And recent policy changes.Proposals for Direct andIndirect taxes, Impact andEconomic Indicators.

This document has been preparedas a service to the clients by

Corporate Catalyst India

www.cci.in

India Budget Statement 2009A brief summary of the

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We recommend professional advice be taken prior to initiatingaction on specific issues.

contents● Opinion 2● At a Glance 4● In Brief 5● Proposals

Direct Taxes 6Indirect Taxes 13Commerce & Trade Focus 18

● Impact 20● Recent Policy Changes 22● Economic Indicators 27

Opinion by ASHOK V. DESAI (economist)

BUDGETING FOR BAD TIMES

For Pranab Mukherjee, whom Euromoney designated the world’sbest finance minister in 1984, one more budget would be acakewalk. However, it was a difficult year to make a budget for.Last year, Mr Mukherjee’s predecessor, Mr P Chidambaram, hadboasted of 12 uninterrupted quarters of over-8 per cent growth,and looked forward to ever higher growth in future. Mr Mukherjeefaced a fall in growth to 6.7 per cent last year and 5.8 per cent inthe last two quarters. In the past year, he had increased revenueexpenditure by 35 per cent, and actually reduced capitalexpenditure. Being back in power for another five years with nopolitical competition in sight, he did not need to continue to takesuch a short-sighted view.

He has promised to return to the path of rectitude – but notyet. He proposes to increase revenue expenditure by a quarter,whereas his revenue receipts are expected to go up only 9 percent. He expects to raise fiscal deficit from 6.5 to 6.8 per cent ofGDP. That is improvident. But most of the revenue expenditureis on interest, subsidies and defence. The budget abolishes theprovision for special securities that the government issues tofertilizer companies, and reduces the provision for securities tooil marketing companies from Rs 75000 to Rs 10000 crore. Sosubsidy reductions seem to be in the offing. That is laudable.But in general, Mr Mukherjee continues to walk in his disastrouspredecessor’s footsteps, to pile on more debt and to fetter hissuccessors’ freedom of manoeuvre.

But Mr Mukherjee did correct some major mistakes of hispredecessors. He abolished the fringe benefits tax,Mr Chidambaram’s ill-conceived invention which introducedquite unnecessary complications into corporate managers’ lives.He also abolished Mr Chidambaram’s 10 per cent surcharge onpersonal income tax, though for no reason he decided to continuewith the surcharge on corporate profits. He got rid of thecommodities transactions tax. These are all laudable measures.But perhaps the most important change is to base corporateexemptions on investment rather than on profits. Profit-linkedexemptions were available only to profitable companies, whereas

2

it was often loss-making companies that needed relief most.Now, if they invest for the future, companies will earn exemptions.

The BJP governments brought down customs duties toextremely low levels; now there are many items that bear importduties of 5 to 15 per cent. Mr Mukherjee has played around withmany of them, reducing most by 2.5 per cent. These low dutiesmay give a finance minister much room for political games. Butthey raise little revenue; their wholesale abolition would simplifytheir victims’ lives.

Generally speaking, government enterprises get favouredtreatment from Congress finance ministers, being the treasuredrelics of its socialist past. So it was a pleasant surprise to seeMr Mukherjee abolish a concession to Indian railways, and tomake them subject to service tax. Lalu Yadav will think that thisis the unjust reward the railways got because he made themprofitable; but they can afford to pay the tax.

The monitoring and reporting systems set up for thenational rural employment guarantee programme do create someassurance that the money spent is creating employment andaccomplishing public works. Overall, NREGP works well; I wishother programmes of the government were equally transparent.

One should not expect radical improvements from aCongress finance minister, for his primary duty is to fund hisparty’s programmes. But Mr Mukherjee has corrected some ofMr Chidambaram’s mistakes, and not made any of his own. Thatis creditable.

3

RUPEE COMES FROM

RUPEE GOES TO

AT A GLANCE

4

IN BRIEF

DIRECT TAXES■ No change in corporate tax rate■ Surcharge withdrawn on personal taxes■ Minimum Alternate Tax enhanced from 10 to 15 per cent■ Fringe Benefit Tax withdrawn■ Commodities Transaction Tax withdrawn

INDIRECT TAXES■ Lawyers brought under ambit of service tax■ Overall customs and excise duty rates unchanged■ Goods and Services Tax from April 1, 2010■ Income tax Advance Ruling Authority to also handle

customs, excise and service tax matters

COMMERCE & TRADE FOCUS■ In focus – infrastructure and power■ 5 mega clusters proposed for handloom, power loom and

carpets■ Telecom network of 500 million achievable by 2010

SOCIAL FOCUS■ Rural health and development■ Rural employment guarantee allocation increased

