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Union Budget 2009 -2010

July 7, 2009

The 2009 Indian Budget is a “welfare” budget, to bridge the gap between “India” and “Bharat.” It is also an attempt to stimulate spending by the reduction of direct taxes. The 10% surcharge has been scrapped for those who earn Rs 10 lakhs and above per annum and it is a bonanza of sorts.

The total budget expenditure for 2009-10 is high, Rs 10,28,032 crore, and the fiscal deficit in 2009-10 will be 6.8 per cent of GDP.

Some important Budget Highlights:

  • More money for Defence and also for modernizing the police machinery. Also construction of fences, roads and flood lights on the international borders
  • Higher Pension for non-commissioned officers
  • To meet energy needs, the development long distance natural gas pipelines for a national grid and increased allocations under the Accelerated Power Development and Reform Programme (APDRP)
  • Emphasis on higher education with Rs 2,113 cr for IITs and NITs, Rs.827 crore for Central Universities in certain states and provision for setting up and up-gradation of Polytechnics under the Skill Development Mission. There will be Higher Education loans for the poor
  • National Mission for Female Literacy to be launched with focus on minorities, SC, ST and other marginalized groups

Specifically Urban

  • Roads and highways and other infrastructure to be built
  • Fund allocation for urban poor, with slum development schemes and provision of facilities.
  • And Mumbaikars can look forward to the completion of the Storm Water Drainage Project to solve their flooding problems

Specifically Rural

  • More Agriculture credit
  • Rs 2,000 cr for rural housing fund
  • More money for the National Rural Health Mission (NRHM)
  • All BPL (Below Poverty Line) families to be covered under Rashtriya Swasthya Bima Yojana (RSBY), a health scheme
  • Fertilizer subsidies
  • Soft loans and debt relief for farmers

Some Aims of the Budget:

  • Return to 9 per cent growth from the present 6.7 per cent
  • Create millions of urban jobs and also rural employment opportunities
  • Integration of Indian economy with rest of the world
  • Hike infrastructure investment to over 9% of GDP by 2014
  • Move towards energy security
  • Expand banking network
  • Subsidised food under the National Food Security scheme
  • Decrease female illiteracy by fifty percent
  • Raise money from stake sales in some PSUs
  • Encourage people’s participation in disinvestment programs
  • Keep public sector banks and insurance companies in the public sector and give them full support, including that of capital

The complaints against the budget are that there is no actual disinvestment plan in motion, that there are very few sector specific incentives, and some sectors like the hospitality and travel industry have been completely neglected. There is also criticism that the expenditure is too high, and the resultant fiscal deficit can become a problem.

Well, everything cannot happen at once. In any case everything doesn’t have to happen during budget time. Take the petrol hike. It was done separately from the budget. Other plans like disinvestment plans will roll out slowly in the years to come with discussion and agreement with opposition parties. At present the Congress cannot go about it alone.

What seems exciting is the Food Security Bill that will ensure that every BPL family gets 25 kg of rice and/or wheat at Rs 3 per kg.  This means that one day soon India can hold up its head proudly and say that no Indian is starving. However, no money has been allocated in this budget for the scheme but then again, the budget isn’t the only time when this can be done. The government has not worked out the details of this scheme but a key element of this seems to be making identity cards for all citizens. Once this is in place it will improve the delivery system for all welfare schemes. A 1989 Planning Commission study mentioned that only 15 paise of a rupee spent reaches the poor as 85 paise is lost in establishment costs and leakage. Some states do have identity cards for the poor but these are believed to have been tampered with. In fact some states have more cards than people! Hopefully Nandan Nilekani will do a good job and ensure that the right people get the right cards.

Besides the subsidised food, I think the government needs to roll out some sort of nutrition education as well.

It was disappointing that nothing seems to have been mentioned for the upgradation of primary education in India. I feel this is more important than higher education. Sure, we do need universities but we also need quality people to be able to get into them. Right now all that the government seems to be doing is open more schools. We need to improve the quality of existing schools on a priority basis.

