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Budgey 2011


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Budgey 2011

  1. 1.
  2. 2. Fiscal highlights<br /><ul><li>GDP growth target – 9% ± 0.25%.
  3. 3. Fiscal deficit
  4. 4. 4.6% of GDP (better than 4.8% set in roadmap L/Y); positive for bond markets.
  5. 5. Target looks aggressive given absence of non-tax revenues (3G booty) this year & underestimation of subsidies.
  6. 6. Target to reach 4.1% in 2012-13 and 3.5% in 2013-14 welcome.
  7. 7. Effective Revenue Deficit – 1.8% of GDP; persistent Revenue Deficit a concern.
  8. 8. Net market borrowings
  9. 9. Rs 3.43 lakh crore.
  10. 10. Lower than estimates; positive for bond markets. </li></ul>Budget 2011 like the India England One-day result <br />A TIE BETWEEN GROWTH & INFLATION BUT NOBODY WINS!!!<br />
  11. 11. Direct Tax<br /><ul><li>Direct tax slabs tinkered with
  12. 12. Exemption limit raised to Rs 1.8 lakh from Rs 1.6 lakh; with inflation at over 10% , hardly any increase in real terms.
  13. 13. Exemption limit for senior citizens - raised to Rs 2.5 lakh from Rs 2.4 lakh.
  14. 14. Age to qualify as “senior citizen” reduced to 60 from 65.
  15. 15. “Very Senior Citizens” (80 years +) - exempt upto Rs 5 lakh.
  16. 16. Salaried taxpayers not required to file return of income if tax discharged by way of TDS.
  17. 17. Corporate taxes
  18. 18. Surcharge reduced from 7.5% to 5%.
  19. 19. MAT increased marginally from 18% to 18.5%.
  20. 20. SEZ units & developers to be subject to MAT; will hit infra companies.
  21. 21. LLPs to be subject to MAT; negative for LLPs</li></ul>Positive for corporates; not much for the aam aadmi<br />
  22. 22. Indirect Tax - Excise & Import<br /><ul><li>No reversal of excise stimulus given in 2009; positive for auto companies.
  23. 23. Environmental concern - Fuel cell, hydrogen cell technology, hybrid vehicles granted concessions.
  24. 24. Branded garments to get expensive – excise duty @ 10%.
  25. 25. Consumer goods such as sanitary napkins, diapers to get cheaper – excise reduced from 10% to 1%.
  26. 26. Efforts to incentivize agriculture by reducing duties:
  27. 27. No excise on air-conditioning equipment, refrigeration panels used in cold chains.
  28. 28. No excise on equipment used in cold storages, mandis and warehouses.
  29. 29. Customs duty on micro-irrigation equipment reduced from 7.5% to 5%.
  30. 30. No customs on import of de-oiled rice bran cake. Export duty of 10% to discourage exports; positive for dairy processing organizations.</li></li></ul><li>Indirect Tax - Excise & Import<br /><ul><li> Excise duty on iron ore increased to 20%; negative for mining companies such as Sesa Goa, NMDC; positive for steel companies.
  31. 31. Capital goods used in ultra mega power projects exempted from excise duty.
  32. 32. Customs duty on Solar lanterns reduced from 10% to 5%.
  33. 33. Cash dispensers and their parts exempted from customs duty, in order to further financial inclusion. </li></li></ul><li>Indirect Tax – Service Tax<br /><ul><li>Rate of service tax retained at 10%.
  34. 34. More services brought within the tax net
  35. 35. Hotel rooms with tariff exceeding Rs 1,000 per day – 5%
  36. 36. Air-conditioned restaurants serving liquor – 3%
  37. 37. Healthcare to get expensive (Govt hospitals exempted)
  38. 38. Centrally air-conditioned hospitals with 25 or more beds - 5%
  39. 39. Diagnostic tests of all kinds – 5%
  40. 40. Air travel to be dearer
  41. 41. Domestic air travel (higher class) – 10%
  42. 42. Domestic air travel (economy class) – Rs 50
  43. 43. International journeys by economy class – Rs 250</li></li></ul><li>Legal Reforms<br />Positives<br /><ul><li>DTC most likely to be enacted by April 1, 2012.
  44. 44. 3 fold increase to Rs 1,000 crore for building judicial infrastructure & E-Courts.
  45. 45. Financial sector legal reforms – Amendment of the following laws:
  46. 46. Insurance Act - to increase FDI limit to 49%.
  47. 47. Pension Fund Regulatory & Development Authority Act.
  48. 48. SBI (Subsidiary Banks) Act – for merger with SBI.
  49. 49. Other Banking Laws – including additional banking licenses to private sector.
  50. 50. SARFAESI Act.
  51. 51. Companies Bill to be tabled in present session of Parliament. </li></ul>Negatives<br /><ul><li>No timeline for GST.