144 per cent■ Social security for workers in unorganised sector

ECONOMIC INDICATORS■ GDP growth at 6.7 per cent■ Fiscal deficit increased from 2.7 to 6.8 per cent of GDP■ Total fiscal stimulus during 2009-10 is Rs 1860 billion■ Foreign exchange reserves at USD 252 billion

5

BUDGET PROPOSALS

This section summarises the significant proposals on direct andindirect taxes made by the Finance Minister on July 6, 2009. Thedirect tax provisions in the Finance (No 2) Bill, 2009 wouldordinarily apply to the Financial Year commencing on April 1,2009 (Assessment Year 2010-2011) whereas the indirect taxprovisions would apply with immediate effect, unless otherwisespecified. Finance Minister may propose other amendmentsthrough a separate bill. Furthermore, he has committed tointroduce a new direct tax code within 45 days.

The proposals contained in the Finance Bill are subject toratification by the Parliament.

DIRECT TAXES

INCOME TAX

■ The basic individual and HUF tax slabs changed i.e.

1Exemption limit for women and senior citizens enhanced from Rs180,000 and Rs 225,000 to Rs 190,000 and Rs 240,000 respectively.

■ Tax rate on partnership firms unchanged at 30 per cent.■ Tax rates for cooperative societies unchanged.■ Surcharge of 10 per cent withdrawn on individuals, HUFs

and partnerships.■ Corporate tax rates remain unchanged i.e.

1Surcharge at 10 per cent when income exceeds Rs 10,000,000.2Surcharge at 2.5 per cent.

6

FROM TO

Income Range (Rs) Rate (%) Income Range (Rs) Rate (%)

Upto 150,000 Nil Upto 160,0001 Nil

150,001 – 300,000 10 160,001 – 300,000 10

300,001 – 500,000 20 300,001 – 500,000 20

500,001 and above 30 500,001 and above 30

COMPANY RATE (%)

Domestic 301

Foreign 402

■ Education cess at 2 per cent and Secondary and HigherEducation cess at 1 per cent remain unchanged.

SALARY

■ Consequent to withdrawal of fringe benefit tax, certainbenefits provided by employer to be reinstated asperquisites and taxed in hands of the employee.

INCOME FROM BUSINESS AND PROFESSION

■ Ambiguity removed to the term manufacture by providingspecific definition through section 2(29BA).

■ Enhanced cash payment i.e. Rs 35,000 instead of Rs 20,000allowed to transport operators without attracting anydisallowance.

■ Benefit of weighted deduction at 1.50 times of expensesincurred on in-house research and development nowavailable to all businesses, except those engaged inrestricted items.

■ Housing finance corporations engaged in providing long-term finance eligible to deduct 20 per cent from profits whentransferred to reserves.

■ Written down value of assets belonging to businessesengaged in composite activities (i.e. earning exempt andtaxable incomes), to be arrived at by reducing fulldepreciation from the original cost of such assets.

■ Substantive amendments to Minimum Alternative Tax(‘MAT’) i.e.

Rate enhanced from 10 to 15 per centCeiling for claiming credit increased from 7 to 10 yearsBook Profit to include provision for diminution in valueof assets.

■ Presumptive taxation scheme for small businesses revampedAll businesses, including retailers, where gross annualreceipts are upto Rs 4 million, can now offer income at8 per cent of gross receiptsCompanies, Limited Liability Partnerships and thoseenjoying tax holidays are not eligibleNo requirement to maintain specific books of accountsTax payments on self assessment basis.

7

EXEMPTIONS■ Voluntary acts of preserving environment, monuments or

places of historic interest to be considered for tax exemptionby charitable institutions.

■ Small businesses engaged in carriage of goods to computepresumptive monthly income from each heavy goodsvehicle at Rs 5,000 and other vehicles at Rs 4,500.

Enhanced deduction to all partnership firms in respect of salarypaid to working partners i.e.

1Higher slab of Rs 100,000/200,000 for firms engaged in professionalactivities.2 Rs 50,000 enhanced to Rs 150,000 and allowed as minimumsalary.

CAPITAL GAINS

■ No significant changes proposed.

INCOME FROM HOUSE PROPERTY

■ No significant changes proposed.

INCOME FROM OTHER SOURCES

■ The recipient of an asset whether free or at concessionalrate, viz land, building, shares and securities, jewellery,archaeological collections, drawings, paintings, sculpturesor any work of art valued in excess of Rs 50,000, taxed onthe stamp value for immovable and market value for movableassets.

