India Budget Summary 2008-09

Interim Budget 09-10 Analysis February 17, 2009

Policy on Freeze, Politics Welcome


Current Scenario:

Outlook:

KSL – Interim Budget 09-10


Advance estimates indicate FY09 GDP growth of  “Politically Correct” Interim Budget puts 7.1%, running second fastest in the world policy in freeze and opens door for politics  Fiscal deficit target under FRBM deferred on  The “new” government, ready to live with account of sharp increase in oil prices and focus high deficit level seen in 2002-03. Though on rural folks, social and health oriented sectors there is nothing that prevents the new rulers to add further or roll back some of these
Gross tax receipts during the first nine months measures FY09 increased 9.6% over the corresponding period in the previous year  Emphasis on social schemes obviously to garner “aam aadmi” votes  Private final consumption growth expected to decline to 6.7% in FY09 compared to 8.1% in the  Interest rates may remain firm as the biggest previous year, the Government consumption, on borrower, the GoI, willing to borrow more to the other hand, expected to increase to 16.8% fund social schemes and avoid job-losses from 7.4% ahead of elections. Does it threaten sovereign
Five PSU banks have CRAR between 10-11%, rating? out of which three banks have obtained capitalization worth Rs 38 bn, the remaining two
Benefit to cement, construction and steel industry due to huge infrastructure spending banks will be recapitalized by end of FY10 in urban as well as rural areas
Enormous focus is given on the health, socially deprived and education sectors in the current
Consumer and Retailing to benefit from doubling of expenditure on rural development budget
Export oriented sectors will enjoy lower interest
Rural employment, as well as chance to garner votes, get a boost by allocation of Rs 300 bn to rates till the end of Sep’09 infrastructure development and National
The continued cheaper credit will provide relief Rural Employment Scheme to the farmers  Full budget in the next quarter may raise tax rates. Current economic conditions (slowdown) and political compulsions (elections) may not continue
As elections code of conduct puts fiscal policy on hold, all eyes shift to monetary moves by the RBI, which has limited options

For private circulation only. Please read the Important Disclosure at the end of the report. KSL Intelligent Research Reports can be accessed on: www.bloomberg.net (KHDS), www.thomsonreuters.com, www.capitaliq.com, www.themarkets.com, www.kslindia.com, www.moneycontrol.com, www.securities.com, www.valuenotes.com This report is a part of intellectual property of Khandwala Securities Limited; any query on this report may be directed to Head of Research at [email protected]

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Interim Budget 2009-10: Key Highlights provide pension of Rs 200 to widows between age groups of 40-64 years and ‘Indira Gandhi National Disability Pension Scheme’ which will provide pension for severely disabled persons.

Fiscal


FY10 fiscal deficit target at 5.5% of GDP as compared to FY09 RE of 6.0%.




Total expenditure for FY10 is estimated at Rs 9532 bn, while expected gross budgetary support is Rs 2852 bn




FY10 revenue deficit is budgeted at 4% of GDP as compared to the FY09 RE of 4.4%. Revenue expenditure is projected at Rs 8481 bn.







Farm, Rural Sector


Interest subvention in short-term crop loans upto Rs 3 Lakh will be continued for FY10 to cap the interest rate at 7.0%.




Under RIDF a separate window for rural roads will continue with a corpus of Rs 40 bn in FY10 with the initial corpus of Rs 140 bn

Gross market borrowing seen at Rs 4 tn in FY10.

Spending


FY10 defence allocation increased to Rs 1417 bn, which includes Rs 548 bn for Capital Expenditure.




Rs 740 bn allocated for Rajiv Gandhi Rural drinking water plan for FY10.




Rs 409 bn allocated for Bharat Nirman for the FY10.




A provision of Rs 1 bn is made for Unique Identification Authority of India for the FY10.




Allocation of Rs 118 bn proposed for Jawaharlal Nehru National Urban Renewal Mission for the FY10.

Subsidy


Rs 67 bn is proposed for Integrated Child Development Scheme for the FY10.




Rs 80 bn allocated for Mid-day Meals Scheme for the FY10.




Rs 301 bn allocated for National Rural Employment Guarantee Scheme for the FY10.




Authorised capital of National Safai Karamchari Finance and Development Corporation is being raised by Rs1 bn to Rs 3 bn.




Annual ad-hoc grant for pre-metric scholarship for children in unclean occupations has been increased by 50%.




Introduction of two new schemes ‘Indira Gandhi National Widow Pension Scheme’ which will

Major subsidies including food, fertilizer and petroleum for FY10 is estimated at Rs 956 bn.

Industry


Social Sector


Widows in the age group of 18-40 years to be given priority in admission to ITIs, and cost of their training and stipend of Rs 500 pm will be provided for.

Interest subvention of 2% on pre & post shipment credit is provided to textiles, carpets, leather, gem & jewellery, marine products and SME’s which is extended till 30th Sep’09, thereby increasing the financial outflow by Rs 5 bn

Financial Sector


Government is expected to recapitalize the public sector banks over the next two years to maintain CRAR of 12%.

Education


Approximately 98% habitations are covered by primary schools under Sarva Shiksha Abhiyan, for the FY10 Rs 131 bn is allocated which has increased by 571% over the 5-year period.

Health


Rs 12 bn allocated for Rural Sanitation Programme.




Rs 120 bn allocated for National Rural Health Mission.

