Budget 2010 – Forget inflation, increase income!

By BankBazaar.com | February 26, 2010

The key element of the budget that creates an income of almost Rs.10,000 crores for the Government and increases inflation in a big way is the introduction of Customs duty on crude and introduction of excise duty of Re.1/liter on petrol. This announcement in fact lead to heated objections in the Parliament and the budget presentation could continue only after about 5 minutes.

Our Finance Minister seems to have stuck to increasing income for the Government as the sole focus of the Budget 2010. The key problem faced by people – inflation has been thrown out of the window of consideration.

Increase in Cost of Petro-Products

The key element of the budget that creates an income of almost Rs.10,000 crores for the Government and increases inflation in a big way is the introduction of Customs duty on crude and introduction of excise duty of Re.1/liter on petrol.

This announcement in fact lead to heated objections in the Parliament and the budget presentation could continue only after about 5 minutes.

The impact of customs duty and excise duty would mean an increase of about Rs.3.50 per liter of petrol and diesel.

Increase in Excise Duty

Excise duty has been increase from 8% to 10% for most of the products. This is a sign of reversal of the support for the economy, which was implemented at the highest of the Global Economic Meltdown. Then the excise duty was at 12%.

Though not back to the old level, the impact is going to be a passing -on of the increase in the duty to the end consumer – the aam aadmi.

Increase in Duty on Cement

Duty on cement has been increase from Rs.300/ton to Rs.375/ton. This is again going to increase the cost of housing, as cement is one of the major cost items in a house. Again the increase in the cost would be passed on to the consumers by most of the companies.

Postponement of GST

The implementation of the Unified Goods and Service Tax has been postponed to April 1st 2011 along with the implementation of the New Direct Tax code. It was expected that the GST will be implemented some time during the Financial Year 2010-11 itself.

MAT Increased Again

The Minimum Alternate Tax has been increase from 15% to 18%. This is a steep jump as before the interim budget in 2009, the MAT rate was at a very much lower 10%. Thus this has been an 80% increase in the tax incidence for companies that filing their taxes under the MAT scheme.

Service Tax Net Extended

All domestic flight tickets (all Classes) will come under the service tax net from the net financial year, if the budget proposal is implemented in full. Oops there goes the affordability of travel by air.

Bottom Line

The bottom line of the budget proposal is thus to increase the income of the Government so that the deficit comes down. This is an important requirement for the Government and for the country too.  But to show total disregard for inflation control measures is something that is not expected.

The other way to look at the budget is that, the reversal of stimulus has not been to the extent that would affect any industry severely (except for the oil& gas industry). The Finance Minister is hopeful of achieving 10% GDP growth shortly. Hope this happens sooner that latter.

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