Ventura Union Budget 2011-2012

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Union Budget 2011-12Mon 28th Feb, 2011



Emphasis on Fiscal Consolidation

without compromising on growth

Finance Minister, Mr. Pranab Mukherjee’s speech on the Union Budget was a continuation of his

last year’s policy of improving the fiscal health without disturbing the growth momentum of theeconomy. Accordingly he expects the GDP to clock a growth of 9% while the fiscal deficit isexpected to be reigned in at 4.6%.

Despite strong headwinds on the fiscal front, the FM has not implemented the widely anticipatedhike in basic excise duty to raise resources. While the thrust of the budget has been to continue

with infrastructure and agriculture lead growth, a slew of measures like lowering marketborrowings, continued divestments, allowing foreign nationals to invest directly in domesticmutual funds, status quo on the excise duty structure, efforts to deepen the corporate bondmarket through augmenting FII investments limits and reduction in the corporation tax surchargeshould give Corporate India a much needed fillip.

However the big concern in light of the rising crude prices and spiraling food inflation is the

allocation to subsidies which we believe are very conservative and should be much higher thanthose estimated.




(Rs. in Crore) 2008-09 2009-10 2010-11BE 2010-11RE 2011-12BE % Change

Revenue Receipts 540,259 572,810 682,212 783,833 789,893 15.8%

Net Tax Revenue 443,319 456,535 534,094 563,685 664,458 24.4%

Non tax Revenue 96,940 116,275 148,118 220,148 125,435 -15.3%

Capital Receipts 291,101 453,063 426,537 447,743 447,836 5.0%

Recoveries of receipts 6,139 8,613 5,129 9,001 15,020 192.8% Other Reciepts (Disinvestments) 566 24,581 40,000 22,744 40,000 0.0%

Debt Reciepts 284,396 419,869 381,408 415,998 392,816 3.0%

Draw Down Balance of Cash 52,596 (1,386) - (15,000) 20,000

Total Receipts 883,956 1,024,487 1,108,749 1,216,576 1,257,729 13.4%

Non Plan Expenditure 608,721 721,096 735,657 821,552 816,182 10.9%

Non Plan Revenue 559,024 657,925 643,599 726,749 733,558 14.0%

Interest Payments 192,204 213,093 248,664 240,757 267,986 7.8% Non Plan Capital 49,697 63,171 92,058 94,803 82,624 -10.2%

Plan Expenditure 275,235 303,391 373,092 395,024 441,547 18.3%

Plan Revenue 234,774 253,884 315,125 326,928 363,604 15.4%

Plan Capital 40,461 49,507 57,967 68,096 77,943 34.5%

Total Expenditure 883,956 1,024,487 1,108,749 1,216,576 1,257,729 13.4%

GDP Nominal 5,574,449 6,164,178 6,934,700 7,877,947 8,980,860 29.5%Gross Fiscal Deficit 336,992 418,482 381,408 400,998 412,817 8.2%

Fiscal deficit as a % of GDP 6.0% 6.8% 5.5% 5.1% 4.6% -16.4%

Revenue Deficit 253,539 338,999 276,512 269,844 307,269 11.1%

Revenue deficit as a % of GDP 4.5% 5.5% 4.0% 3.4% 3.4% -14.2%

Primary Deficit 144,788 205,389 132,744 160,241 144,831 9.1%

Primary deficit as a % of GDP 2.6% 3.3% 1.9% 2.0% 1.6% -15.8%

Budget Summary


* Change is calculated from budgeted estimates of 2010-11



Fiscal deficit to be reigned in – a big positive …

While governments around the world are clocking higher fiscal deficits, FM Pranab Mukherjee’ sendeavor to reign in the fiscal deficit at 4.6% and 4.1% for FY2012 and FY2013 respectively iscommendable and should help in boosting the international investor sentiment resulting inincreased fund flows to India.

Trimming of estimates on the fiscal deficit front should send a strongpositive signal to the international investors resulting in increased flows.