■ Interest on compensation or enhanced compensation istaxable on received.

8

EXISTING REVISED

Book Profit (Rs) Rate (%) Book Profit (Rs) Rate (%)

Upto 75,0001 902 Upto 300,000 902

75,001 – 150,0001 60300,001 and above 60

150,001 and above 40

REBATES AND DEDUCTIONS

ENHANCED

■ Deduction of interest on education loan now available forany field of higher education including vocational studies.

■ Donation to electoral trusts eligible for full deduction.■ Deduction for medical treatment of dependent suffering from

severe disability enhanced from Rs 75,000 to 100,000.

EXTENDED

■ Time limit extended for commencement of projects undersection 80IA and 80IB i.e.

■ Section 80IB benefit now available to newly licensed naturalgas projects.

■ Tax holiday to export oriented units and those in free tradezones extended by another year i.e. upto March 31, 2011.

■ Exempted profits of units in Special Economic Zones to becomputed with reference to the turnover of that unit andnot turnover of the entire business.

■ Exemption granted to charitable institutions to remain validin perpetuity unless revoked by the Commissioner ofIncome-tax.

■ Self employed individuals eligible to avail tax deductionunder section 80CCD by contributing to the New PensionSystem.

INTRODUCED

■ Section 35AD introduced whereby deduction allowed onbasis of capital investment (except land, goodwill or financialinstrument) made by infrastructure businesses viz. coldchain facilities, warehousing facilities and activity of layingpipeline network for gas, petroleum or crude oil.

INDUSTRY EXISTING EXTENDED UPTO TIME LIMIT

Power generation March 31, 2008/ March 31, 2011March 31, 2010

Mineral oil refining Match 31, 2009 March 31, 2012

9

RESTRICTED

■ Tax holiday under section 80IB available only to developerof the housing project provided the multiple adjacentresidential units are not sold to a single buyer.

TRANSFER PRICING

■ Central Board of Direct Taxes (‘CBDT’) to introduce aconcept of Safe Harbour stating circumstances under whichtax authorities will automatically accept the transfer prices.

■ No adjustment to transfer price required if Arms’ LengthPrice is within 5 per cent radian.

TAX WITHHOLDING

■ Tax withholding rates rationalised for rental and contractualpayments

1No tax withholding if payee transporter provides PAN to the payer

■ Non provision of PAN to result in tax withholding at 20 percent or more.

NATURE RATE (%)From To

=RENTAL

for use of plant, machinery 10 2or equipmentfor use of land, buildingor furniture- to individuals/HUFs 15 10- to others 20 10

CONTRACTUALIndividual/HUF contractor 2 1Other contractor 2 = 2Individual/HUF sub-contractor 1 = 1Other sub-contractor 1 2Individual/HUF 1 = 1(advertisement contract)Other (advertisement contract) 1 2Contractors for transport business 2 01

Sub-contract for transport business 1 01

10

■ Payment to residents (other than salaried) not to attractsurcharge and education cess.

■ Time limits introduced for completion of tax withholdingassessments i.e.

Within 2 years of filing the return where payee is aresidentWithin 4 years of payment/credit to a resident, if no taxwithholding return filedNo time limit specified where payee is a non-residentAll assessments prior to financial year 2008-09 to becompleted by March 31, 2011.

■ Summary assessment of tax withholding returns to be doneat the time of computerised processing.

ASSESSMENT & APPELLATE PROCEEDINGS

■ Once re-assessment proceedings are initiated, any mattercan be opened for closer scrutiny by the tax authorities.

■ Alternate dispute resolution mechanism introduced to assistforeign companies and Indian companies affected by anadverse transfer pricing assessment (‘Eligible Assessees’)i.e.

Eligible Assessees can approach Dispute ResolutionPanel (‘DRP’) with specific objections against a draftorder of assessment which the tax officer is necessarilyrequired to provideDRP to decide on such objections within 9 monthsafter giving due opportunity to both partiesOrder of DRP will be binding on both parties and isappealable before the Income Tax Appellate Tribunal.

■ Taxation of Limited Liability Partnerships (‘LLP’s)introduced i.e.

taxed as general partnership firmsconversion of general partnership to LLP is tax neutralif constitution and asset base remains intact.

OTHERS

■ Income tax department to allot a unique DocumentIdentification Number (‘DIN’) to each correspondenceissued by or received at their offices. A mechanism forserving summons/notices electronically is being evaluated.

11

12

SECURITIES TRANSACTION TAX (‘STT’)■ No significant changes proposed.

FRINGE BENEFIT TAX (‘FBT’)■ Fringe benefit tax withdrawn.

