Budget Analysis 2011-12

INDIA BUDGET 2010-11
HIGHLIGHT

CRITICAL INSTITUTIONAL REFORMS SET PACE FOR DOUBLE-DIGIT GROWTH

SCALED UP FLOW OF RESOURCES INFUSES DYNAMISM IN RURAL ECONOMY

GDP ESTIMATED TO HAVE GROWN AT 8.6% IN 2010-11

FISCAL DEFICIT KEPT AT 4.6% OF GDP FOR 2011-12

EXPORTS GROWN BY 9.6%, IMPORTS BY 17.6% IN APRIL-JANUARY 2010-11 OVER CORRESPONDING PERIOD LAST YEAR

INDIAN ECONOMY EXPECTED TO GROW AT 9%  IN 2011-12.

INDIAN ECONOMY EXPECTED TO GROW AT 9%  IN 2011-12.

PUBLIC DEBT MANAGEMENT AGENCY OF INDIA BILL TO COME UP NEXT FINANCIAL YEAR

DIRECT TAX CODE (DTC) TO BE EFFECTIVE FROM APRIL 01, 2012

PHASED MOVE TOWARDS DIRECT TRANSFER CASH SUBSIDY TO BPL PEOPLE FOR BETTER DELIVERY OF KEROSENE, LPG AND FERTILIZER MOOTED

RS.40,000 CRORE TO BE RAISED THROUGH DISINVESTMENT IN 2011-12

FDI POLICY TO BE LIBERALIZED FURTHER

SEBI REGISTERED MUTUAL FUNDS PERMITTED TO ACCEPT SUBSCRIPTION FROM FOREIGN INVESTORS WHO MEET KYC REQUIREMENT

FII LIMIT FOR INVESTMENT IN CORPORATE BONDS IN INFRASTRUCTURE SECTOR RAISED

ADDITIONAL BANKING LICENSE TO PRIVATE SECTOR PLAYERS PROPOSED

RS.6000 CRORE TO BE PROVIDED IN 2011-12 FOR MAINTAINING MINIMUM TIER I CAPITAL TO RISK WEIGHTED ASSET RATIO (CRAR) OF 8% IN PUBLIC SECTOR BANKS

RS.500 CRORE TO BE PROVIDED TO REGIONAL RURAL BANKS TO MAINTAIN 9% CRAR

INDIA MICROFINANCE EQUITY FUND OF RS.100 CRORE TO BE CREATED BY SIDBI

RS. 500 CRORE WOMEN SHG DEVELOPMENT FUND TO BE CREATED

MSME  GETS BOOST AS RS. 5000 CRORE PROVIDED TO SIDBI  AND RS.3000 CRORE TO NABARD

ALLOCATION UNDER RASHTIRYA KRISHI VIKAS YOJNA (RKVY) INCREASED TO RS.7860 CRORE

CREDIT FLOW TO FARMERS RAISED FROM RS.3,75,000 CRORE TO RS.4,75,000 CRORE

RS.10,000 CRORE FOR NABARD’S SHORT TERM RURAL CREDIT FUND FOR 2011-12

15 MORE MEGA FOOD PARKS DURING 2011-12

NATIONAL FOOD SECURITY BILL TO BE INTRODUCED THIS YEAR

23.3% INCREASE IN ALLOCATION FOR INFRASTRUCTURE

TAX-FREE BONDS OF RS.30,000 CRORE PROPOSED BY GOVERNMENT UNDERTAKINGS

ENVIRONMENTAL CONCERNS RELATING TO INFRASTRUCTURE PROJECTS TO  BE CONSIDERED  BY GROUP OF MINISTERS

7 MEGA CLUSTERS FOR LEATHER PRODUCTS TO BE SET UP

ALLOCATION FOR SOCIAL SECTOR INCREASED BY 17% AMOUNTING TO 36.4% OF TOTAL PLAN ALLOCATION

BHARAT NIRMAN ALLOCATION INCREASED BY RS.10,000 CRORE

RURAL BROADBAND CONNECTIVITY TO ALL 2.5 LAKH PANCHAYATS IN THREE YEARS.

