BUDGET 2009-2010-IMPLICATIONS ON DEBT MARKETS
Budget 2009-2010 was presented today in the Parliament. Some of the highlights and key figures are as follows:
- Total Expenditure Rs.10.20 lac crores
- Non Planned Expenditure Rs.6.69 lac crores
- Planned Expenditure Rs.3.25 lac crores
- FY 2010 Interest payment Rs.2.26 lac crores
- Tax collections Rs.6.41 lac crores
- Non Tax revenues Rs.1.40 lac crores
- Revenue deficit to GDP 4.80%
- Fiscal Deficit to GDP 6.80%
- Fiscal deficit number highest since 1993-94
- Tax to GDP ratio 11.50%
- No change in corporate tax
- MAT increased from 10% to 15%
- Personal IT exemption limit increased by Rs.15,000 for senior citizens to Rs.2.40 lacs & by Rs.10,000 for others
- 10% surcharge removed
- FBT abolished
- Commodity Transaction Tax removed
- GST introduced from April 1’2010
- Overall a tax neutral Budget
However, the markets ( both debt and equity markets) have reacted negatively on what is unsaid rather than what is said. Lot of expectations were built on announcements on FDI limits on Banking & Insurance sectors, announcement of PSU disinvestments etc.
Debt markets reacted negatively due to higher Fiscal Deficit number at 6.80% ( v/s 6.20% announced in Interim Budget) and lack of any announcement on how this additional borrowing will be bridged. Benchmark 10 year reacted from 6.80% pre Budget to 6.95% post.
However, as they say, no news can be good news. There might be announcement by RBI Governor later in the evening to give clarity to borrowing programme. Surplus liquidity continues in the market. Markets will take cue from RBI announcements and react positively in the short run. Like any other event, there was a knee jerk reaction by the markets. Most of the Industry stalwarts have hailed the Budget as pragmatic and a realistic Budget in the current circumstances.
Debt markets have priced in these negatives. Hold for further clarity before taking any call on disinvestment/disinvestment . Short end should continue to do well. Long end will be choppy as expected.
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