6.0%

6.8%

5.1%4.6%

4.1%

3.5%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

2008-09 2009-10 2010-11 RE 2011-12 2012-13 2013-14

Rs. in Crore

Fiscal deficit as a % of GDP



… however containment of subsidies key to fiscal discipline

Given the sharp rise in crude prices, spiraling food inflation and food subsidy bill, this year toothe actual subsidy could be far in excess of the estimates. The key to managing the same is tocompletely decontrol downstream petroleum product pricing and rapid implementation of the

UID project so that targeted subsidies could be administered.


0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

0

20000

40000

60000

80000

100000120000

140000

160000

180000

2008-09 2009-10 2010-11BE 2010-11RE 2011-12BE

Rs. in CroreSubsidies

Food Fertilizers

Petroleum Interest and Others

Subsidies as a %of GDP (RHS)

ExceedingBudgeted Amount



Introduction of new resource mobilization avenues; though still

capital market based


The Indian Mutual Fund Industry can now directly raise equity funds from foreign nationals who

comply with the KYC norms. In our opinion this is a big positive as a new class of investorswould provide valuable resources for mobilization of funds.

In addition to this the FII limit on investments in domestic corporate bonds with residual maturityof over 5 years has been enhanced to US$ 40 bn from the current US$ 25 bn.

Further FIIs can also invest in 3 year “lock-in” bonds floated by infra SPV firms with an addedflavor to trade in the same (FII to FII). Besides providing valuable resources for growth, this willalso get the debt market going and help deepen the same.

Divestment proceeds have been pegged at Rs 40,000 crore and should not disrupt the market.



Focus on infrastructure, rural development and agriculture

continuous to be at the core of UPAs agenda for growth

The allocation to the infrastructure sector has been increased by 23.3% to Rs 2,14,000 crore

(accounting for 48.5% (+250 bps) of the plan expenditure) over last year.

Rural Development and agriculture has always been at the centre of the UPA governmentsagenda. In accordance with this, it has provided Rs 74,100 crore (+12%) for Rural developments,besides providing Rs 40,000 crore to NREGA, Rs 58,000 crore for the rural infrastructureprogrammes of Bharat Nirman and Rs 10,000 crore to the Indira Awas Yojna.

For agricultural development, the government plans to strengthen the infrastructure to removeproduction and distribution bottlenecks. The total allocation under the ongoing RKVY is beingincreased from Rs 6,755 crore in 2010-11 to Rs 7,860 crore in 2011-12.

All the above will not only spur growth but also provide increased employment at the grass rootlevel thereby fuelling consumptions.




Taxation impact on Corporate India marginally positive

Against wide market anticipation of an increase in the basic excise duty, the FM chose tomaintain the basic excise duty rate at 10%. This should help maintain the strong growth rate of

consumption.

The surcharge on corporation tax has also been reduced to 5% from 7.5% thereby lowering theeffective taxation rate by 0.8%

While the MAT has been marginally increased to 18.5% from 18%, it is revenue neutral to theexchequer given the reduction in the surcharge.

The Corporate tax collections have been estimated to grow at 19.5% to Rs 3,59,990 crore over theprevious budget estimates




Market borrowings to be curtailedMarket borrowings estimated at Rs 3,43,000 crore belies market expectations (of Rs 3,90,000crore) and is a good starting point for implementing fiscal discipline. However the expectedrunaway subsidy bill in light of spiraling food inflation and commodity price rise could derail the

intent.


Several policy & reform initiatives to be taken up

The Direct Tax Code (DTC) and the Goods and Services Tax (GST) are targeted to be introducedw.e.f April 1, 2012. Besides these, the intent to include urea in NBS (Nutrient based subsidy) anddirect cash transfer of subsidies on fuel and food grains is also likely to be taken up. Also the

Pension Fund Bill and Insurance Laws Bill are likely to be introduced in the budget session.Initiatives to formulate a five pronged strategy to stem the flow of black money and arrestcorruption are also on the anvil.



Direct Tax proposals to marginally ameliorate plight of the common man

Old Slab Tax Rate (%) New Slab

Upto Rs1,60,000 0% Upto Rs 1,80,000Rs 1,60,001-Rs 5,00,000 10% Rs1,80,001-Rs 5,00,000

Rs5,00,001-Rs 8,00,000 20% Rs 5,00,001-Rs 8,00,000

Above Rs. 8,00,000 30% Above Rs 8,00,000

Taxable Income(Rs.)