ALLOCATION FOR EDUCATION INCREASED BY24%.  RS.21,000 CRORE ALLOCATED FOR SARV SHIKSHYA ABHIYAN REGISTERING AN INCREASE OF 40%

PLAN ALLOCATION FOR HEALTH STEPPED UP BY20%

RS.8000 CRORE PROVIDED FOR DEVELOPMENT NEEDS OF J&K

10 LAKHS AADHAAR(UID)  NUMBERS TO BE GENERATED EVERYDAY FROM 1ST OCTOBER

INCOME TAX EXEMPTION LIMIT FOR GENERAL CATEGORY IN INDIVIDUAL TAX PAYERS ENHANCED FROM RS.1,60,000 TO RS.1,80,000

QUALIFYING AGE FOR SENIOR CITIZENS LOWERED TO 60; SENIOR CITIZEN ABOVE 80 YEAR TO GET RS.5,00,000 IT EXEMPTION

SURCHARGE ON CORPORATE LOWERED TO 5%

INDIA BUDGET 2011-12

Expecting 9% GDP in fiscal 2011-12

     THE INDIAN ECONOMY registered a robust growth and witnessed steady fiscal consolidation in fiscal year 2010-11 so far. The growth rate has been 8.6% in FY 2010-11 and is expected to be around 9% in the next fiscal year (FY 2011-12). This is expressed in the Economic Survey 2010-11, presented by country’s Finance minister Pranab Mukherjee in the lower house of Parliament (Lok Sabha) on February 25, 2011. Against this backdrop the Finance minister presented country's federal Budget for fiscal 2011-12 on February 8, 2011.

The Survey also pointed out that the growth has been broad based with a rebound in the agriculture sector which is expected to grow around 5.4%. Manufacturing and Services sector have registered impressive gains. Savings and investment are looking up while exports are rising. However food inflation, higher commodity prices and volatility in global commodity markets have been a cause of concern to the government underscoring the need of fiscal consolidation and stronger reserves. 

The federal Budget 2011-12 aims to sustain economic growth, strengthen infrastructure, moderate the price rise, particularly of agricultural produce and reduce social imbalances through inclusive development. The budget is a transition towards a more transparent and result oriented economic management system in India. While developments on India’s external sector have been encouraging, continued high food prices have remained our principal concern, he said adding that the trend revealed shortcomings in distribution and marketing system. The Finance Minister said that huge differences between wholesale and retail prices are at the expense of remunerative prices for the farmers and competitive prices for consumers.

For sustaining growth tax reform will continue with the Direct Taxes Code (DTC) to be operationalised from April, 2012 while a Constitution Amendment Bill is proposed to be introduced during the current session of Parliament as a step towards roll out of the Goods and Services Tax (GST).  The introduction of DTC and GST will result in moderation of rates, simplification of laws and better compliance.  The Finance Minister re-iterated the government’s resolve to move towards direct transfer of cash subsidy to people living below poverty line in a phased manner.  He said that the Nutrient Based Subsidy (NBS) has improved the availability of fertilizers and the Government is actively considering extension of NBS regime to cover urea. 

For sustaining growth tax reform will continue with the Direct Taxes Code (DTC) to be operationalised from April, 2012 while a Constitution Amendment Bill is proposed to be introduced during the current session of Parliament as a step towards roll out of the Goods and Services Tax (GST).  The introduction of DTC and GST will result in moderation of rates, simplification of laws and better compliance.  The Finance Minister re-iterated the government’s resolve to move towards direct transfer of cash subsidy to people living below poverty line in a phased manner.  He said that the Nutrient Based Subsidy (NBS) has improved the availability of fertilizers and the Government is actively considering extension of NBS regime to cover urea.  