COMMODITY TRANSACTION TAX (‘CTT’)■ Commodity transaction tax withdrawn.

WEALTH TAX■ Wealth tax exemption limit enhanced from Rs 1.5 to 3 million.

■ Advance tax payment scheme to be effected whereanticipated tax liability exceeds Rs 10,000 instead of earlierlimit of Rs 5,000.

INDIRECT TAXES

CUSTOMS DUTY

The peak customs duty and education cess maintained at 10and 3 per cent respectively.

HIGHLIGHTS

■ Exemptions

13

■ Amendments

Aerial Passenger Ropeway Projects to attractcountervailing duty.Refund allowed on defective goods, including thosenot made per specification.High Courts can retrospectively condone delay in filingappeals, applications or cross objections.Procedure prescribed for compounding of certainoffences.Countervailing duty to be based on tariff value of a likeitem subject to excise duty.Anti-dumping duty to be based on records maintainedby exporter/producer and where no record is madeavailable, on best judgement basis.

GOODS EXEMPT FROM

Inflatable rafts, snow skis, water Basic Customsskis, surf boats, sail-boards, other Dutywater sports equipmentUnworked coralsSpecified life saving drugs/vaccines Countervailingand their bulk drugs DutyArtificial heart and PDA/ASDocclusion deviceMechanical harvester for coffeeplantationValue of packaged/cannedsoftware on right to use basisMobile phone parts and accessories Special Additional

Duty

■ Change in Customs Duty rates of certain industries

14

INDUSTRY RATE (%)FROM TO

HEALTH CARE10 specified life saving 10 5drugs/vaccines and theirbulk drugsArtificial heart and PDA/ASD 7.5 5occlusion device

ELECTRONIC HARDWARELCD panel for televisions 10 5Set top boxes 0 5

RENEWABLE ENERGYPermanent magnets for 7.5 5synchronous generator above500 KW for wind operatedelectricity generatorsBio-diesel 7.5 2.5

CAPITAL GOODSMechanical harvester for 7.5 5coffee plantation

PRECIOUS METALSSerially numbered gold bars Rs 100 Rs 200& chains (per 10 gm)Other forms of gold (per 10 gm) Rs 250 Rs 500Silver (per kg) Rs 500 Rs 1,000

TEXTILESCotton waste 15 10Wool waste 15 10

MISCELLANEOUSRock phosphate 5 2Concrete batching plants ofcapacity 50 cum per hour 0 7.5

EXCISE DUTY

CENVAT rate and education cess maintained at 8 and 3 per centrespectively.

■ Exemptions

Duty paid high speed diesel blended with upto 20 percent bio-diesel.Chapter 68 goods manufactured and used atconstruction site.EVA compound manufactured on job work for use infootwear.Value of packaged/canned software on right to usebasis.Branded jewellery.

■ Amendments

Procedure prescribed for compounding of certainoffenses.

Chief Commissioner empowered to nominate a charteredaccountant for conducting special excise audits.

High Courts can retrospectively condone delay in filingappeals, applications or cross objections.

Process of adding or mixing cardamom, copra, menthol,spices, sweetening agents or any such ingredientsother than lime, katha or tobacco to betel nut in anyform shall be considered deemed manufacturing.

Documents and records seized during investigation andnot utilised for issuance of show cause notice to bereturned within 30 days.

Input not to include cement, angles, channels, CTD orTMT bars and other items used for construction ofshed, building or structure for support of capital goods.

Duty reduced from 10 to 5 per cent when books ofaccounts are not separately maintained in respect ofdutiable and exempted goods.

15

■ Change in Excise Duty rates of certain industries

16

SERVICE TAX

■ Tax rate and education cess maintained at 10 and 3 per centrespectively.

■ Additional 4 services brought within ambit of service taxnamely

Transport of goods by railTransport of coastal goods and goods through inlandwater including national waterwaysLegal consultancy services (except in case ofindividuals)Cosmetic and plastic surgery (other than trauma orcongenital cases).

INDUSTRY RATE (%)FROM TO

AUTOMOBILE

Utility vehicles / Large cars Rs 20,000 Rs 15,000=> 2000cc (per vehicle)Petrol driven trucks/lorries 20 8Chassis of petrol driven 20 + 8 +trucks/lorries Rs 10,000 Rs 10,000

PETROLEUMSpecial boiling point spirits 16 + Rs 15 14

per litreNaphtha 16 14Branded petrol 6 + Rs 13 Rs 14.50

per litre per litreBranded diesel 6 + Rs 3.25 Rs 4.75

per litre per litreTEXTILES

Manmade fibre & yarn 4 8PTA & DMT 4 8Polyester chips 4 8Acrylonitrile 4 8

17

■ ExclusionsSub-brokers excluded from definition of stock broker.Process resulting in manufacture of excisable goodsexcluded from business auxiliary services.