Tax- Before Budget(Rs.)

Tax- After Budget(Rs.)

Saving (Rs.)

1,80,000 2,000 0 2,000

5,50,000 78,000 74,000 4,000

8,10,000 1,95,000 1,89,000 6,000


Added benefits include relaxation in the age of Senior citizens to 60 years from 65 years and anadditional new category of Very Senior Citizen with an enhanced exemption limit of Rs 5,00,000Exemption limit for senior citizens has also been increased from Rs 2,40,000 to Rs 2,50,000.

The direct tax proposals of the Union budget will lead to a revenue loss of ~ Rs 11,500 crore tothe exchequer.



Sector Summary

Sector Budget Impact Key Highlights

Automobiles PositiveNo hike in excise duties & increase in planned

allocation

Healthcare Marginally Positive Slight increase in duties

Banking / FinancialServices

PositiveRe-capitalization of PSU banks & Release of licenses

to NBFC & private players

Real Estate Positive Increased focus on Affordable Housing segment

Infrastructure PositiveIncreased plan allocation for infrastructure

development & rise in disbursements

Power Marginally PositiveIncrease of plan allocation with more focus on

renewable energy

Metals & Mining MixedAbolition of import duty; Increase in Export & Ad

valorem Duty

FMCG Positive No hike in excise duty & setup of Mega Food Parks

Cement MixedChange in duty structure and reduction in duty of

critical raw material




Sectoral Measures and Impact




Automobiles

Item Budget Measures Budget Impact Companies Impacted

JNNURMIncreased allocation ofRs 9,870 crore from Rs

7,300 crore.Positive

Ashok Leyland & TataMotors

Hybrid Vehicles

Concessional excise

duty of 5% Positive M&M

Auto Ancillaries-Batteries

Full exemption of dutyon batteries in the

replacement marketPositive Exide, Amara Raja

Fuel & Hydrogencell Technology

Concessional exciseduty of 10% on vehiclesbased on thistechnology

Positive




Healthcare


Fund Allocation

Increased from Rs

22,300 crore to Rs26,760 crore

Positive All companies

Service Tax

5% on all servicesprovided by private AC

hospitals with more than

25 beds.

Neutral All companies

Excise DutyIncrement from 4% to

5%Neutral to Marginally

NegativeAll companies

Increase in R&DWeighted Deduction

Enhanced the weightedaverage deduction from

175% to 200%Positive All companies




Banking / Financial Services

Item Budget Measures Budget ImpactCompaniesImpacted

Govt Borrowing

Programme

Marginally lower from Rs

3.45 Lac crore to Rs 3.43 Laccrore Neutral All Banks

Re-capitalizationAllocation of Rs 6,000 croreto attain minimum 8% Tier-I

capital by FY2011Positive for small PSU banks

Syndicate Bank, DenaBank, UCO Bank, etc

Banking LicenseGuidelines to be released byRBI to NBFC & Private sector

playersPositive

Reliance Capital, IFCI,

IDFC, L&T, REC

Agriculture creditAllocation increased by 27%

to Rs 4,75,000 crorePositive All Banks

Take out FinancingScheme

Sanctioning of Rs. 5,000crore

Positive All Banks

Rural InfrastructureDevelopment Fund Allocation raised by 12.5% toRs. 18,000 crore Positive All Banks

Debt SchemesDDT on debt schemes

enhanced to 30%+ surcharge(w.e.f June 1, 2011)

Negative All Debt Funds




Real Estate


Interest subventionscheme

1% interest ratesubvention schemeextended and limit

enhanced to Rs 25 lacs

Positive for affordablehousing companies

Unitech, DLF & HDIL

Rajiv Awas Yojana

for slum dwellers

Creation of a Mortgage

Risk Guarantee FundPositive for SRA players HDIL, Sobha & Akruti

Allocation for urbandevelopment

Increased by 49% fromRs 5,400 crore to Rs

8,050 crorePositive All companies

Enhanced HousingLoan limit for

dwelling units underPriority Sector

Lending

Increased the existinghousing loan limit to Rs.