  52. 52. Legal reforms promised for years, but no political support for the passage of laws.</li></ul>Mere announcements; will the Government be able to walk the talk?<br />
  53. 53. Issues of concern<br /><ul><li>Will the FM be able to meet the 4.6% Fiscal Deficit target?
  54. 54. Will subsidies be contained within budgeted levels?
  55. 55. No commitment to dampen inflation, with half baked supply-side measures. </li></li></ul><li>Vote of the market<br /><ul><li>Equity markets – were up by 3% mid day but ended with modest gains of about 0.5%.</li></li></ul><li>Vote of the market<br />
  56. 56. Sectoral overview<br />
  57. 57. Infrastructure<br />Positives<br /><ul><li>Allocation of Rs 2.14 lakh crore; increase of 23.3% over L/Y.
  58. 58. FII Investment in corporate bonds in infra sector raised to 40 billion USD.
  59. 59. To attract foreign funding for infrastructure, infra debt funds to be notified, with attractive TDS rate of 5%. Income of Fund exempt from tax.
  60. 60. Tax free bonds of Rs 30,000 crore for infra development.
  61. 61. Infra bonds eligible for tax rebate for individuals upto Rs 20,000.
  62. 62. Rural Infra Development Fund – corpus increased to Rs 18,000 crore from Rs 16,000 crore.
  63. 63. Viability gap funding for capital investment in setting up of storage capacity.
  64. 64. Infra status for cold chains and post-harvest storage facility.
  65. 65. Infra status for capital investment in fertilizer production.</li></ul>Negatives<br /><ul><li>Infra financing addressed partly, though execution still a concern.
  66. 66. Limit for infra bonds not increased; concerns still exist for financing of USD 1 trillion during the 12th Plan. </li></li></ul><li>Social sector<br /><ul><li>Allocation of Rs 160,887 crore – 17% increase, (36.4% of total plan allocation).
  67. 67. Allocation for 6 schemes of “Bharat Nirman” increased to Rs 58,000 crore (increased by Rs 10,000 crore).
  68. 68. Direct transfer of cash for LPG, kerosene and fertilizer subsidy, eliminating leakages; expected to be in place by March 2012.
  69. 69. 10 lakh per day Aadhar numbers to be rolled out by October 2011, streamlining the delivery mechanism.
  70. 70. Wages indexed to CPI-AL under the MGNREGA.
  71. 71. Pay for Aanganwadi workers doubled, albeit from an extremely low base.
  72. 72. Pension rules relaxed for unorganized workers / BPL beneficiaries.
  73. 73. India Microfinance Equity Fund of Rs 100 crore - for equity contribution to smaller MFIs.
  74. 74. Boost to low cost housing through favourable financing.</li></ul>Not much for the aam aadmi; unless if the delivery mechanism starts functioning.<br />May induce some consumption, with marginally higher budgetary allocations. <br />
  75. 75. Proposed investment<br />Figures in Rs crore<br />Allocations of Rs 300 crore respectively too small to make any difference!!!<br />
  76. 76. Analysis<br />Positives<br /><ul><li> To enhance rice production in eastern region, a good step taken by Govt. through Green Revolution. There could be a possibility for export in the coming year.
  77. 77. Govt. will look to include urea in nutrient based subsidy.
  78. 78. Basic customs duty reduced from 5% to 2.5% for agricultural machinery; Positive for organizations such as IFFCO.
  79. 79. To increase fertilizer production and cold storage production capacity in the country, infrastructure status granted for capital investment in fertilizer production and for cold chains and post-harvest storage facility.
  80. 80. Proposed 15 more mega food parks for the preservation of vegetables and fruits. Including these, total food parks in the country to rise to 30. Positive for food processing companies such as EID Parry, etc.</li></li></ul><li>Analysis<br />Negatives <br /><ul><li> Total allocation for FY12 increased by 16.35%. However, Plan Expenditure is only 4.07% of total Plan expenditure, which is very low considering that about 58% of country’s population is employed in agriculture. Further, Plan capital expenditure is an abysmal 0.13% of total Plan capital expenditure. This will hardly address any supply side issues.
  81. 81. An increase in interest rate subvention from 2% to 3%, if loan is repaid on time. It will bring down effective interest rate to 4%. But at the same time, there are no provisions for drought relief.
  82. 82. Rs. 300 crore investment to improve supply chain management a good attempt but past experience shows that implementation may be tardy. Besides, Rs 300 crore is a paltry sum to address the problem. </li></li></ul><li>Questions remain unanswered<br /><ul><li> Why subsidy given to the sector is not in line with input cost?
  83. 83. Why farm loan limit through Kisan credit card remains same, ie Rs. 300,000 despite inflation being around 10%?
  84. 84. While additional interest subvention is welcome, however, if the farmer delays loan repayment even by 1 day (after six months grace period), he has to pay double interest, ie 14%.