Related Reading: India’s rising defence expenditure is not too high if compared to that of other countries
Taxes on petrol and diesel very high in India
India Budget 2008
Growth is not leading to development in India
More Reading on The Economy
Higher Education
Primary and Secondary Education

35 Comments leave one →
  1. July 8, 2009 12:01 am

    I haven’t had the chance to read the newspapers yet, but from your summary here, I feel that the Congress has wasted an opportunity to present a strong budget. It could have done so given its political stability.

    We’ve been having such ‘pro-people’, or ‘pro-poor’ or whatever its called type budgets for 60 years now.

    • July 8, 2009 12:21 am

      I don’t understand too much this budget allocation to different sectors and need of disinvestment in deep. Can you explain your POV why this budget is not strong budget.

    • July 8, 2009 9:44 am

      But during times of economic recession, disinvestment doesn’t seem to be a good idea…

    • fareed ahmad nadim permalink
      February 8, 2010 2:09 pm

      the budget 2009-10 this year was
      exactly poor than pro.public expenditure”’

  2. July 8, 2009 12:05 am

    These food schemes are ongoing in Chattisgarh but the problem isn’t tampered cards. The problem is that BPL card holders are taking this rice and selling it to shop keepers at a price higher than 2 rs but still lower than what shopkeepers pay to wholesale dealers.
    There should be more focus on primary education and also some sort of workshops should be set up where they can learn some trade in secondary level of education.
    “Give a man a fish and you feed him for a day. Teach a man to fish and you feed him for a lifetime.”

    • July 8, 2009 9:46 am

      Also, the quality of rice available at ration shops is really, really bad – a lot of BPL card owners don’t eat it…

      this is a big worry, but something we will have to live with because I do not see the govt. providing good quality. – Nita

    • bharathionline permalink
      July 8, 2009 9:59 am

      Good reply Reema. I am with you in this point.

  3. July 8, 2009 12:57 am

    More than exciting, the Food Security Bill is scary
    this is a big big gamble and govt spending will mostly line pockets of the politicos and babus and their swiss acs – there is no budgetary provision for this bill

    the irony is its best if we pray for good rains , because they will be the main driver for the rural agrarian economy and the biggest gamble for people

    the fisc deficit will overshoot its target if past record is taken into a/c as last yr it was 6.7% when budgeted figure was 2.5%
    40% of expenditure will be on borrowed money
    the revenue deficit can go up if the world economy tanks and profits are hit.

    oil and fertiliser subsidies are treated as off-budget items and govt is accounting only for 10% of last years spend on them

    America and Uk can do it , but can India?
    we haven’t played our cards well in the boom cycle and worse we are food inflation intolerant.

  4. Naveen permalink
    July 8, 2009 1:27 am

    I will look for a day when agricultural income is taxed too. 5%-so be it, but someday it has to start or else the whole system is unsustainable. America is in deep rut with Medicare/Medicaid, I don’t know how they plan to manage RSBY. Imagine 3 consecutive years with no monsoon and we’ll see what Food Security Bill really means.

    • July 8, 2009 11:09 am

      Naveen, I agree with you that agriculture income should be taxed, at least a little. There are a lot of big farmers who make huge profits and this is unfair. Maybe the taxation should apply only to big farmers. I also know that a lot of other income is brought under agriculture income to save taxes and this too is unfair.
      And 3 years of drought? Don’t even think of it! Already in Mumbai there is 30% water cut. If there are 3 years of bad monsoon that it won’t be the BPL families only which will need the rations!!

  5. July 8, 2009 4:29 am

    Nita, I have one interesting metric to measure how pro-poor a budget is, which might surprise you and some other readers. That is whether the stock market falls or not. If it falls then I take it to mean that there is a good chance that this is a pro-poor budget. The reason is that most corporations (understandably) try to coax or even force the gov. to do what they want, which in many cases is the opposite of what the poor actually need.