25 lacsPositive All companies




Infrastructure

Item Budget MeasuresBudgetImpact

Companies Impacted

Plan forinfrastructuredevelopment

Provision of Rs 214,000 crore

(48.5% of total plan allocations)Positive All Companies

Bharat Nirman Allocation of Rs 58,000 crore Positive All Companies

Road TransportationIncreased allocation by 9% to Rs

24,190 crorePositive

IRB Infra, GayatriProject, Gammon, KNRConstructions, Jkumar

Infra, etc

IIFCL disbursementsTo touch Rs 25,000 crore from Rs

20,000 crorePositive All Companies

Infrastructure Bonds

Retained additional Rs 20,000deduction available for investmentu/s 80CCF. Issue of tax free Infra

bonds worth Rs 30,000 crore

Positive All Companies

Rural Development Allocation of Rs 74,100 crore Positive All Companies

Investment by FII inCorporate Bonds

FII limit for investment in corporatebond issued by Infra Companies

has been raised to $ 40 bnPositive All Companies




Power


RGGVYAllocation increased from Rs5,130 crore to Rs 6,000 crore

Positive

T&D companies likeVoltamp, BBL,

Kalpataru, JyotiStructures, Crompton

Greaves

Ultra Mega PowerProjects

Concessional basic excise dutyof 2.5 % on capital goods for theexpansion of existing UMPP’s

Positive BHEL, Siemens

Solar power

Reduction of custom duty onsolar lanterns from 10 % to 5% .

Reduction of basic customsduty to nil on a few more inputsused in the manufacture of solar

modules/ cells.

SelectivelyPositive




Metals / Mining


Custom DutyAbolition of import duty on

stainless steel scrap & cut inthe duty on Ferro nickel

Lower productioncost; Positive

Jindal Stainless, SAIL

Export Duty- IronOre

Iron Ore- 15% in case of lumps& 5% in case of fines; 20% ad

valoremNegative Sesa Goa

Export Duty- IronOre Pellets

Pellets- Exempted from exportduty to encourage value

addition process for finesPositive

All mining companies(pellet manufacturers)




FMCG


Excise Duty

Excise duty retained at

10% Positive All FMCG companies

Food park projectsTo set up 15 additional

parksPositive

Food processingcompanies

Crude palmExempted from Excise

DutyPositive HUL, P&G, Nirma

Tobacco products No hike in excise duty Positive ITC, Godfrey Phillips

PalmRs 300 crore allocation

to increase plantation by60,000 hectares

PositiveITC, HUL,Godrej

Consumer Products

Sanitary napkins,Baby and Adult

Diapers

Excise Duty reducedfrom 10% to 1%

Positive P&G

Mon 28th Feb, 2011 Union Budget 2011-12



Cement


Excise dutystructure

Composite rates havingan ad valorem and

specificcomponent to replaceexisting duty structure

Negative All companies

Raw Materials

Reduction in basiccustom duty to 2.5% on

two critical raw

materials petcoke andgypsum

Positive All companies




Miscellaneous

Item / Sector Budget Measures Budget ImpactSectors & Companies

Impacted

IT/ITES

No extension of STPI scheme;

levy of MAT at 18.5% Negative All IT Companies

Gems & JewelleryExcise duty of 1% being

imposed on branded jewellery& articles of precious metals

Negative Gitanjali Gems & Titan

Hotels5% Service tax on Hotel

accommodation in excess ofdeclared tariff of Rs. 1,000 / day

Neutral All hotel companies

TextilesReduction in concessional

custom duty on textileintermediaries and raw silk

Positive All textile companies

FertilizerCapital investment in fertilizerproduction to be classified as

Infra sub sectorPositive All fertilizer companies




Miscellaneous

Item / Sector Budget Measures Budget ImpactSectors & Companies

Impacted

Aviation

Service Tax Hike-1. Economy Class- by Rs. 50 for

domestic flights & Rs. 250 oninternational journeys;

2. Higher Class- 10% ondomestic journeys

NegativeJet Airways, Spice Jet &

Kingfisher

Shipping

Exemption from Import Duty forspares and capital goods

required or ship repair unitsextended to import by ship

owners.

