India Insight

A look at India’s last five annual budgets

February 6, 2013

The countdown has begun for the biggest business and economic event of the year, the release of India’s annual budget at the end of February, and Finance Minister P. Chidambaram has a tough job on his hands. With general elections a year away, he must please voters, boost growth and control deficits.

In the last five years, the finance minister has always relaxed income tax slabs — by either increasing the basic exemption limit or widening the tax slabs. As far as markets go, the 2009 budget day was the worst for stocks as the index fell around 950 points during trade. However, the focus has always been on the government’s fiscal deficit targets, which have hovered around the 5 percent mark in recent years.

As India’s economy battles slowing growth, investors will take cues from Chidambaram’s plans to rein in spending and boost growth. Here’s a look at budgets between 2008 and 2012 — the hits, the misses and how they affected the common man.

                                                                        2012

FINANCE MINISTER: Pranab Mukherjee

KEY HIGHLIGHTS

  • India projects a decline in the fiscal deficit to 5.1 percent of GDP in 2012/13. GDP expected to grow at 7.6 percent.
  • Controversial proposal to retrospectively tax cross-border transactions in which the underlying assets are located in India. The move amounts to a push to get foreign companies that have invested millions in India to pay more taxes. Or in India’s words, it’s supposed to fight “counter aggressive tax avoidance schemes”.
  • Service tax rate raised to 12 percent from 10 percent, double basic customs duty on gold.
  • No change in corporate tax rates. Personal Taxation: minimum threshold of income not chargeable to tax increased to 200,000 rupees. The 30 percent tax slab applicable on income above 10,00,000 rupees.

RATING AGENCY REACTIONS

  • Moody’s said: “mildly negative” for India’s credit rating. India’s budget lacks new solutions to address its fiscal constraints and is credit negative for the sovereign.
  • Standard & Poor’s said the budget was “mildly negative” for India’s credit rating, noting that the timing remained uncertain for long-awaited reforms.

MARKET REACTION ON BUDGET DAY

  • The BSE Sensex fell 210 points (1.2 percent) to close at 17,466 as the budget was seen as too modest for a corporate sector looking for more concessions. During trade, the index fell nearly 250 points.

                                                                          2011

FINANCE MINISTER: Pranab Mukherjee

KEY HIGHLIGHTS

  • Service tax rate kept at 10 percent, but scope widened. Minimum Alternate Tax (MAT) raised to 18.5 percent from 18 percent.

RATING AGENCY REACTIONS

  • Standard & Poor’s said India’s fiscal deficit target for 2011/12 may be bit difficult to attain given upside risks to oil subsidy and wage bill under the social employment programmes.

MARKET REACTION ON BUDGET DAY

  • The BSE Sensex ended up 0.69 percent at 17,823.40 points after rising as much as 3.4 percent after the budget was unveiled.

2010

 FINANCE MINISTER: Pranab Mukherjee

 KEY HIGHLIGHTS

  • India plans record levels of borrowing for 2010/11 and counts on big growth to help cut its fiscal deficit to 5.5 percent of GDP.
  • Excise duty raised on petrol, diesel by 1 rupee per litre. Excise duty cuts on cement, cement products and large cars partially rolled back.
  • Minimum alternate tax rate raised to 18 percent from 15 percent. Service tax rate kept unchanged at 10 percent.
  • Corporate tax rate unchanged. Personal income tax slabs widened.

 RATING AGENCY REACTIONS

  • Standard & Poor’s: “We believe the steps announced could signal a turning point that reverses the recent deterioration in India’s fiscal position.”

MARKET REACTION ON BUDGET DAY

  • The BSE Sensex rose as much as 2.6 percent after the budget before paring gains. The index ended with gains of 175.35 points (1.08 percent) at 16,429.55.

2009

FINANCE MINISTER: Pranab Mukherjee

KEY HIGHLIGHTS

  • Plans outlined to speed infrastructure development and increase spending for farmers and the poor. Additional spending to push the fiscal deficit to a 16-year high of 6.8 percent of GDP, the finance minister said.
  • Minimum Alternate Tax raised to 15 percent from 10 percent. Fringe benefit tax scrapped.
  • Corporate tax rates unchanged. Personal income tax exemption for senior citizens increased by 15,000 rupees; raised by 10,000 rupees for others.

 RATING AGENCY REACTIONS

  • Standard & Poor’s said India’s BBB-minus sovereign rating does not face any significant rating pressure despite a sharply higher fiscal deficit unveiled by the government.
  • Fitch said that, given India’s ever widening physical and social infrastructure deficit, the expectations that the budget for fiscal 2010 would provide a boost to the sector were very high.

MARKET REACTION ON BUDGET DAY

* (The budget was presented on July 6. The interim budget was presented on Feb. 16, ahead of the 2009 elections)

2008

Finance Minister: P. Chidambaram

KEY HIGHLIGHTS

  • Fiscal deficit for 2008-09 seen at 2.5 percent of GDP.  Ahead of the 2009 elections, the government proposed to waive 600 billion rupees of bank loans to farmers.
  • The budget raised the short-term capital gains tax, when an investment is sold for profit before one year, to 15 percent from 10 percent.
    • Excise duty on pharmaceuticals sector cut to 8 percent; Duty on small and hybrid cars to be cut. Six percent duty on petrol and diesel abolished and replaced with specific duty of 1.35 rupees per litre.
    • Corporate tax rates unchanged. Income tax threshold raised to 150,000 rupees.

RATING AGENCY REACTIONS

  • Standard & Poor’s said the budget was largely in line with expectations but more work needed to be done for upgrading ratings.
  • Fitch Ratings said India needs to do more for fiscal improvement to catch up with its peer group.

MARKET REACTION ON BUDGET DAY

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