    The Indian Express had a piece on perhaps one of the most (but underreported) measures in the budget,

    i.e. more campaign reform. Election funding is one of the roots of political corruption in India and making it more transparent should be a top priority.

    • July 8, 2009 6:54 pm

      I would caution against attributing the ‘reason’ behind stock market behavior to actions of Indian corporates.

      The equity market is driven primarily by domestic and foreign institutional investors, with their own short-term interests, that are distinctly different from those of (most) corporates. That is why, Indian industry has largely hailed the budget even when the market reacted negatively.

      Attempting to introduce a dichotomy between corporates and the poor is an age-old tactic of socialists that has to be carefully examined. Industry has hailed the budget as pro-growth, and pro-growth is pro-poor. Alas, it took us over 60 years to realize this.

  6. July 8, 2009 7:04 am

    It may sound progressive,but let us see how much can be acheived.
    Frankly,I see and read budget like I would read the election manifesto.Once these documents go public,they are used to pack BATATA VADA and SAMOSAS..Between now and during the implimentation,there will be so many political pressures which will decide the course and not what is written…it can be changed by any notification.
    Since you seem to have analysed the budget…ideally,you should check the actuals on 28 th Feb 2010

    • July 9, 2009 8:48 am

      Nita,you seem to have analysed the budget.Last year when the inflation had hit an all time high,it was the oil price which was blamed,resulting into the previous budget not being on track.Where is the provision for oil exegency?Whta if the price goes to $ 100/barrel?
      What are the basic assumptions in the budget?Or is it only a piece of paper ment to satisfy a technical and statutory requirment?

  7. July 8, 2009 8:25 am

    Priyank, I feel the Congress plans to do more, outside the budget, for political reasons.

    Reema, that could be happening because the BPL families are not BPL families. That is the huge problem, many people who have got cards are actually above the poverty line and can afford to sell the grains. However if any family which needs the food is doing it then it means that they are completely uneducated. I agree with you about teaching skills, but today the situation in India is such that people do not have the skills. I agree that this should be the first priority of the government but the food scheme is also necessary.

    yayaver, from the industry point of view this is not a good budget as they wanted various incentives and sops which were not given and also industry is clamouring for disinvestment of public sector units and also for more FDI in certain sectors which are controlled. I think the government is trying to strike a balance because after all corporate tax was not increased and the Fringe Benefit Tax was abolished and the IT industry has also got some sops. These are minor things for industry I agree but right now I do not think that this is a weak budget. India has money today like it never had before and the first thing we need to stop is starvation. The years of socialism in our country had pushed the poor into starvation and slowly and surely we are trying to solve this. This budget is giving it a big push that’s all. Overall I think our industry is doing fine and I have full faith in this government that they will not go back to the days of socialism and controls.

    Prax, if the food security Bill does not work on the ground it will be a huge disaster. But lets see what happens. And about the deficit, like you said, the developed countries have more of a deficit and they seem to be coping. I think we will too. Or perhaps the government will start a 2% fiscal deficit cess! 🙂

    • July 8, 2009 1:22 pm

      if it tanks , expect a lot more than a 2% cess
      and prices of food articles will soar
      already food articles have gone up by 50 % at least
      anyways such stuff is distortion ary …
      what is sourly missed is accountability , and proper management of the govt largess… and a serious attempt to cut down the leakages … ie theft in the system

      Prax, your last two sentences are bang on! But I think the solution to those problems are not going to be happen in a hurry. It’s tragic but I don’t see anything to improve the functioning of the govt and their accountability. Unless one thinks of getting in a pvt sector honcho to try and fix things. First its Nilekani and now I hear they are asking Ratan Tata to fix AI. I don’t know whether all this will work, without changing the system. – Nita

    • July 8, 2009 11:16 pm

      Thanks Nita for explaning things to me about budget in simple way.
      I want to make a anti MNC point here which may be irrelevant to the topic discussed here but worth looking. I have read an article which stresses how organized greed always defeats disorganized democracy. Matt Tabbi ‘s reveal us about some hidden facts and his hypothessi about Goldman Sachs:
      The Great American Bubble Machine. [Quite Long Article]

  8. July 8, 2009 8:32 am

    Vikram, I guess you have your reasons for this, but I think the stock market thinks a little short term.