  85. 85. In Budget speech, FM endorsed that soilfertility has decreased through the use of chemical fertilizers. He proposed steps to increase organic agriculture in the country. But in the same speech, he talked about giving subsidy to chemical fertilizers and exemption from tax for any investment in chemical fertilizer sector.
  86. 86. In India, more than 60% farmland irrigated by rain water. Sufficient steps have not been taken to ameliorate the situation.
  87. 87. One funny but good argument given by a Kisan – While a car loan is cheaper than a tractor loan…… he has nothing to do with the car on his farm. </li></ul>Mildly positive for Agriculture but negative for Kisan.<br />
  88. 88. FMCG<br />Measures could increase consumption, though marginally!!!<br />
  89. 89. FMCG<br />
  90. 90. Education<br />Figures in Rs crore<br />
  91. 91. <ul><li> Special grant to recognize excellence in universities and higher institutions. </li></li></ul><li>Analysis<br />Positives<br /><ul><li>Increase in allocation of funds by 24% is truly commendable.
  92. 92. A revised Centrally Sponsored Scheme “Vocationalisation of Secondary Education” to improve the employability of youth.
  93. 93. Special emphasis on areas such as Skill Development and the National Knowledge Network that is critical for India to be a global leader in the 21st century.
  94. 94. National Knowledge Network initiative shows the government’s preference to reach quality education to the students irrespective of their geographical location.
  95. 95. With the increase in the Sarva Shiksha Abhiyan budget by 40% to Rs 21,000 crore, there should be a much larger role for the private sector in K-12 and Teacher Training space built around the PPP (public private partnership) model.
  96. 96. Pre-metric scholarship for SC and ST students will be advantageous and it would benefit about 40 lakh students.</li></li></ul><li>Analysis<br />Negatives<br /><ul><li> Education sector has not been opened up for foreign participation.
  97. 97. Govt. has not given any emphasis on private sector participation.
  98. 98. Govt. has not allowed any tax sops to the private players in the education segment.</li></li></ul><li>Media and entertainment<br /><ul><li> Jumbo rolls of 400 feet and 1,000 feet exempt from CVD (countervailing Duty). +ve for the film production companies such as Eros, Ashta Vinayak, Balaji Telefilms.
  99. 99. Excise duty on LED reduced to 5% but the change in taxes on LED unlikely to affect the end consumer much.
  100. 100. Excise duty reduced from 10% to 5% on parts of ink-jet and laser-jet printers Reduction in the price of printers a positive for companies such as Jagran Prakashan and HT Media. </li></li></ul><li>Issues not addressed<br /><ul><li> The Government was expected to exempt from customs duty the cover paper used by magazines but not announced.
  101. 101. There was also a demand for tax concessions to animation, gaming and VFX, which is a booming segment.
  102. 102. A lot of program content is sourced from foreign players. If the recipient of income does not have a Permanent Account Number, the withholding taxes at 20% are borne by payer (Indian companies). Industry was expecting that this rate will be relaxed so that Indian players do not get penalized for payee’s failure to apply for PAN.</li></li></ul><li>Subsidies<br />Positives<br /><ul><li>Subsidy related liabilities to be met in cash and not bonds, bringing them into fiscal accounting.
  103. 103. Direct transfer of cash for LPG, kerosene and fertilizer subsidy – promised for years though!!!!; expected to happen by March 2012. </li></ul>Negatives<br /><ul><li>Subsidies grossly underestimated, when price of oil has gone past USD 100 a barrel and food prices are at all-time high.</li></ul>Figures in Rs crore<br />
  104. 104. Deficit concerns<br /><ul><li>Disinvestment target of Rs 40,000 crore quite optimistic, especially if the markets go into a tailspin.
  105. 105. No provision for the Food Security Bill (estimated provision required Rs 11,000 crore – Rs 15,000 crore, if the Bill goes through).
  106. 106. Subsidies grossly underfunded. </li></li></ul><li>What was expected & missing !!<br /><ul><li>Liberalization of pricing of petro products.
  107. 107. Reduction of duties on petro products; negative for Oil Marketing Companies.
  108. 108. No announcement on multi-brand retail.
  109. 109. No announcement on the date for implementation of the IFRS.
  110. 110. No reversal of excise stimulus ; positive for auto companies.
  111. 111. STPI Scheme extension ; a big let down for the IT industry.
  112. 112. Increase in customs duty on gold & silver ; positive for jewellery companies.
  113. 113. Increase in excise duty on tobacco & cigarettes ; largely positive for ITC.</li></li></ul><li>The Budget these days is just another policy document, with the big bang announcements outside the Budget. Let’s hope that it is no different this time, given that the Budget was a big let down this year…..<br />
  114. 114. THANK YOU<br />PRESENTED BY-<br />PRASHANT SHARMA<br />