■ ExemptionsInter or Intra state transportation of passengers in avehicle bearing contract carriage permit.Federation of Indian Export Organizations and specifiedExport Promotion Councils.Purchase and sale of foreign currency betweenscheduled banks.

■ AmendmentsTax reduced from 8 to 6 per cent when books ofaccounts are not seperately maintained in respect oftaxable and exempted services.Cenvat credit to be reversed should input/capital goodsget fully written off.Works Contract Rules, 2007 modified to allow the benefitof composition scheme where the gross value chargedfor the works contract is declared.Exporters exempted from service tax when goodstransported by road or on commission upto 10 per centpaid to foreign agents.

18

COMMERCE & TRADE FOCUS

INDUSTRY

■ The threshold for non-promoter public shareholding in alllisted companies to be raised in a phased manner.

■ Extension upto March 2010 for interest subvention of 2 percent on pre-shipment credit in respect of 7 employmentoriented export sectors.

■ Proposal for 1 handloom mega cluster in West Bengal aswell as Tamil Nadu and 1 power loom mega cluster inRajasthan.

■ New mega clusters for carpets proposed in Srinagar andMirzapur.

■ Fertilizer subsidy to be nutrient based in order to promoteuse of innovative fertilizer products.

INFRASTRUCTURE

■ Allocation under Accelerated Power Development andReform Programme (‘APDRP’) increased by 160 per cent toRs 20.80 billion.

■ Allocation for the National Highway DevelopmentProgramme increased by 23 per cent.

■ Allocation for railways increased from Rs 108 to 158 billion.

■ India Infrastructure Finance Company Limited to refinance60 per cent of commercial bank loans for Public PrivatePartnership in critical sectors over the next 15 to 18 months.

■ Allocation under Jawaharlal Nehru National UrbanRenewal Mission increased by 87 per cent to Rs 128.87billion.

■ Rajiv Awas Yojana introduced for housing and provision ofbasic amenities to urban poor.

■ Provision for the project Brihan Mumbai Storm WaterDrainage Project enhanced from Rs 2 to 5 billion.

RURAL DEVELOPMENT

■ Allocation under National Rural Employment GuaranteeScheme increased by 144 per cent to Rs 391 billion.

■ Allocation for Bharat Nirman increased by 45 per centcomprising of an increase in Pradhan Mantri Gram SadakYojana by 59 per cent to Rs 120 billion and Rajiv GandhiGrameen Vidyutikaran Yojana by 27 per cent to Rs 70 billion.

■ Allocation under Indira Awaas Yojana increased by 63 percent to Rs 88 billion.

■ Specific allocation of Rs 20 billion made to National HousingBank (‘NHB’) to boost rural housing sector.

OTHERS

■■■■■ Allocation for Market Development Assistance Schemeenhanced to Rs 1.24 billion.

■ Scheduled commercial banks allowed setting up off-siteATMs without prior approval of the Reserve Bank of India.

■ Allocation to Commonwealth Games, 2010 enhanced fromRs 21.12 to 34.72 billion.

■ Employment exchanges to be modernized with theintroduction of national web portal.

■ Allocation under National Rural Health Mission increasedby Rs 20.57 billion.

■ 8 national missions to be launched as a part of NationalAction Plan on Climate Change.

■ Allocation of Rs 1.2 billion to the Authority created forassigning a unique identification number to each resident.

■ Rs 21 billion have been allocated to the defence sector.

■ The overall budget plan for higher education increased byRs 20 billion.

■ Rs 21.13 billion allocated for IITs and National Institutes ofTechnology, including Rs 4.50 billion for starting new suchinstitutes.

19

IMPACT

CAPITAL MARKET

The Bombay Stock Exchange (‘Sensex’) suffered the biggest fallon any budget day, plunging 869.65 points on concerns at thehigh fiscal deficit. The Sensex closed at 14,043.40; down 5.83 percent. The index touched an intra-day low of 13,959.44 and highof 15,097.87. The National Stock Exchange (‘Nifty’) ended at4,165.70, down 258.55 points or 5.84 per cent. The Nifty toucheda low of 4,133.70 and a high of 4,479.80.

KEY SECTORS

HEALTHCAREReduction of basic customs duty from 10 to 5 per cent andexemption of countervailing duty on import of life-saving drugsand bulk drugs for manufacturing medicines to treat breastcancer, hepatitis-B, rheumatic arthritis, etc. besides reduction incustoms duty on two devices used in treating heart ailments isexpected to boost the healthcare sector.