    BK Chowla, you have said something which was exactly on my mind! I agree, we need to check this budget next year and see what has been achieved and whether the aims of the budget are being met.

  9. July 8, 2009 9:28 am

    Hello Nita,

    A good summary of the budget, If I may say so. A small correction – 10% surcharge has been removed for those with an annual income of Rs. 10 lakhs + category (not Rs. 10 L per month).

    Infact the attempt was to reduce the hype around the budget. It is nothing but the accounts of the govt. and future plan. It has been converted to a political statement.

    The FM has sought to reduce the hype which is good and saying that budget is not the only policy document. There are many good things in the budget and wisely he has choosen not to build expectations.

    The key question that needs close attention is how efficiently various plans outlined will be implemented.

    Thanks Mavin for pointing out the typo. I have corrected it. – Nita

  10. vasudev permalink
    July 8, 2009 11:53 am

    Rs 10,28,032 crores? Wonder where all that money is going to come from?

    Nice review Nita. Since I do not read newspapers I was blissfully unaware of the bad news.

    India’s BPL has improved. Now it is 50% from an earlier 40% or so.

    vasudev, I think they are expecting the economy to revive. lets see what happens. – Nita

    • vasudev permalink
      July 8, 2009 2:53 pm

      or else maybe they are thinking of printing money…? who knows? frankly, what about the fiscal deficit?

  11. July 8, 2009 3:41 pm

    Time will tell but this is a subtle budget and he has treaded the cautious line.. just peep in the other markets and you will realise… !!

    As Udayan of CNBC says… take this budget as a test match not a 20/20 match… !!

    he only continued the process of the policies announced in the interim budget… its a process… give it time.

  12. July 8, 2009 4:33 pm

    I will say that this budget could have achieved a lot more than it actually will. Some of the readers are right when they say that we actuallt need to tax the agricultural income as well. To start with, a 5% tax should be sufficient on those earning more than 2.5 Lacs from agriculture.

  13. July 8, 2009 4:57 pm

    The Finance Minister has turned little Left with this budget with all the talk of inclusive growth. As Bones says economic recession is one of the main reason. With major insurance companies and banks in the west under bankruptcy protection it will be foolish to talk abt further liberalisation in those sectors . Will the social welfare measures announced will really help the poor we have to wait and watch

  14. July 9, 2009 10:17 am

    hitchwriter, what you say is true, I think we expect too much from the budget, some sort of instant formula to solve the woes of this country.

    Dev, I too think that the budget is a fair one and it’s too early to write it off.

    charakan, as you said this is not the time to liberalise freely. About the effectiveness of the welfare schemes a lot depends on the identity cards which are foolproof and issued to the right people for the right things. Only time will tell.

    Mahendra, a wise comment!!

    yayaver, that is indeed a very scary link you have given! In our country though I think this isn’t happening although some people say Reliance is the organisation to be scared of! I have no idea about the truth of this ofcourse but I do know that we should not look at it from the point of view of MNC and non-MNC but just beware of profit guzzlers bent on finding loopholes to short circuit every law in the country.

    B K Chowla, well, I think we just need to keep our fingers crossed where the oil prices are concerned. Right now we need to worry more about the drought that they say might hit India or has already hit India.

  15. July 9, 2009 4:04 pm

    Isn’t it strange that every budget leaves someone or the other fuming? I wait for the day when everyone’s happy with the budget! 😀

    Then we will know that something is wrong with it! 😀 – Nita

  16. vasudev permalink
    July 9, 2009 4:46 pm

    since the railway budget has gone east i wonder to which non-contributing, ever polluting and big-drag BIMARU states would the bulk of the rural spendings go based on the unparliamentary rustic rhetorical capabilities of their uncouth parliamentary inhabitants?

