillion rupees.

2008/09 DATA:

  • 2008/09 to end with revenue deficit of 4.4 percent of GDP.
  • 2008/09 revised estimate of spending 9.9 trillion rupees.
  • 2008/09 revised estimate of extra non-plan spending 1.1 trillion rupees.
  • 2008/09 revised estimate of tax collection 6.28 trillion rupees.
  • Apr-Nov FDI registered at $23.3 billion.


  • 2008/09 farm outlook is encouraging.
  • Government to provide interest subsidy to farmers in 09/10.
  • Farm loan waiver has so far cost 653 billion rupees.


  • Social security nets need to be strengthened.
  • Rural job schemes to get 301 billion rupees in 2009/10.
  • Rural health spending 120.7 billion rupees.
  • Midday meals scheme for schools to cost 80 billion rupees.
  • Urban renewal spending in 2009/10 at 118.4 billion rupees.
  • Rural sanitation spending seen at 12 billion rupees for next financial year.

Source: The Hindu , Live Iris & Reuters

Bookmark and Share


Post a Comment

Creative Commons License Add to Technorati Favorites Visit blogadda.com to discover Indian blogs