HOUSEHOLD APPLIANCESThe reduction in customs duty on LCD panels from 10 to 5 percent is likely to have a marginal impact on the price of LCD TV.The cut in duty is likely to boost domestic assembling of LCDTVs. The levy of customs duty on set-top boxes at 5 per cent isexpected to incentivise its domestic production.

TELECOMExemption from special additional customs duty on mobile partsand accessories extended for a period of 1 year. This wouldensure affordable access to mobile phones, drive telecomproliferation and encourage manufacturing of handsets in India.

AUTOMOBILESReduction in specific additional duty on passenger cars andutility vehicles above 2000 cc from Rs 20,000 to 15,000 will havea negligible impact on demand. Reduction in excise duty onpetrol-driven trucks and on the chassis of such trucks and lorriesfrom 20 to 8 per cent would benefit the industry. The continued

20

focus on rural development and change in exemption limit inincome tax slabs will marginally benefit two wheeler sales.

INFORMATION TECHNOLOGYThe extension of income tax exemption (section 10A and 10B) bya year, scrapping of FBT and removal of duty on packagedsoftware will together have a positive impact on the industry.

PETROCHEMICALSThe excise duty cut on naphtha from 16 to 14 per cent is expectedto have a marginal effect.

CONSTRUCTIONThe increased outlay on roads, railways, irrigation and urbaninfrastructure would aid the construction expenditure/growth ininfrastructure segment. The additional funding support for PPPinfrastructure projects through refinancing of up to 60 per centthrough IIFCL will ease funding pressures on constructioncompanies. Removal of excise duty on pre-fabricated concreteblocks will result in minor improvement in margins of constructionplayers.

21

22

RECENT POLICY CHANGES

LEGISLATIVE INITIATIVES

■ Conditions for grant of trading licences in respect of thepower sector made more stringent.

■ Upfront payment in case of preferential allotment of warrantsincreased from 10 to 25 per cent.

■ Existing timeline of six months from the date of approval byBoard of Directors for completing a bonus issue reduced tosixty days where shareholders’ approval required and 15days when not required.

■ New Pension System extended to all Indian citizens on avoluntary basis.

■ Simplified norms for disclosures while listing corporate debtsecurities.

■ Commencement of commercial production extended from 1to 2 years post completion of the infrastructure projectwithout attracting prudential norms for asset classification.

■ Integrated Energy Policy approved giving a roadmap formeeting the energy requirement.

■ The Airports Economic Regulatory Authority of India Act,2008 notified to regulate tariff and monitor performancestandards of airports.

■ Items for exclusive manufacture by Small Scale Industriesreduced from 35 to 21.

■ Rules notified for delisting of securities, whethercompulsory or voluntary.

FOREIGN DIRECT INVESTMENT POLICY

■ Rationalisation of Foreign Direct Investment (‘FDI’) policyin respect of petroleum and natural gas sector i.e.

Removal of mandatory requirement whereby it wascompulsory to divest 26 per cent equity within 5 yearsin case of trading and marketing petroleum products.

FDI upto 49 per cent allowed in petroleum refining byPSUs.

23

■ 100 percent FDI allowed in mining and related activities inrespect of titanium bearing minerals and ores.

■ 100 per cent FDI allowed in publication of fax edition offoreign newspapers and 26 percent in Indian edition offoreign magazines dealing with news and curent affairs.

■ Prior government approval made mandatory for Indiancompanies under sectoral caps where transfer by residentto non-resident(s) leads to effective ownership and control.

■ Mandatory approval required prior to FDI in an investingcompany. Furthermore, downstream investment by anIndian subsidiary, whether investing or operating company,subject to sectoral caps and specific conditions viz. valuationof shares, funds to be brought from abroad, etc.

■ Date revised for adherence to ceiling cap on foreigninvestment in commodity exchanges from June 30 toSeptember 30, 2009.

■ Limits for buyback/prepayment of Foreign CurrencyConvertible Bonds enhanced from USD 50 to 100 millionsubject to discounts as per specified slab rates.

■ Subject to prior approval, hotels, hospitals and softwarecompanies permitted to avail overseas loans upto USD 100million for import of capital goods.

■ Ceiling on overseas investment by mutual funds enhancedfrom USD 5 to 7 billion.

■ Relaxation in overseas investment by

Energy and natural resources sector - investmentallowed even in excess of 400 per cent of net worth.

Oil sector - investment allowed upto 400 per cent of networth.