  17. July 10, 2009 11:03 am

    whats really important is the implementation…in a country which is as big as our country is , it becomes tough..

    bigness of corruption you mean! 🙂 – Nita

  18. wishtobeanon permalink
    July 10, 2009 6:32 pm

    Thanks for posting this, Nita. I completely agree about the need to upgrade primary education – we need to emphasize on skills like problem-solving and creativity and this needs good teachers. I hope the government and leaders think of long-term solutions rather than short-term ones.

    Short term gets them votes! and short term is easier to “implement.” ! – Nita

  19. July 10, 2009 7:17 pm

    The so much money being spent for IIT and NIT to see most of them either leave the country or work for MNC’s is a bit hard to digest! These funds ought to be diverted to Primary education and we should let people pay regular fees in IIT or NIT, as applicable to other engineering coll considering that people are ready to spend more than 50000 rupees per year in some unknown college!

    Destination Infinity

    India is losing out, in both ways. As you said grads of IIT’s leave the country, but this is changing I think and will change as India becomes a global destination. About paying fees to unknown colleges abroad, I agree that our country is losing out. We could attract all this money but we don’t have the required infrastructure. But I believe that money diverted to primary education will not solve the problem. Also we do need more IIT’s also as today even bright people cannot get into an IIT. – Nita

  20. rags permalink
    July 10, 2009 8:59 pm

    A nice summary of the budget. I think India’s mostly had a welfare budget, I don’t think this one was drastically diffferent from other budgets.

    I hope modernizing police machinery also implies some sort of police reforms, these are long overdue.

    NRHM and countless other programmes named after the Gandhi family need to be reviewed and critically evaluated. Social auditing should be introduced in all these programmes (I think right now only the NREGA has that) so that people get to know how effective these schemes are. Pumping money into leaky schemes is utterly useless.

    I welcome the Rashtriya Swasthya Bima Yojana (RSBY). I hope this means all the unorganised sector workers who previously could not afford insurance get covered under it. If implemented well (or atleast as well as the NREGA) this could be a real boon for urban India and countless workers who fall into poverty mainly because of health issues.

    I’m not too sure about the Food Security Bill. There are countless other Anna yojana programmes being implemented throughout India. If we have not been able to achieve a breakthough with them I don’t know how a new programme is going to help. We don’t have dearth of programmes here, we need to ensure that what has already been drafted is being impelented properly. No point in announcing new schemes when the implementation of existing ones are doubtful.

    Nilekani might ensure proper distribution of IDcards but if we want to change things it’s got to come from inside the system. I don’t think any corporate honcho can magically transform the rut in the govt. services. The problem starts right from the beginning i.e. appointment of people to these services by the service comission exams. I think something needs to be modified right there. The problem with corruption and and leaky schemes is that most people inside the system are o.k. with it. The few honest ones are simply scared to out the others. If we had a stronger Act to protect whistleblowers it might help. Strangley the govt. doesn’t seems to be too interested in protecting those who might want to do that….

    thanks rags for your analysis. I do agree with most of what you say and yes you are right, there is no guarantee that the Food Security Bill will be a success. However I do have hopes that Nilekani will try and stem the rot. I think the rot has to first stop at the top and then it can percolate downwards. – Nita

    • July 11, 2009 6:30 pm

      //The problem with corruption and leaky schemes is that most people inside the system are ok with it// – Can I suggest a small change in this – most people inside and outside are ok with it! That’s why it has grown to this extant!!

      Destination Infinity

  21. rags permalink
    July 11, 2009 10:12 pm

    Point taken. 🙂

  22. suren75 permalink
    July 25, 2009 11:51 pm

    i think budget seem to carry,so many hopes…..but this budget’s major emphasise is on infrastructure spending and rural development….. we have to see wht are the modilities and what is the road mape o achieve the desired goal which is mentioned in budget.
    one thing is sure due to increase in borrowing programme and slow down in industerial output…definatly there will be increase in budget deficit…so its premature to arrive on any conclusion based on budget statemnt..lets wait and watch the implimentation phase!!


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