Union Budget 2011: Tax Expectations

Pranab Mukherjee

Union Budget 2011: Tax Expectations.

Our finance minister Pranab Mukherjee will have to walk the tightrope by curbing inflation and boosting growth while addressing concerns over black money.

There are indications that the finance minister will announce increase in tax exemption but at the same time increase service tax and excise duty on manufactured products such as cars and TV sets to plug the fiscal deficit.

There is an indication that to cushion the tax blows, he may help ease petrol and diesel prices a bit by announcing tax cuts on the fuels.

There can be a tax immunity scheme that could help draw out concealed incomes to turn them into something productive.

Mukherjee may have some good news for the salaried class, with the government considering a marginal rise in the income tax exemption limit to Rs 2 lakh per year from the existing Rs 1.60 lakh to give people more money to offset inflation.

Presently, the existing annual tax exemption limits stand at Rs 1.6 lakh for men, Rs 1.9 lakh for earning women and Rs 2.4 lakh for senior citizens.

Pranab walks the tightrope – Hindustan Times.

Union Budget 2011 : A precursor

Union Budget of 2011-12 faces many challenges. There three main problems that this budget will have to tackle and mold its strategy to are

1. Checking inflation and enhancing agricultural productivity
2. Lifting supply-side constraints to economic growth
3. Executing the long overdue fiscal correction.

Moreover the current political situation will not help the government in taking concrete steps for uplifting the economy. Like Mamata Banerjee, the politics of appeasement is expected to show at the union budget.

In the politics of appeasement, there is going to greater allocation to Rural India. The FMCG sector appears favourably positioned to gain from the coming Union Budget.

Fiscal deficit – poor quality of fiscal consolidation in FY12 will follow owing to the political scenario.

The congress led coalition has seen a dip in its popularity and it will try to boost its reputation by appeasing the masses. It is all set to take the populist card, just like Mamata Banerjee in the Railway Budget 2011.

Read More on Railway Budget.

Rail Budget 2011 : Economic Focus with Human Face

Railway Budget 2011- Causes for Indian Rail financial crisis

Rail Budget 2011 : The financial issues

The future growth of Indian Railways is to be increasingly subjected to the discipline of the capital market, including those overseas, even as

This time, the railway budget promised a dividend of Rs4,104.50 crore in this fiscal. It is 26% lower than Rs6,608.46 crore proposed in Mamata Banerjee’s 2010 budget.

It did this partly by cutting the back money dedicated on maintaining tracks and rolling stock.

Another feature of this budget was that it maintained the passenger fares constant. It has been the eight such year when the budget has not touched upon the passenger rates.

Moreover the freight rates too were kept constant.

Where will the money for new projects come from ?

Railways is looking to the debt market to finance its new projects especially infrastructure related projects.

Rail Budget 2011 : Economic Focus with Human Face

Mint Reports

The budget documents showed the railways had lowered the money transferred to its depreciation reserve fund by Rs1,900 crore for 2011-12 as compared with Banerjee’s projection last year. The fund is used to maintain and replace its assets.

Other than a lower transfer to the depreciation fund, Sahai said revamping the product mix during the fiscal to capitalize on the increasing magnitude of coal imports into India protected its receipts. Typically, two-thirds of receipts come from freight, primarily coal.

The Long Term issues

This year’s capital spending is to be financed partly through some of the railways’ reserve funds. These funds have seen a significant decline in net accretions over the years.

Mint Reports “In 2009-10, the last year for which final numbers are available, the aggregate closing balance of all funds fell by more than two-thirds in a single year to Rs5,032.06 crore.”

This railway budget has been silent on the big projects such as the Dedicated Freight Corridor. It has not indicated where the money for it will come and how long will it take to complete it. We discussed the case of Dedicated Freight Corridor and the concerns about Indian Railways Financial Health

Railway Budget 2011 – Dedicated Freight Corridor Project

The proposed Plan

Mint Reports, “In the budget estimates for 2011-12, the Plan outlay of Rs57,630 crore is to be met from Rs20,454 crore of market borrowings, including Rs10,000 crore of tax-free bonds.“

Railways is in a position where it can no longer fund its projects through internal accruals of cash flows. The market borrowings are to funded through Indian Railways Finance Corp Ltd and it will carry an unwritten sovereign guarantee.

Railway Budget 2011- Causes for Indian Rail financial crisis

The total receipts of the railways in 2011-12 are projected at Rs1.09 trillion.

The dividend proposed is Rs6,734.72 crore.

The operating ratio (ratio of working expenses to gross earnings) is projected to improve marginally to 91.1% from around 98%.

The budget documents show that Indian railways expects to increase its contribution to the depreciation reserve fund by 23%.

Mamata going to market for money – Home – livemint.com.

Rail Budget 2011 : Economic Focus with Human Face

Indian Railways Minster: Mamata Banerjee

Highlights of Railways Budget 2011-12

• No hike in passenger fares
• No hike in freight rates
• Introduction of 9 non-stop Duronto Trains
• Introduction of 3 Shatabdis
• Reduction in the senior citizen age for women from 60 years to 58 years
• Concession on senior citizens (Men above 60 years) from 30% to 40%
• Announcement of a metro coach factory in Singur (West Bengal)
• Announcement of Rail Industrial Park in Jelligham
• integrated suburban network for Kolkata and 34 new services for the Kolkata metro

Her announcements for the state evoked protests from members including those from Bihar, UP and Kerala, but she appealed to them to be patient for her other announcements.