Registered trusts and societies - engaged inmanufacturing/educational sector.

COMPANY LAW

■ Indian Depository Receipts redeemable into equity shareswithin one year of issue.

■ Limit on paid up share capital for appointing a companysecretary increased from Rs 20 to Rs 50 million.

24

■ Formation of partnerships with limited liability permittedwith the notification of Limited Liability Partnership Actand Rules.

■ Listed companies to declare dividends on a per share basisonly.

TAXATION

■ New Double Taxation Avoidance Agreement (‘DTAA’) withLuxembourg, Myanmar and Tajikistan signed. DTAA withSyria revised.

■ Benefit of enhanced depreciation on commercial vehiclesextended till September 30, 2009.

■ Further clarification on refund/exemption of service tax inrespect of export linked services availed outside India viz.participation in exhibition, cargo handling services, etc.

■ Guidelines notified for service tax exemption to SEZ unitsand services to goods transport agency.

■ Exemption from customs duty on newsprint for newspaperand magazines.

■ Amendments notified in respect of excise duty exemptionson Small Scale Industrial units.

■ Tax withholding only on rental and not on the service taxcomponent.

■ Antidumping duty imposed on color TV picture tubes, DVDsand porcelain tiles.

■ In respect of real estate developers, it has been clarifiedthat the service tax can be imposed only post completion ofconstruction and handover by the developer.

■ Rate of service tax reduced from 12 to 10 per cent.

■ Advalorem rate of central excise duty reduced to 8 per centin respect of products attracting 10 per cent.

25

FOREIGN DIRECT INVESTMENT (‘FDI’)

Sectoral Composition of FDI 2007-08 (USD million)

(USD million)FDI INFLOWS (Top ten countries)

2007

-08

2008

-09

Cum

ulat

ive I

nflo

ws

(Apr

’00

– M

ar’0

9)

Rank Country1 Mauritius 11,096 11,208 36,843 412 Singapore 3,073 3,454 7,811 9

3 USA 1,089 1,802 6,335 74 UK 1,176 864 5,227 65 Netherlands 695 883 3,588 46 Japan 815 405 2,531 37 Cyprus 834 1,287 2,273 38 Germany 514 629 2,173 39 France 145 467 1,227 110 UAE 258 257 920 1

% to

tota

l inf

low

s

26

FOREIGN TRADE

OTHERS

■ Cruise Shipping Policy approved. To help place India onworld tourism map, apart from development of port facilities.

■ Labour agreements signed with Malaysia, Oman and Bahrainto protect interest of Indian emigrants.

■ Bilateral Investment Promotion and Protection Agreementsigned with Jordan, Brunei and Libya.

■ MoU with United States for scientific and technicalcooperation for gas hydrates research.

■ Social security agreements signed with Germany,Netherlands and Czech Republic for welfare of professionaland skilled workers from India.

■ MoU with Australia for collaboration in coal sector.

■ MoU with Syria for cooperation in oil and gas sector.

■ Indo-German agreements for development projects signed.

■ MoU with Sweden for cooperation in the field of health careand public health.

(April 08- February 09)

Main Mainexporters % importers %

Rank to India share from India share1 China 10.68 USA 12.032 Saudi Arabia 7.09 UAE 10.823 UAE 6.45 China 5.064 USA 5.97 Singapore 4.755 Iran 4.28 Netherland 3.746 Switzerland 4.25 Hong Kong 3.737 Germany 3.63 UK 3.648 Kuwait 3.36 Germany 3.459 Nigeria 3.23 Saudi Arabia 2.9610 Australia 3.11 Belgium 2.60

MAIN TRADING PARTNERS FOR INDIA

27

ECONOMIC INDICATORS

OVERVIEW

GDP

Economic growth decelerated in 2008-09 to 6.7 per cent from 9per cent in 2007-08 attributable to subdued demand conditions,global economic crisis and risk aversion. GDP is expected at 9per cent during 2009-10.

INFLATION

Rate of inflation rose sharply from 4.7 per cent in 2007-08 to 8.4per cent in 2008-09.

However, there has been a dramatic reversal in the last threemonths leading to negative inflation at (-) 1.3 per cent in June2009.

overall GDP growth (%)

2003-04 2004-05 2005-06 2006-07 2007-08

12

10

8

6

4

2

02008-09

● ●

● ●●

●

inflation based on WPI index (%)

2003-04 2004-05 2005-06 2006-07 2007-08

10

8

6

4

2

02008-09

●●

●●

●

●

28

FOREIGN TRADE

Exports grew at 3.6 per cent i.e. from USD163 to USD168 billionin 2008-09.