The allocation for social sector has been increased by 17% to Rs. 1,60,887 crore which amounts to 36.4% of the total plan allocation.  Bharat Nirman, which includes Pradhan Mantri Gram Sadak Yojana (PMGSY), accelerated irrigation benefit programme, Rajiv Gandhi Grameen Vidyutikaran Yojana, Indira Awas Yojana, National Rural Drinking Water Programme and Rural Telephony have together been allocated Rs. 58,000 crore.  Remuneration for Anganwadi workers have been increased to Rs. 3000 per month from Rs. 1500 per month while the Anganwadi helpers will get Rs. 1500 per month.  This will be effective from 1st April 2011 benefiting about 22 lakh Anganwadi workers and helpers. 

The allocation on education has been increased by 24% to Rs. 52,057 crore.  Sarva Shiksha Abhiyan gets Rs. 21,000 crore which is 40% higher than the previous year’s allocation of Rs. 15,000 crore. A scholarship scheme has been proposed for needy students belonging to the Scheduled Castes and Scheduled Tribes studying in classes IX and X.  It would benefit about 40 lakh students.  Plan allocation for Health has also been increased by 20 per cent to Rs. 26,760 crores.  The Rashtriya Swasthaya Bima Yojana will be extended to the unorganized sector workers in hazardous mining and associated industries

Underlining the need to strengthen Public Sector Banks (PSBs) the Finance minister proposed to provide Rs. 6000 crore to maintain tier 1 capital to risk weighted  asset ratio.  He also proposed to infuse Rs. 500 crore into Regional Rural Banks (RRB) .  A Women’s Self Help Groups Development Fund with a corpus of Rs. 500  crore is proposed to be created.  He also proposed to create a micro finance equity fund of Rs. 100 crore with Small Industrial Development Bank of India (SIDBI) for providing equity to smaller micro finance institutions.  Rs. 3000 crore will be provided to NABARD to help handloom weaver cooperative societies to become financially viable. 

Interest subvention of 1% on housing loans will now be available for loans upto Rs. 15 lakh where the cost of house does not exceed Rs. 25 lakh.  The present limit for the loan amount is Rs. 10 lakh while the cost of the house should not exceed Rs. 20 lakh. 

The total plan expenditure has been increased by 18.3% to Rs. 4,41,547 crore and the non-plan expenditure increases by 10.9% to Rs. 8,16,182 crore.  The gross tax receipts are estimated to grow by 24.9% to Rs. 9,32,440.  Rs. 2,01,733 crore will be transferred to the Sates and UTs as plan and non plan transfers.  This also marks a rise of 23% over budget estimates of last year.  The fiscal deficit is estimated at Rs. 4,12,817 crore which works out to 4.6% of the GDP. 

Turning to the direct taxes,  the exemption limit for general category individual tax payers is proposed to be increased by Rs. 20,000 to Rs. 1,80,000 per year.  This will provide a uniform tax relief of Rs. 2000 to every tax payer of this category.  The benefit for senior citizens will now be available at 60 years of age and the exemption limit will go up from Rs. 2,40,000 to Rs. 2,50,000.  Those who are 80 years and above have been brought under a new category called very senior citizens and the exemption limit in this category will be Rs. 5 lakhs.   

The minimum alternate tax rate has been hiked from 18% to 18.5% of book profits.  Developers of Special Economic Zones as well as units operating MAT in SEZs have been brought under MAT.Tax benefit for investment in long term infrastructural bonds will continue for one more year.  Income from foreign subsidiaries of Indian Company will now attract a lower tax of 15% tax on dividends. 

A Growth oriented Budget: CII

Indian Finance minister Pranab Mukherjee has presented a growth oriented Budget that addresses some of the structural constraints in sustaining growth in the medium term, observed Mr. Hari Bhartia, President, Confederation of Indian Industry (CII) while commenting on the Union Budget 2011-12 presented in the Parliament today. In particular, he praised the measures to increase investment in the infrastructure and agricultural sectors.

The Finance minster has taken ample initiatives to enhance investment in infrastructure.  His initiatives in terms of increase in allocation of funds to the sector, increase in FII limits for investment in corporate bonds and provision of tax free status to infrastructure bonds would enhance the flow of funds to the sector. Tax rates applicable on interest paid on overseas borrowing in case of infrastructure debt funds are reduced to 5% instead of the regular withholding tax rate of 20%. This is in line with CII recommendations that have made it clear that infrastructure development is a pre-requisite for manufacturing and agricultural sector growth.