KSL – Interim Budget 09-10 Analysis February 17, 2009

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Khandwala Securities Limited

Government Finances at a Glance (Rs Bn; % GDP)

FY04A

FY05A

FY06A

FY07

FY08A

FY09BE

FY09RE

FY10BE

Gross Tax Revenue

2,543

3,050

3,662

4,344

5,419

6,029

5,622

6,096

Net Tax Revenue

1,870

2,248

2,689

3,512

4,395

5,072

4,660

4,976

769

812

768

832

1,024

958

962

1,120

Non-Tax Revenue Net Revenue Receipts

2,639

3,060

3,457

4,344

5,419

6,029

5,622

6,096

Capital Receipts

841

665

122

64

51

45

97

97

Privatization

170

44

16

5

388

102

26

11

Total Revenues

3,480

3,725

3,580

4,413

5,858

6,176

5,744

6,204

Revenue Expenditure

3,621

3,843

4,394

5,146

5,945

6,581

8,034

8,481

Capital Expenditure

1,092

1,139

664

688

1,182

928

975

1,051

Plan Expenditure

1,223

1,323

1,406

1,699

2,051

2,434

2,830

2,851

Non-Plan Expenditure

3,490

3,660

3,651

4,135

5,077

5,075

6,180

6,681

Total Expenditure

4,713

4,983

5,057

5,834

7,127

7,509

9,010

9,532

1,233

1,258

1,478

1,426

1,269

1,333

3,265

3,328

4.5

4.0

4.1

3.5

2.7

2.5

6.0

4.0

1,233

1,258

1,478

1,426

1,269

1,333

3,265

3,328

FY09RE

FY10BE

Deficit Trends Fiscal Deficit % to GDP Financing Deficit Borrowing & Other Liab. Source: 2009-10 Budget Document

Plan Outlays by Major Sectors: (Rs Bn; % YoY)

% YoY

Agriculture & Allied Activities

100

101

1.7

Rural Development

489

428

-12.5

Irrigation and Flood Control Energy

4

4

19.6

989

1,145

15.8

Industry & Minerals

272

338

24.4

Transport

783

862

10.2

Communications

202

167

-17.6

Science, Technology & Environment

85

96

11.8

General Economic Services

53

62

17.7

897

943

5.1

8

10

34.1

3,880

4,157

7.1

Social Services General Services Grand Total Source: 2008-09 Budget Document

KSL – Interim Budget 09-10 Analysis February 17, 2009

3

Khandwala Securities Limited

Tax Collection at a Glance INR Cr

2003-04

2004-05

2005-06

2006-07

2007-08

2008-09RE

2009-10RE

Total Tax Collection

254,348

304,958

366,151

473,512

593,147

627,949

671,293

Direct Tax

105,082

132,761

165,208

230,184

312,202

345,000

380,000

Corporate Tax

63,562

82,680

101,277

144,318

192,911

222,000

244,200

Income Tax

41,379

49,258

55,976

75,081

102,644

108,000

118,800

Wealth Tax

136

145

250

240

340

400

425

FBT

-

-

4,772

5,316

7,098

8,500

10,200

BCTT

-

-

321

507

586

600

50

STT

-

590

2,559

4,646

8,576

5,500

6,325

148,608

172,197

199,818

242,066

279,621

281,359

289,691

Indirect Tax Customs

48,629

57,611

65,067

86,327

104,119

108,000

110,187

Excise Duty

90,774

99,125

111,226

117,613

123,611

108,359

110,604

Service Tax

7,891

14,200

23,055

37,598

51,301

65,000

68,900

77

108

121

165

129

NA

NA

Sales Tax Source: 2009-10 Budget Document

KSL – Interim Budget 09-10 Analysis February 17, 2009

4

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Inflation, a concern of the past

Spread

Average inflation for the first ten months of FY09 was at 9.6% as against 4.3% in the last year. Inflation has been tamed in the recent weeks with 4.4% in the last week of January. Inflation will not be a major concern will provide incentive to the RBI in easing the monetary policy.

The spread between corporate bond and the Gsec witnessed a peak during Nov- Dec period mainly because banks were reluctant to lend to the corporate sector while preferring a safer zone of Gsec.

4.5 (%)

15 (%) (Projected)

(Actual) 12

3.5

9 6

2.5 3 0

1.5

-3 -6

Jan-09

Oct-08

Jul-08

Apr-08

Jan-08

Oct-07

Jul-07

Apr-07

Jan-07

Oct-06

Jul-06

Apr-06

Jan-06

Jan-10

Nov-09

Sep-09

Jul-09

May-09

Mar-09

Jan-09

Nov-08

Sep-08

Jul-08

May-08

Mar-08

Jan-08

0.5

Source: Khandwala Research, Bloomberg

Source: Khandwala Research, Bloomberg

Easy Liquidity

Fiscal Deficit and Revenue Deficit as a % of GDP

A steep drop in commodity prices provided enough reason for RBI to loosen the monetary policy. The series of rate cuts coupled with reduction in SLR by 1.0% eased the liquidity position considerably.

In the current situation the fiscal deficit and revenue deficit targets are much higher than the FRBM target but are still in the line with the international best practices considering the global turmoil in the market. The FM’s fiscal deficit and revenue deficit FY10 targets are at 5.5 % and 4.0% of GDP respectively. 6 (%)

26 (%)

5

23

4 20 3 17 2 14

1

FY10BE

FY09RE

FY08

FY07

FY06

FY05

FY04

Jan-09

Sep-08

May-08

Jan-08

Sep-07

May-07

Jan-07

Sep-06

May-06

Jan-06

Sep-05

May-05

Jan-05

Sep-04

May-04

Jan-04

Source: Khandwala Research, Bloomberg

FY03

0

11

Source: Khandwala Research, 2009-10 Budget Document

KSL – Interim Budget 09-10 Analysis February 17, 2009

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