Union Budget 2011-12: Analysis

Finance Minister Pranab Mukherjee presented the Union Budget 2011-12 in the Lok Sabha on 28 February 2011. The Union Budget 2011-12 was fashioned to promote sustained economic growth, strengthening of infrastructure, moderation of the price rise, particularly of agricultural produce and reduction of social imbalances through inclusive development. The budget is being defined as a transition towards a more transparent and result oriented economic management system in India.

The Union Budget for 2011-12 proposed to increase the Income Tax Exemption Limit by Rs 20000 and lowering of qualifying age for tax relief for senior citizens from 65 to 60.
Finance Minister Pranab Mukherjee proposed to increase the Income Tax Exemption Limit for individual tax payers from 1 lakh 60 thousand rupees to 1 lakh 80 thousand thereby providing for a tax relief of 2 thousand rupees. The budget reduced qualifying age for senior citizens, and the exemption limit to them was proposed to be increased from 2 lakh 40 thousand rupees to 2 lakh 50 thousand. Announcing a new category of very senior citizens of 80 years and above, he declared that the very senior citizens will be eligible for a higher exemption limit of 5 lakh rupees. The exemption limit for women tax payers was set at Rs 1.9 lakh.

The budget proposed lower five per cent surcharge for corporate sector, 2.5 per cent less than before and  announced that the minimum Alternative Tax would move up from 18 per cent to 18.5 per cent of book profits.

The budget proposed no change in the standard 10 per Central Excise Duty or in the Peak Customs Duty but some rationalizations was made. The lower rate of duty was however raised from 4 to 5 per cent.

The Union Budget 2011 announced the Government's decision to stay on course towards Goods and Services Tax. The budget proposed 130 more items to be brought in the tax net with the nominal Excise Duty of one per cent. Basic food and fuel would continue to be exempt from the one per cent duty. The optional levy of 10 per cent on readymade garments will be mandatory for branded garments.

On Service Taxes, the budget proposed to retain the Standard Rate of 10 per cent. Hotel accommodation with licence to serve liquor and in excess of one thousand rupees charges per day was brought under the tax net. The tax on air travel both on domestic and international were raised. Services provided by Life Insurance companies in investment and some more legal services to be brought into tax net. All individual and sole proprietor tax payers with turn over of over 60 lakh rupees would be freed from formalities of audit.

To attract Foreign Funds for Infrastructure Projects, special vehicles were proposed to be created in the form of Infrastructure Debt Funds. Interest payments on borrowing from these funds would attract a lower 5 per cent tax from the earlier 20 per cent. To promote savings, the additional deduction of 20 thousand rupees for investment in long-term infrastructure bonds was proposed to be extended for one more year.

Spelling liberalisaion of Housing finance, Mukherjee proposed interest subvention of one per cent on housing loans extended upto 15 lakh rupees for houses that does not cost more than 25 lakhs. Existing Housing Loam limit will be enhanced to 25 lakh rupees for dwelling units under priority sector lending. Investment-linked deduction will cover housing sector and will be extended for agriculture sector as well.

To boost infrastructure the budget proposed full exemption for domestic suppliers producing capital goods for mega or ultra mega power projects. Also, the budget proposed Full exemption from Basic Customs Duty for bio-asphalt and specified machinery used for construction of National Highways.

With an objective to boost agriculture, the budget proposed credit flow to farmers to be raised to 4 lakhs 75 thousand crore rupees, one lakh crore rupees more than this year. Interest subvention was also increased to 2 to 3 per cent on short term crop loans to farmers who pay their crop loan on time. Equipment for storage, and warehousing facilities to be exempted from duty.

Customs Duty for specified agricultural machinery was reduced from 5 to 2.5 per cent and on micro-irrigation equipment and 7.5 per to 5 per cent.

A number of measures were announced to strengthen the agricultural sector particularly in the areas of pulses, vegetables and oil palm.  Rs. 300 crore expenditure to promote 60000 pulses villages in rain fed areas for increasing crop productivity and strengthening market linkages was proposed.  Capital investment in fertilizer production is proposed to be included as an infrastructure sub-sector since investment in the sector is capital intensive. 

For the manufacturing sector, the budget proposed reduction of basic customs duty on raw silk from 30 to 5 per cent. The duty on textile intermediates and chemical inputs will be 2.5 per cent from five. Stainless steel scrap has been fully exempted. Manufacture of syringes and needles would attract 4 per cent countervailing duty instead of five.