Railway Budget 2011 – Dedicated Freight Corridor Project

The Indian Railways is facing a severe financial crunch. Mamata Banerjee has attributed it to the change in accounting practices by Lalu Prasad Yadav, which they have reversed. Moreover, the costs on salaries have invreased due to the sixth pay commission. THE Dedicated Freight Corridor project (DFC) is facing the wrath of the financial crunch. It was announced in 2005 to create dedicated corridors for freight that would help Indian trains, both passenger and freight travel at their maximum speeds. It was expected to complete in 2012, but looking at the current scenario, it does not seem possible.

(Read about the causes of Indian Railways financial crunch here)

The consequences of this financial crunch on the DFC project

• The Dedicated Freight Corridor (DFC) project, is expected to cost around Rs. 77,000 crore. This includes the costs of borrowing and inflation.
• The DFC project is being banked on heavily to remove the congestion in the rail network and allow trains to move at the maximum 140 Kmph.

Railway Budget 2011- Causes for Indian Rail financial crisis

Dedicated Freight Corridors

The Indian Railways in facing a financial crisis. Quite unlike the previous Indian Railways Minister Lalu Prasad yadav, who announced a surplus of Rs 25,000 crore (2008), this year things are going to be quite different.

Total revenues from passenger and freight this year for Indian Railways has been around Rs 92,000 crore. Forbes says that it could fall short by Rs 4000 crore.

The Indian Railways is struggling with the financial burden of the sixth pay commission amounting to Rs 55,000 crore along with  ther financial woes. The reasons for the massive depletion of finances of Indian Railways have been many, but major of them are as follows.

Causes of financial crunch

• Slow growth of freight business.
• Decrease in passenger traffic
• Increase in fuel prices (It has inflated its expenses by approximately Rs 1000 crore.
• Reduced investment by private freight carriers (They have hold up Rs 2000 crore since Railways is not allowing to carry them more freight. They were given licenses during Lalu Prasad Yadav’s tenure as the Railway Minister)
• Forbes says that this explains why the incremental freight loading target for 2010-11 is only 52 million tonnes compared to 60.3 million tonnes in 2009-10.Several other public-private projects including modernisation of railway stations have not taken off due to a paucity of funds.
• In 2007-08, the Indian Railways had a self generated fund balance of approximately Rs. 19,700 crore. This was wiped out due to the costs on salary and dividends to the government in the year 2009-2010.

The consequences of this financial crunch

Railway Budget 2011- Indian Rail financial crisis

Trinamool Congress chief Mamata Banerjee

In the months between April and December 2010, the Indian Railways has spent more to earn less. Their operating ratios have been more than 100, a cause of concern for the railway authorities.

On an average, the Indian railways spent approximately Rs 115 to earn Rs 100.

Indian Express reports that the operating ratios of Indian Railways witnessed an alarming increase in the first 9 months of current fiscal.

Decreased passengers and decreased freight are being stated as the problems for such an increase in expenditures vis-a-vis revenue.

Also the targets set by Railways were also to achieve operating ratio of above 100, which bloated even more than anticipated.

With the Railways in red, Mamatha Banerjee would be looking to pull off a decent railway budget on Friday.

The Hindu reports

“If her (Mamata Banerjee’s) critics are to be believed, is to blame, to some extent, for putting the Railways in a difficult situation. The balance sheet had gone astray in 2009-10 itself, but few corrective measures seem to have been initiated.
The committee has failed to rope in the private sector and mobilise resources for projects, while the other public-private participation initiatives — establishing world-class stations and manufacture of locomotive, coaches and wagon at Kanchrapara and Dankuni in West Bengal — have not made any progress worth the name…
Ms. Banerjee has not been able to find the resources needed to finance the proposed projects. Finance Minister and the Planning Commission have not found the kind of favour she would have expected: only a marginal increase in the budgetary support has been promised.”

With all this, will it would be interesting to see whether the Railway Budget would be saving grace or otherwise.

Rail Budget: Didi distracted, Railways in red

Union Budget – 08 – A populist one

It was an aggressive Finance Minister P Chidambaram going all the way to promote the mother of all loan waivers — the Rs. 60,000 crore farm loan waiver. Defying charges of his political opponents and even Left allies, Chidambaram chose a counter-offensive: “Let every politician and political party take a stand on our decision to write off farmers’ loans. They should stand up and say if they are for the farmers or against them. If they have the courage to oppose, they should stand up and be counted.”

Read more>>

More sources

Northeast gets over Rs.14 bn in the budget Economic Times
Union budget for 2008-09 — Populist but largely sane Hindu Business Line
Real estate welcomes Budget proposals for sector Hindu

India spends more on poor in budget 2008-09 Daily Times
Indian shares slip 1.38% after budget Daily Times
India increases defence budget to $26.40 billion Daily Times