alexa

Search in Indianmoney's WealthPedia

Home Articles Union Budget 2009 - Expectations

Union Budget 2009 - Expectations

IndianMoney.com Research Team | Posted On Wednesday, June 24,2009, 11:31 PM

Union Budget 2009 - Expectations

 

 

Well, whether you are an industrialist, professional or a housewife, you are eagerly waiting for this year budget that will be tabled in the parliament on July 6th. There is always certain amount of mystery surrounding annual budget. This year’s union budget 2009 is going to be extremely important. Industry is expecting government to increase public spending and ensure faster completion of projects while individuals are looking forward to more tax rebates and cheaper food items.

President Pratibha Patil on June 4 unveiled the new government's blueprint that includes reviving the economy through more investments in sectors such as Infrastructure. She was addressing a joint session of parliament, which met for the first time after the Lok Sabha elections brought back the Congress-led UPA to power. The government has given enough indication on its emphasis on infrastructure spending and has set up ambitious targets for itself. However, what matters now is execution and not ambitious targets.

What we can expect from the Union budget 2009?

Without any doubt it is going to be a “popular” budget i.e. targeting populist measures. Like we saw Delhi’s chief minister terming her budget as “Thank you” budget, we may look forward to some measures that would be pro-consumers and introduced to pleasing people. This may include higher spending on healthcare, agriculture, education and infrastructure development. However, the risk is increasing fiscal deficits which may create huge problems in both short- and medium-term. Based on Congress’s manifesto and President Ms. Patil speech, we tried to analyze which sectors will receive maximum attention and importance in this year’s budget.

1.Investment In Infrastructure

Congress by not sharing any ministry related to infrastructure with its allies has shown its seriousness about infrastructure development. This is very important as we have the worst infrastructure facilities among the major developing economies in the world. We have a long way to go in terms of providing even basic services such as roads, electricity and water to people.

Comparison of Infrastructure Facilities

Particulars

India

China

USA

Electric Consumption per capita (KwH)

618

1,684

14,240

Roads per million people (Km)

2,983

1,471

21,443

Steel consumption per capita (Kg)

34

244

357

Rail route per million people (Km)

56

57

755

Cargo handled at ports per capita (Kg)

572

4,265

7,953

No. of passengers handled at airports per 1000 persons

71

151

4,780

 

As per government’s internal estimate India needs an investment in infrastructure of over $500-600 Billion to build power, ports, airports, roads, telecom, construction, steel, railways, mining etc in the next 5 years. India faces a 12% shortage in power during peak hours and is expected to worsen due to lack of rainfall this year. Against our target of 11,000MW of capacity addition in 2008-09, we have achieved only 3,500MW. The government has to give huge emphasis on completing these projects as per schedule. We only have 5000 Kms of expressway which China had in 1989! The gap between India and other leading economies is widening primarily because of poor state of infrastructure.

We can expect some reforms or incentives for private players in power sector especially in transmission and distribution (T&D), which is mostly controlled by state utilities. To attract more funds for investment in infrastructure projects, government may add/increase tax holidays and benefits for individuals as well as corporate. This will make infrastructure funds quite attractive in the market.

2. Reforms In Agriculture

President Ms. Patil mentioned that a new law would be formulated to implement Food Security Act, which will provide the families below poverty line 25 kg of rice or wheat per month at Rs 3 a kg. This will require massive revamping of public distribution system. If India wants to have a GDP growth rate in double digit in the next decade, the government has to go beyond “aam aadmi” campaign and bring structural reforms in agriculture. A country where over 60% population is employed in agriculture does not even have a consistent sectoral growth rate of 4%.

See Also: How to calculate agriculture income tax?

We need a separate budget for agriculture just like we have it for railways. Outmost importance has to be given to agriculture to promote usage high tech technology, increase land ownership, help conserve water and connect Indian farmers with national as well as global markets to know price movements and demand of different agricultural commodities. With so much political stake linked to agriculture and no changes done to the agriculture ministry, any reforms related to agriculture seem unlikely.

