Who wrote this article?

Deepak Shenoy, Capitalmind's research team.

Budget 2010 Quick Summary

Pranab Mukherjee presented the budget for 2010-11 today. Some notes, to be expanded upon later:

Taxes, which will interest most of you:

Tax slabs changed:
No reintroduction of surcharge above 10L that was taken out last year, which is a good thing.
Additional Rs. 20,000 deduction, above the 80C deductions, if you invest in infrastructure bonds.
Companies get to pay lower taxes if they’re not tax free entities. Surcharge for companies lowered to 7.5% (from 10%), but Minimum Alternate Tax increased to 18% (from 15%)
The company tax changes hurt IT companies, SEZ exporters like Reliance, tax free players like Bharti
Taxes on petroleum products – removed for fiscal stimulus – brought back. Crude gets 5% duty, Diesel 7.5% and the rest 10%. With the administered pricing in place I don’t know if this will mean price rises (if crude falls). Update: It seems it might mean a price rise.
Cigarettes and chewing tobacco likely to cost more. Details when I get ‘em.
Customs duty on Automobiles brought back up to 22% (reduced for stimulus)
Central excise duty up to 10% from 8% across the board (reversing stimulus)
No change in service tax – stays at 10%

Other interesting notes:

Disinvestment to bring in 25,000 crores.
The Direct Tax Code is on for 2011, and so is GST.
Kirit Parekh committee report to be implemented sometime – oil prices will be freed. But right now, nothing.
Public Sector Banks to get 16,500 cr. in additional Tier 1 capital. This can’t be good for the private banks.
Interest subvention of 2% in certain sectors like handicrafts, carpets and SMEs will be continued till March 2011.
Agri Credit targets hiked to 375,000 cr. (from 325,000 cr.)
Additional 1% interest subvention (total 2%) for farmers that repay crop loans on time. The “on time” bit moved to end Jun 2010.
Roads get 19,800 cr. (versus 17,500 cr.)
Fertilizer subsidies will be given direct to farmers rather than paying fertilizer companies. That’s a good thing.
UID project gets 1900 cr. next year. First UID numbers will be released next year as well.
NREGA allocation upped from 40,000 cr. to 48,000 cr. Wow. Where are they going to fund this from? Update: Alert reader AbheekB tells me I got that part wrong – NREGA Is only at 40,100 cr. (it’s “Bharat Nirman” that’s up to 48,000 crores)
Housing loans upto 10L for houses costing upto 20L were given 1% interest subsidy, that continues into the next year. Will cost the govt. 700 cr.
Some level of social security for workers like rickshaw pullers etc. I don’t yet know the details. The scheme will start with 1000 cr. put in.
New Pension Scheme: All new accounts opened in 2010-11, where people put in less than 12,000 Rs. per year, get an additional Rs. 1,000 from the government.
Direct taxes will cost the govt. 26,000 cr. in lost revenue; they expect gross tax receipts at 746,000 cr. That’s not a great amount, considering how much more we are spending this year.
Oil companies to be paid for shortage in cash, not bonds. That brings it back on the balance sheet and deficits are better known/managed.
Excise slashed for electric cars.
Host of green initiatives get duty cuts. Will detail more as I get ‘em.

Overall, this is a ridiculously expensive budget. We will probably up revenue only by 1 or 2% – 20,000 cr. if there is no double dip abroad. And the expenses? just the increase in NREGA is 8,000 cr. – and it gets much worse if you consider most of the other stuff. Turns out the NREGA bit was wrong – the increase there is just 1,000 cr. But the expenses seem very large – the deficit should widen, not contract this year.

Inflation will go up. Fiscal deficit is sure to be higher than expected. This can’t be positive for interest rates; expecting bonds to underperform and banks to be hit along with other rate sensitives.

Much more to come as I analyze the speech. Stay tuned.