UNION BUDGET 2011-12: ADMIRED THOUGH LACKS SPARKLE

The Union budget lacks flash, but is, on the total, optimistic in terms of macroeconomic impact, restructuring intent and specific sectorial focus.

The Union budget lacks flash, but is, on the total, optimistic in terms of macroeconomic impact, restructuring intent and specific sectorial focus. It pushes forward the proposed major tax reforms (the direct taxes code and the goods and services tax), brings down the fiscal deficit and overall public debt to prudent levels and jacks up infrastructure financing. It advances financial reform, with needed laws and separating public debt management from the monetary authority. It also gives specific attention to farm sector investment and marketing. Finance Minister Pranab Mukherjee's Budget lacks tax pyrotechnics, yet it reveals a remarkably improved fiscal position and a conceptual breakthrough in delivering subsidies through cash transfers for kerosene, fertilisers and cooking gas. He has also boosted reform prospects, pledging to revive seven financial sector bills, including landmark ones to raise foreign direct investment (FDI) in insurance to 49% and lift voting rights of foreign investors in banks.

Little cuts in Tax may make Fiscal target achievable…
After posting GDP growth of 8.2% in Dec quarter 2010 it is expected to expand 8.6 percent in the current fiscal year that ends in March. Govt is expecting inflation would be around 5% for the year 2011-12. The manufacturing sector grew 5.6 percent in October-December from a year earlier, while farm output grew by an annual 8.9 percent. Gross Borrowing target for the period of 2011-12 set at Rs 4.17 trillion rupees out of which Net market borrowing seen at 3.43 trillion rupees. Govt has also estimated to reduce the fiscal deficit up to 5.1%, 4.6% and 3.5% of GDP in FY11, FY12 and FY14 respectively.

Govt's Spending increase only 13%...
For the year 2011-12 the gross tax receipts seen at 9.32 trillion rupees, Net tax to collection will be Rs 6.6 trillion rupees, Corporate tax receipts seen at 3.6 trillion rupees, Customs revenue seen at 1.52 trillion rupees, Service tax receipts seen at 820 billion rupees, Non-tax revenue seen at 1.25 trillion rupees, Factory gate duties seen at 1.64 trillion rupees and Revenue gain from indirect tax proposals seen at 113 billion rupees for the same year. Total expenditure for the year 2011-12 seen at 12.58 trillion rupees while Plan expenditure seen at 4.41 trillion rupees in 2011-12, up 18.3% from the last year. As per its on going programme of divestment in PSUs, Govt has targeted to raise 400 billion rupees for 2011-12. Govt has allocated more than 1.64 trillion rupees to defense sector in 2011-12, 520.5 billion rupees for the education sector and 267.6 billion rupees to health sector. Govt has raised corpus for rural infrastructure development fund to 180 billion rupees in 2011-12 and will also infuse 201.5 billion rupees capital in state-run banks in during the same period.

Fuel Subsidy bill may rise on high crude price…
The subsidy bill of the Govt also seen at 1.44 trillion rupees out of which Food subsidy bill in 2011-12 seen at 605.7 billion rupees, Fertilizer subsidy bill in 2011-12 seen at 500 billion rupees, Petroleum subsidy bill in 2011-12 seen at 236.4 billion rupees. In FY12 Govt will provided 200 billion rupee cash to state-run oil retailers for selling fuel at below market rates, currently state oil retailers' bearing a revenue loss of about Rs 10/litre on diesel, about Rs 21/litre on kerosene about Rs 356 on sale of 14.2 kg cooking gas cylinder. For Agricultural sector govt has raise target of credit flow to 4.75 trillion rupees and will also give 3 percent interest subsidy to farmers in 2011-12. Agricultural dominant bank NABARD will also get the capitalisation of 30 billion rupees in a phased manner. To augment the production of palm oil govt will provide 3 billion rupees for 60,000 hectares under palm oil plantation and government is mulling nutrient based subsidy policy for urea and cash subsidy for urea in FY12.

Inclusion of 130 items in tax bracket will earn extra 40 billion rupees…
Govt has kept a Standard rate of excise duty held at 10% and Service Tax remained same at 10% but added 130 items under the tax net by withdrawing exemptions granted earlier will give him an extra Rs 4,000 crore. However the burden would only be of the order of 1%. Most of these relate to the consumer goods sector. For corporate MAT has been increased to 18.5% from 18% while on the other hand surcharge reduced from 7.5% to 5%. Export duty on iron export raised by 20% and branded apparel sector will also have to cough up mandatory excise duty of 10%. For individual Tax payers exemption limit raised by Rs 20,000 to Rs 1.80 lakh, Senior citizens will get tax exemption for income up to Rs 2.5 lakh, higher from Rs 2.4 lakh and age limit of for senior citizens also reduced to 60 years from 65 years now. Apart from this Govt has also introduced new tax slab rate for very senior citizens (80 years and above) under this slab rate they will not have to pay any tax for annual income up to Rs 5 lakh.

FIIs allowed to Invest in Mutual Funds…
To give the impetus to infrastructure growth Govt will issue tax-free bonds of 300 billion rupees and also raised foreign institutional investor limit in 5-year corporate bonds for investment in infrastructure by $20 billion. Govt has also allowed FIIs to invest in equity schemes of Indian mutual funds registered with SEBI. The move is aimed at widening the class of foreign investors in the country's equity market. To further stimulate the growth in housing sector govt has liberalized the existing scheme of interest subvention on 1% on housing loans by extending housing loan up to Rs 15 lakh where the cost of the house does not exceed Rs 25 lakh, from the present limit of Rs 10 lakh and 20 lakh respectively. In 2011-12 Govt will also liberalized the foreign direct investment policy.