3. Investment In Healthcare Sector

About 75 per cent of our medical facilities are located in urban areas. Despite more than 31,000 doctors coming out of medical colleges each year, the doctor to patient ratio in India, particularly in rural India, is poor while compared to global standards. India has 0.5 doctors for 1,000 people as compared to 2.3 doctors per 1,000 in the United States. We need to have more doctors, healthcare workers and medical institution in rural areas.

The government has “promised” to provide health insurance to all families below the poverty line in five years and create a regulatory body to look into enhancing the skills of medical personnel at rural level. The Rashtriya Swasthya Bima Yojana will be expanded to cover all families below the poverty line in the next five years. The government over the last few years has done good work.

Though some changes would be done by the government to improve the condition of healthcare in rural areas, the availability of doctors and timely medical services would remain distant dream. The government has to take serious steps to push doctors to work in these areas and create infrastructure for them. Some estimates say that India might have to spend $20 Billion annually to achieve its proposed health care facilities.

4. Investment In Education Sector

If I am not mistaken, the entire world knows about IITs, IISc and other major Indian universities that churn out high skill and talented engineering and science graduates. Recently, President Obama asked American students to start learning mathematics and science else they will be left behind by Indians. However, I believe President Obama does not know the ground realities of India. Only handful of extremely talented students goes to the US or other western countries for higher studies. Rest of the students seldom gets access to good quality education back home. India needs lakhs of new and good schools, thousands of colleges and hundreds of universities in order to provide even basic education to all its students.

I believe we have a very good and sincere minister in Mr. Kapil Sibal who has already spoken about the need of reforms in this sector. The government may allow foreign universities to allow tie-ups with local colleges or open their branches here. There is a huge demand and supply gap that is forcing students to go abroad to seek education. Indian students spend $20 Billion annually for foreign education due to lack of quality education. If FDI and reforms in education are allowed, we would be able to invest a good portion of that money in India. We also expect an increase of 10-15% in education budget this year.

5.Reforms In Banking Sector

Talk about reforms in banking and you will get ugly looks from everyone. People, economists and politicians have all unanimously blamed banks for the current financial crisis. However, that should not prevent the current government from bringing reforms in banking sector and financial services. We need bigger and technology savvy banks to compete with multinational banks as the banking sector will open up for them very soon. Indian banking system is very small compared to China or US. India's financial depth is low for an economy that promises much. Financial assets represent 160 per cent of gross domestic product. This puts India on a par with Indonesia, but way behind China's 220 per cent. An impaired financial system may help weather a global financial crisis in the short term, but it will not help India reach the higher growth levels to which it aspires. There is not a single Indian bank that figures in top 20 global banks list. The market cap of Industrial and Commercial Bank of China is more than the combined market cap of Indian banks!

See Also: All you must know about online banking

The government has already started convincing banks to merge and create a bigger single company. SBI may be able to do so and integrate its 5 big sister concerns. There is lot of duplication of work in the industry which needs to be addressed. We saw recent M&A activities happening in the banking industry. However, do not expect any structural reform in this year’s budget. The global financial crisis has given the anti-reform lobby in the Indian government the upper hand over Prime Minister Dr. Manmohan Singh and RBI governor Mr. Subbarao.

Budget Wishlists

If I get a chance to meet Prime Minister Dr. Manmohan Singh and FM, Pranab Mukherjee, I will present my following wishlist:

  1. Separate budget and structural reforms for agriculture
  2. Massive investments in infrastructure and more focus on public-private partnership model
  3. Brining more reforms to encourage FDIs into infrastructure
  4. Disinvestments of loss making PSUs
  5. Implement market determined policy for pricing oil and other petroleum products
  6. Reduce and gradually phase out unnecessary and huge subsidies on oils, fertilizers and host of other products
  7. Reduce income tax rates to encourage demand and consumption
  8. Last and most important reduce bureaucracy to expedite project implementation

What is your Credit Score? Get FREE Credit Score in 1 Minute!

Get Start Now!
CIBIL Meter
Get It now!
Attention!

This is to inform that Suvision Holdings Pvt Ltd ("IndianMoney.com") do not charge any fees/security deposit/advances towards outsourcing any of its activities. All stake holders are cautioned against any such fraud.