Positive All shipping companies

EducationPlan allocation increased by

24% to Rs. 52,057 crorePositive

Educomp, Everonn, NIITLtd & Aptech




Appendix




Policies – Direct Tax

• Threshold limit of exemption of personal income tax increased.

Male Assesses – Rs 180,000 (up by Rs 20,000) Female Assesses – Rs 190,000 (No change) Senior Citizens – Rs 250,000 (up by Rs 10,000)

• Income Tax slabs are as under:

10% of tax on income from Rs 1.8 lacs to Rs 5 lacs. 20% of tax on income from Rs 5 lacs to Rs 8 lacs. 30% of tax on income from Rs 8 lacs and above

• Additional deduction of Rs 20,000 under Section 80CCF in respect of subscription to longterm infrastructure bonds

• Reduction in surcharge from 7.5% to 5.0% on corporate tax

• MAT increased to 18.5% of book profits from the present rate of 18%

• All Individuals and sole proprietor tax payers with a turn over up to 60 lacs freed from theformalities of tax audit.

• Introduction of the Direct Tax Code (DTC) with effect from April 01, 2012.




Policies – Indirect Tax

• Excise duty maintained at 10% , signaling no partial roll back of fiscal stimulus

• Constitution Amendment Bill to roll out GST will be introduced in the current session ofParliament.

• Optional levy on branded garments or made-ups converted into a mandatory levy at a unifiedrate of 10 per cent.

• Reduction in custom duties on agricultural machinery, micro irrigation equipment, raw silk,textile intermediates and inputs for chemicals, ferro-alloys and paper and on certainspecified inputs for the manufacture of certain technical fibre and yarn.

• Excise duties lowered on parts of ink-jet and laserjet printers, sanitary napkins and baby andadult diapers etc.




Policies – Service Tax

• Rate of tax on services retained to 10% to pave the way forward for GST .

• New services like hotel accommodation (in excess of Rs 1,000 per day) , services providedby life insurance companies, air conditioned restaurants serving liquor, health check up/treatment added to service tax.




Receipts


Total Receipts 883,956 1,024,487 1,108,749 1,216,576 1,257,729 13.4%Revenue Receipt 540,259 572,810 682,212 783,833 789,893 15.8%

Tax revenue (Gross) 605,298 624,527 746,651 786,888 932,441 24.9%

Corporation tax 213,395 244,725 301,331 296,377 359,990 19.5%

Income tax 106,046 132,315 128,066 149,066 172,026 34.3%

Other taxes and Duties 14,936 506 603 557 635 5.4%

Customs 99,879 83,324 115,000 131,800 151,700 31.9%

Union Excise Duties 108,613 103,622 132,000 137,778 164,116 24.3% Service Tax 60,941 58,422 68,000 69,400 82,000 20.6%

Taxes of the Union 1,488 1,614 1,651 1910 1973.4 19.5%

Less: Share of State, UT 160,179 164,832 208,997 219303 263458 26.1%

Less: Transfer to NCCF 1,800 3,160 3,560 3900 4525 27.1%

Tax Revenue for Central (Net) 443,319 456,535 534,094 563,685 664,458 24.4%

Non Tax Revenue 96,940 116,275 148,118 220,148 125,435 -15.3%

Interest Receipts 20,717 21,756 19,253 19727.5 19578 1.7% Dividends and Profits 38,607 50,248 51,309 48726.5 42624 -16.9%

Other non-tax 37,616 44,271 77,556 151694 63233 -18.5%

Capital Receipt 291,101 453,063 426,537 447,743 447,836 5.0%

Debt Receipts 284,396 419,869 381,408 415,998 392,816 3.0%

Market Borrowings 233,630 398,424 345,010 335414 343000 -0.6%

Other short , medium & long term l 99,596 (9,769) - 10000 15000

External Debt 11,015 11,038 22,464 22264 14500 -35.5%

Others (59,845) 20,176 13,934 48320 20316

Non Debt Receipts 6,705 33,194 45,129 31,745 55,020 21.9%

Recoveries of loan and Advances 6,139 8,613 5,129 9001 15020 192.8%

Others 566 24,581 40,000 22744 40000 0.0%

Draw Down Balance of Cash 52,596 (1,386) - (15,000) 20,000





Expenditure


Total Expenditure 883,956 1,024,487 1,108,749 1,216,576 1,257,729 13.4%Non Plan Expenditure 608,721 721,096 735,657 821,552 816,182 10.9%

