IndiaRetailBiz

Pranab Mukherjee, the union Finance Minister, presented the annual central budget for 2009-10 on Monday, the 6th July, 2009. The budget had assumed lot of importance as it was the first budget of UPA-II, after its decisive win in the recent elections.

People were not only expecting big ticket economic reform announcements, but were also looking for a policy road map of the government for the next five years.

The media had also created a lot of hype and frenzy in run up to the budget because this was the first budget of any government (UPA, NDA, or UF), in the past 25 years, that was being presented without any ideological pressures of coalition partners. No wonder, all sections of people and sectors of economy were looking for some concession or the other from the government.

The budget, however, turned out to be a dampner as it did not contain any of the expected pronouncements on policy or reforms. This resulted in the equity market tanking by 265 points on Nifty and 870 points on Sensex, biggest in the country’s history on a single budget day. The markets tumbled on account of fears of hardening interest rates as the government to meet fiscal deficit (6.78%) will be required to borrow a whopping amount of Rs 4 lakh crore (Rs 4 trillion or around $80 billion) to meet increased spending of Rs 10 lakh crore (Rs 10 trillion or around $200 billion). This has to be seen the perspective of borrowings going up from Rs 1 lakh crore in 2008-09 to Rs 4 lakh crore in 2009-10 (a four-fold rise in a single year).

Pranab Mukherjee, in post-budget media interviews, agreed that he had to take a “calculated” risk to increase spending, most of which will expectedly go to social sector, as he wanted to stem decline and bring the economy back to growth path. He was satisfied that the growth will be demand-led as it would put more money in the wallets of ‘aam aadmi’ (poor and middle income people) which has high propensity to spend.

Coming to the to the demands and expectations of “Retail” sector, there is nothing “specific” in the budget for the sector, as all the announced concessions and benefits will help the sector indirectly.

To begin with, the Fringe Benefit Tax (FBT), which was one of the main irritants to taxpayers, has been scrapped.

While, threshold tax slabs for all classes of taxpayers have been raised, surcharge and education Cess on Income Tax for individual taxpayers have been scrapped. This will put more money into taxpayers pockets and will lead to more consumption.

Custom Duty on certain items of interest to modern retailers like LCD panels and branded jewellery has been reduced. This will help improve demand of these and related items.

GST (Goods & Service Tax) will be introduced from 1st April, 2010. It will be a dual tax structure. Thus, both the Central and the State governments will collect this tax. This would mean that free movement of goods across the country would still not be possible. All manufacturers and marketers will have to maintain warehouses in each state until the tax system is unified for the entire country.

Another item of interest to retailers is the increased spending on infrastructure and incentive on investment for creation of cold chain facilities across the country. It would have been much better if the incentive was also extended to investment on creation of non-cold warehousing infrastructure. This would have saved wastage of post-harvest farm products and increased farmers’ income.

Among the most ’specific’ items of interest to retailers, the government has not paid heed to demands of according ‘industry’ status to the sector. It has also not announced opening of the sector to foreign capital (FDI), particularly in the area of multi-brand, front-end retail. The demands for collection of service tax on commercial rentals and setoff of service tax against VAT on goods sold has also not been acceded to.

All in all, the budget though good for the economy, has been a big disappointment for the retail sector as it has failed to meet any of its ’specific’ demands.