The importance of agriculture is underscored by several measures to remove supply-side bottlenecks in production and distribution of food items. Capital investment in storage capacity will now be eligible for viability gap funding. The move to give infrastructure status to the fertilizer industry is an innovative way to underline the importance of delivery of quality agricultural inputs.

CII is especially happy to note that fiscal deficit for the current year stands at 5.1%, lower than the budget estimate of 5.5%. What is even more heartening is that the fiscal deficit for next year is budgeted at 4.6%; which is even lower than 4.8% suggested by the Roadmap of the Thirteenth Finance Commission report. This would help in checking the rise in inflation and interest rates and facilitate larger credit availability to the private sector, added the CII press release. 

The Budget has also provided direction to some path breaking reform. The move to direct transfer of subsidies for kerosene, fertilizer, and LPG for BPL families will remove the inefficiencies that plague our delivery of welfare measures to under-privileged sections. This is in line with CII recommendations to plug the leakages in our public delivery system.

The minister has also indicated that significant reforms are underway in Customs and Excise collection. There is a clear commitment towards moving towards a service oriented system. Exporters and importers would be allowed to self assess their duty obligations, and there is a move to improve the IT infrastructure for Excise collection.

With no increase in excise duty, the Budget has sought to keep the consumption momentum of the economy going without further inflationary pressure. Increasing the income tax exemption limit and deepening of the rural and agriculture related incentive schemes are other measures that will drive consumption. By focusing on incentives for agriculture related infrastructure, expansion of rural credit and interest subvention for short-term loans for farmers, and prioritizing the development of agro supply chains, the Minister has ensured that rural incomes would continue to rise and become an engine of sustained economic growth.

CII also welcomes the intention of the government to raise the share of manufacturing in GDP from 16 per cent to 25 per cent over the next 10 years and hopes that the national manufacturing policy that was promised to be on the anvil by the Finance Minister would be instrumental in achieving this target.

Another welcome initiative has been the move to allow SEBI registered Mutual Fund to accept subscription from foreign investors for equity schemes. This would allow Indian businesses to raise funds directly from investors abroad. Special mention was given to various legislations that will take forward the process of financial sector reform. Another welcome reform is the announcement to amend the Banking Regulation Act to allow additional banking licenses to private sector players.

CII is happy with most of the changes announced in tax rates. It is particularly happy that the Finance Minister has retained the excide duty and service tax at the same rate. Any hike in duty at this point of time would have been counter productive for inflation. It would also not be in line with the proposed rate for Central GST. The roll-out of Goods and Services Tax has been paved by the proposal to introduce necessary legislation and put in place IT infrastructure. CII also welcomes reduction in tax rates on dividend received from foreign subsidiaries by resident companies.

About indirect tax, the Finance said that there are 370 items that enjoy the exemption from Central Excise Duty but are chargeable to VAT.  He proposed to withdraw the exemption on 130 of these items. The remaining 240 items would be brought into the tax net when GST is introduced.  A nominal 1% central excise duty is being imposed on 130 items.  The basic customs duty has been reduced from 30% to 55 on raw silk, from 5% to 2.5% on certain textile intermediates and from 7.5% to 5% on certain inputs for manufacture of technical fibre and yarn.  Stainless steel scrap has been fully exempted from customs.  Export duty on iron ore has been increased to 20% ad valorem both for lumps and fines.  The basic customs duty on pet coke and gypsum has been reduced 2.5% to give relief to cement industry.  

Budget to maintain growth momentum: FICCI

Describing Finance minister Pranab Mukherjee’s Budget 2011-12 as a “balanced effort to maintain the growth momentum”,  Rajan Bharti Mittal, President, FICCI said that the Finance Minister has presented a forward-looking budget at a time when the global economy was still looking fragile.

Mittal pointed out that in the greater interest of economic growth, the Finance Minister has avoided the temptation of raising excise duties, as was widely feared. “The Finance Minister seems to be banking on the economy going well and therefore has placed his hopes on revenues rising on the back of overall higher growth of the economy.”