Revenue Expenditure 559,024 657,925 643,599 726,749 733,558 14.0%

Int. Payment and Debt Servicing 192,204 213,093 248,664 240,757 267,986 7.8%

Defence 73,305 90,669 87,344 90,748 95,216 9.0%

Subsidies 129,708 141,351 116,224 164,153 143,570 23.5%

Others 163,807 212,812 191,367 231,091 226,786 18.5%

Capital Expenditure 49,697 63,171 92,058 94,803 82,624 -10.2%Loan and Advances to State, UT 86 83 89 85 85 -4.2%

Defence 40,918 51,112 60,000 60,833 69,199 15.3%

Others 8,693 11,976 31,969 33,885 13,340 -58.3%

Plan Expenditure 275,235 303,391 373,092 395,024 441,547 18.3%

Revenue Expenditure 234,774 253,884 315,125 326,928 363,604 15.4%

State Plan 68,274 75,082 84,244 84,894 95,317 13.1%

Central Plan 166,500 178,802 230,881 242,034 268,287 16.2% Capital expenditure 40,461 49,507 57,967 68,096 77,943 34.5%

State Plan 8,801 9,408 8,248 11,518 10,709 29.8%

Central Plan 31,660 40,099 49,719 56,578 67,234 35.2%





Ratios

Rs. Crore 2008-09 2009-10 2010-11BE 2010-11RE 2011-12BE % Change

GDP Nominal 5,574,449 6,164,178 6,934,700 7,877,947 8,980,860 29.5%Gross Fiscal Deficit 336,992 418,482 381,408 400,998 412,816.50 8.2%

Fiscal deficit as a % of GDP 6.05% 6.79% 5.50% 5.09% 4.60% -16.4%

Revenue Deficit 253,539 338,999 276,512 269,844 307,269 11.1%

Revenue deficit as a % of GDP 4.55% 5.50% 3.99% 3.43% 3.42% -14.2%

Primary Deficit 144,788 205,389 132,744 160,241 144,831 9.1%

Primary deficit as a % of GDP 2.60% 3.33% 1.91% 2.03% 1.61% -15.8%





Gross Tax Collections


605298 624527.07

746651 786888

932441

0

200000

400000

600000

800000

1000000

2008-09 2009-10 2010-11BE 2010-11RE 2011-12BE

Rs. in Crore

Gross Tax Revenue

Corporation tax Income tax Other taxes and Duties

Customs Union Excise Duties Service Tax

Taxes of the Union Direct Indirect



Plan Expenditure


275235303391

373092 395024

441547

0

50000

100000

150000200000

250000

300000

350000

400000

450000

500000

2008-09 2009-10 2010-11BE 2010-11RE 2011-12BE

Rs. in CrorePlan Expenditure

RE- State Plan RE- Central Plan CE- State Plan

CE- Central Plan Capital Expenditure (CE) Revenue Expenditure (RE)



Non Plan Expenditure


608721721096 735657

821552 816182

0

200000

400000

600000

800000

1000000

2008-09 2009-10 2010-11BE 2010-11RE 2011-12BE

Rs. in CroreNon Plan Expenditure

RE - Int Payment & Debt Servicing RE- Defence

RE- Subsidies RE OthersCE- Loan and Advances to State, UT CE- Defence

CE- Others Capital Expenditure (CE)

Revenue Expenditure (RE)



Interest payments


3.4% 3.5%

3.6%

3.1%3.0%

2.5%

2.7%

2.9%

3.1%

3.3%

3.5%

3.7%

50,000

100,000

150,000

200,000

250,000

300,000

2008-09 2009-10 2010-11BE 2010-11RE 2011-12BE

Rs. in CroreInterest Payments

Int. Payment and Debt Servicing (LHS)

Interest Payment as a %of GDP (RHS)



Disclaimer


Ventura Union Budget 2011-2012

Documents

Transcript of Ventura Union Budget 2011-2012