Imports grew at 14.4 per cent i.e. from USD 251.65 to 287.75billion. Trade balance deteriorated to USD 119.05 from 88.52billion.

FOREIGN EXCHANGE RESERVES

Foreign exchange reserves, which had touched an all-time highof USD 314.6 billion at end-May 2008, declined thereafter toUSD 247.7 billion by the end of November 2008 and were USD252 billion at the end of March 2009. This was primarily a falloutof the global crisis and strengthening of the US dollar vis-à-visother international currencies.

foreign exchange reserves(USD million)

2008-09

400000

300000

200000

100000

02003-04 2004-05 2005-06 2006-07 2007-08

●

●

●●

●●

exports and imports(USD million)

● Exports Imports

2008-09

500000

400000

300000

200000

100000

02003-04 2004-05 2005-06 2006-07 2007-08

● ● ●●

● ●

29

POWER

The growth in electricity generation by power utilities during2008-09 was 2.7 per cent. This was much short of the targeted 9.1per cent. Despite the sharp decline in hydro and nucleargeneration in 2008-09, the growth in total electricity generationwas positive due to the 5 per cent plus growth in thermalgeneration.

INFRASTRUCTURE SECTOR

Telecommunications and petroleum sectors turned in a goodperformance in 2008-09. Compared to these, there was asignificant shortfall in the power and ports sector.

electricity generated (% growth)(utilities only)

2003-04 2004-05 2005-06 2006-07 2007-08

8

6

4

2

02008-09

●

●

●●

●

●

Indicators of Infrastructure capacity creation

Item 2006-07 2007-08 2008-09

Power capacity 6853 9263 3454addition (MW)

Addition to refinery 7.34 11.72 29capacity – Petroleum (MT)

Road length upgraded – 636 1683 2203NHAI (KM)

Railway routes 361 502 797electrified (KM)

Addition to port 27.3 23.6capacity (MTPA)

Addition to switch capacity 9602.7 7159 14392.6– Telecom (000 lines)

30

RAILWAYS

There was significant increase in revenue earning freight i.e.from 793.9 to 832.1 million tonnes, representing an increase of4.9 per cent. Bulk traffic accounts for nearly 84 per cent of therevenue earning, of which about 43 per cent comprises coaltransport.

TELECOMMUNICATION

Indian telecom industry continued to register significant growthin 2008-09. The telecom network, with about 414 million connec-tions in February 2009, is the third largest in the world and isexpected to achieve the target of 500 million connections muchbefore 2010. Total tele-density increased from 12.7 per cent inMarch 2006 to 35.6 per cent in February 2009. While rural tele-density reached 13.8 per cent in January 2009, the urban tele-density shot up to 83.6 per cent. The government’s focus is toreach out to the remote areas and augment the broadband facili-ties in rural areas.

growth of telephones(%)

2003-04 2004-05 2005-06 2006-07 2007-08

50

40

30

20

10

02008-09

●●

●

●

●

●

CIVIL AVIATION

During Tenth Five Year Plan period (2007-12), the civil aviationsector had undergone dramatic expansion. The volume of airtraffic increased sharply during 2004-07, with a near doubling ofdomestic and international air passengers. However, during 2008,this sector showed signs of slowdown due to steep rise in thecost of ATF (air turbine fuel) and the global economic slowdown.The number of domestic passengers declined by 5 per centduring 2008 as compared to 2007. On the other hand, the domesticcargo showed a growth of 14.55 per cent.

31

ROADS

National highways constitute an important link in India’s roadtransport. Although they comprise only about 2 per cent of thetotal length of roads, they account for about 40 per cent of thetotal traffic. Phase I & II of the National Highway DevelopmentProgramme (NHDP) envisaged 4/6 laning of about 14,330kilometres, at a total estimated cost of Rs 650 billion. As of March31, 2009, 11,037 km of national highways under NHDP has beencompleted, the bulk of which lies on the Golden Quadrilateral(GQ).

National Highway Projecs (March 31, 2009)

Bala

nce f

or aw

ard

of ci

vil w

orks

NH

DP

Com

pone

nt

Tota

l Len

gth

Com

plet

ed 4

lane

Und

erim

plem

enta

tion

GQ 5,846 5,721 125 -NSEW 7,142 3,436 2,915 791Port connectivity 380 206 168 6Other NHs 962 781 161 20NHDP III 12,109 787 1,878 9,444NHDP Phase V 6,500 106 928 5,470NHDP Phase VII 700 0 19 681Total 33,639 11,037 6,194 16,412

(In KM)

NOTES

32

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