The budget proposed that concessions available to mobile handset parts will be extended for one year adding more items in the list. Iron ore will attract 20 per cent export duty, 5 per cent more than the present rate.

Cinematographic film, factory-built ambulances was proposed to be exempted from Excise Duty. The Basic Customs Duty exemption was proposed to be extended to work of art and antiquities for exhibition or display in private art galleries open to the public. Basic Customs Duty on two critical raw materials of cement industry - petcoke and gypsum was proposed to be reduced to 2.5 per cent.

Focussing on Clean environment the budget proposed a slew of concessions. Four per cent Excise Duty was proposed to be provided for specific parts of electrical vehicle. The concession is to be extended to batteries imported by manufacturers. Concessional 10 per cent Excise Duty was also proposed for fuel cell or Hydrogen cell-technology-based vehicles. The duty on LED lights was reduced to 5 per cent with full exemption of countervailing duty. The budget proposed that the solar lantern used in far-flung villages will attract a 5 per cent duty from 10 per cent.

To promote inclusive growth, allocation for social sector was increased by 17 percent to 160887 crore rupees which works out to 36.4 percent of total plan allocation. Allocation for Bharat Nirman programme which includes Pradhan Mantri Gram Sadak Yojana (PMGSY), accelerated irrigation benefit programme, Rajiv Gandhi Grameen Vidyutikaran Yojana, Indira Awas Yojana, National Rural Drinking Water Programme and Rural Telephony was allocated Rs. 58000. All the 250000 Panchayats in the country will be provided with rural broadband connectivity in three years. The wage rate under Mahatama Gandhi NREGA will be linked to consumer price index for agricultural labour.

The budget increased the remuneration for Anganwadi workers from 1500 to 3000 per month. Allocations for primitive tribal groups was increased from 185 crore rupees to 244 crore rupees.

The Union Budget 2011 increased the allocation for the education sector by 25 percent to 52067 crore rupees. For Sarva Siksha Abhiyan the allocation was increased by 40 percent to 21000 crore rupees. For the needy scheduled castes ad scheduled tribe candidates studying in class-IX and Xth pre-matric scholarship scheme was proposed to be introduced. All 1500 institutions of higher learning will be connected through optical fibers by March 2012. The budget proposed special grants to be provided to various universities and academic institutions to recognize their excellence. Additional 500 crore rupees will be provided for national skill development fund. An international award with a prize of one crore rupees was proposed to be instituted for promoting values of universal brotherhood.

The Union Budget 2011 stepped up allocation for health sector by 20 percent to 26760 crore. Rashtriya Swasthya Bima Yojana was proposed to be being extended to Mahatma Gandhi NREGA beneficiaries, Bidi workers and others to provide basic health cover to poor and marginal workers. The scheme will further be extended to cover unorganized sector in hazardous mining an associated industries. Air-conditioned hospitals with 25 or more beds will also attract Service Tax.

Benefit of government contribution under the Swavlamban pension scheme was proposed to be extended from 3 to 5 years for subscribers who enroll during the current and next financial year. Eligibility for pension under Indira Gandhi National old Age Pension scheme for BPL beneficiaries was reduced from 65 to 60 years. Those above 80 years of age will be get pension of 500 rupees per month instead of 200 at present.

Personnel of Defence and para-military forces discharged from service on medical ground on account of 100 percent disability attributable to government service will get a lump sum ex-gratia compensation of nine lakh rupees. The total allocation for defence services was pegged at 164415 crore rupees.

Apart from the proposals made in the above mentioned sectors the Ministry of Finance allocated 8,000 crore rupees for meeting the developmental needs of Jammu & Kashmir. To address the problems related to Left Wing extremism, The budget proposed 60 selected tribal and backward districts to be provided 100 percent block grant of 25 crore rupees and 30 crore rupees per district during 2011 and 2012 respectively.

The total plan expenditure was increased by 18.3 per cent to Rs. 441547 crore and the non-plan expenditure increases by 10.9 per cent to Rs. 816182 crore.  The gross tax receipts were estimated to grow by 24.9 per cent to Rs. 932440.  Rs. 201733 crore will be transferred to the Sates and UTs as plan and non plan transfers.  This also marks a rise of 23 per cent over budget estimates of 2010-11. The budget estimated the fiscal deficit at Rs. 412817 crore which works out to 4.6 per cent of the GDP.