The Finance minister has taken several positive steps like maintaining the disinvestment target of Rs. 40,000 crore for 2011-12, development of mega clusters for labour intensive industries such as leather and the possibility of further liberalization of FDI policy. The Finance Minister has also announced steps for roll out of the GST and DTC. These will create a favourable environment for the corporate sector. He has also announced several measures for smoothening the farm products supply chain and distribution, which should help in moderating food inflation.

While the reduction in the surcharge on corporate tax from 7.5 per cent to 5 per cent would only marginally reduce the tax burden on the corporate, the FICCI president said that the surcharge and education cess should have been totally abolished. With the increase in the direct tax collections, FICCI chief feels that a portion of these collections could have been utilized for funding educations projects.

In this context, he emphasized that in the competitive global business environment, the corporate tax rate should have been in the vicinity of the global average rate of 24.99 per cent.

The FICCI chief felt that the cascading effect of DDT should have been removed, and instead of increasing the MAT rate to 18.5 per cent from 18 per cent, the Finance Minister should have reduced it to 15 per cent.

Mittal observed that during the past three budgets, and this year is no exception, the ambit of investment-linked incentive is being enlarged but this would be meaningful only if the losses arising from the deduction of capital expenditure are allowed to be set off against the profits of other businesses of the assessee.

On the service tax front a few new services have been brought under tax net.  Hotel accommodation in excess of Rs. 1000 per day and service provided by air conditioned restaurants with licence to serve liquor have been brought under the tax net.  Service tax on air travel has been raised by Rs. 50 in case of domestic air travel and Rs. 250 on international journey by economy class. Services provided by Life Insurance Company in the area of investment and some more legal services have also been brought under tax net.

Budget aims at reducing fiscal deficit: ASSOCHAM

The proposals of Union Budget for 2011-12 as positive and encouraging which attempt at reducing the fiscal deficit down to 5.1 per cent from the earlier estimate of 5.6 per cent for the current fiscal year and 4.6 per cent for the next.

The budget provides a roadmap for the fiscal 2011-12 with focus on encouraging agriculture and education sectors and ensuring that allocations are efficiently delivered, said The Associated Chambers for Commerce and Industry of India (ASSOCHAM).

The budget opts for bringing more services under the tax net and sets a clear direction for rolling out the Direct Tax Code from April 1, 2012, said its president Dilip Modi. There is no major increase in service tax and excise duties in view of buoyancy in government revenues.

“The finance minister has made attempts to improve the social infrastructure with direct cash subsidy for kerosene and reduced interest rates for agriculture loans. The tax exemption for salaried professionals has been raised from Rs 1.6 lakh to Rs 1.8 lakh with Rs 5 lakh tax exemption for individuals above 80 years of age,” said  Modi.

Besides allocating Rs 7,860 crore for farm development, the budget provides for tax-free bonds of Rs 30,000 crore to boost infrastructure development. However, all special economic zones have been brought under minimum alternate tax which may prove to be a dampener, he said.

Also, there is no mention of surging global crude oil prices which may fuel inflation further, impact several sectors and upset fiscal management of the government. However, some measures have been introduced to plug leakages and administrative deficiencies in delivering subsidies for the poor by increased use of information technology, said  Modi.

He cheered the move to allow mutual funds for having direct access to foreign investors with prior registration with the Securities and Exchange Board of India (SEBI). This will attract more foreign capital inflows to limit current account deficit.

The proposals on direct taxes are estimated to result in a revenue loss of Rs. 11,500 crore while those on the service tax will yield Rs. 4000 crore more.  The disinvestment target at Rs. 40,000 crore for the coming year.  He, however, reiterated that the government is committed to retain at least 51% ownership and management control of the CPSUs. As an emerging economy India stands at the threshold at the decade which presents immense possibilities, the Finance minister said adding that “we have the voice on the global stage and we must not let the recent trends and tensions hold us back from converting these possibilities into realities.”

Source: Press Information Bureau, Information and Broadcasting Ministry, Government of India

http://www.indiaonestop.com/Federal%20Budget/india_budget-2011-12.htm