UNION BUDGET Impact Analysis

Transcription

1 UNION BUDGET Impact Analysis

2 CONTENTS BUDGET AT A GLANCE... 1 UNION BUDGET : A MACROECONOMIC PERSPECTIVE SECTORAL IMPACT CHANGE IN CENTRAL PLAN OUTLAY RECEIPTS EXPENDITURE KEY ECONOMIC INDICATORS (Absolute Values) KEY ECONOMIC INDICATORS (Percentage Change Over Previous Year)... 30

3 BUDGET AT A GLANCE (Rs bn) Revised Estimates Budget Estimates 1) Revenue Receipts 5, , ) Tax Revenue (net to centre) 4, , ) Non-Tax Revenue 1, , ) Capital Receipts (5+6+7)$ 4, , ) Recoveries of loans ) Other receipts ) Borrowings and other liabilities * 4, , ) Total Receipts (1+4)$ 10, , ) Non-Plan Expenditure 7, , ) On Revenue Account of which, 6, , ) Interest Payments 2, , ) On Capital Account ) Plan Expenditure 3, , ) On Revenue Account 2, , ) On Capital Account ) Total Expenditure (9+13) 10, , ) Revenue Expenditure (10+14) 9, , ) Capital Expenditure (12+15) 1, , ) Revenue Deficit (17-1) 3, , % of GDP (5.3) (4.0) 20) Fiscal Deficit {16-(1+5+6)} 4, , % of GDP (6.7) (5.5) 21) Primary Deficit (20-11) 1, , % of GDP (3.2) (1.9) $ Does not include receipts in respect of Market Stabilization Scheme. * Includes draw-down of Cash Balance. Note: GDP for BE has been projected at Rs crore assuming 12.5% growth over the advance estimates of (Rs crore) released by CSO. 1

4 UNION BUDGET : A MACROECONOMIC PERSPECTIVE The Union Budget was presented at a time when the Indian economy is on the path of revival and almost all demand indicators have turned significantly positive. Investment and consumption demand has been on a revival mode. The buoyancy in the manufacturing sector and uptick in import and export demand bodes well for economic growth prospects. In the current economic scenario, what was required from the Budget was a further push for consumption and investment. The Budget announcements have done just that. The continued thrust on agriculture, infrastructure and rural development will unlock much of the economic growth potential in the medium-term. Along with maintaining the focus on broad based growth, the budget has also addressed concerns on the fiscal deficit front. The direct tax concessions in the form of broadening of tax slabs will put more money in the hands of individual taxpayers, boosting consumption as well as saving. Although the excise duty rates have been hiked, they still remain lower than the pre-crisis level and should not be a deterrent in the process of economic recovery. This largely expected roll back of stimulus measures is likely to impact different sectors in varying degrees. Broadly speaking, given that overall demand in the economy is still firming up, it is unlikely that the 2% hike in excise duty will be passed on, thus mitigating any immediate inflationary concerns. Also, the focus on improving food security should aid in containing food price inflation. It remains to be seen however how the proposed increase in excise duty for petrol and diesel pans out in terms of its impact on inflation. While there were no major big bang announcements in this budget, the overall tone is certainly pro-reformist. The Budget has emphasized on the Government s intent towards moving forward on the reform agenda. The intent of implementing the direct tax code and GST by April 2011, along with drafting a Food Security Bill, setting up Financial Sector Legislative Reforms Commission are positive steps. Fiscal Arithmetic for FY11 For FY11, total expenditure is budgeted to increase by 8.53% to Rs 11, bn. As in the last budget, the Plan expenditure received a major boost with an allocation of Rs 3, bn, an increase of 18.37% over the FY10 RE. The non-plan expenditure is however budgeted to grow at a slower pace; the expenditure on this front is slated to increase by 4.15%. Revenue collection targets for FY11 are set in consonance with the recovery witnessed in the domestic economy. Gross Tax Revenue for FY11 is budgeted to increase by 17.9% over the FY10 RE, driven mainly by the 28.5% increase in indirect taxes. Within indirect taxes, revenue from Customs duty and Excise duty is budgeted to increase by 36.13% and 29.41% respectively. The rate impact (in terms of partial roll back of excise duty) and volume impact (in terms of resurgence in the manufacturing sector) will play a major role in boosting revenues under these heads. Direct taxes are budgeted to increase at a lower pace of 11.01%. With the hike in the rate 2

5 of Minimum Alternate Tax to 18% from 15% and improvement in corporate profitability, revenue from Corporate tax is budgeted to increase by 18.13%. The broadening of the tax slabs will have an impact on personal income tax collections; revenue from personal income tax is budgeted to decline by 3.54% in FY11 over the FY10 RE. Non-Tax revenue, which is budgeted to increase by 32.02% to Rs 1, bn in FY11, will also be a major source of receipts in FY11.The major revenue churner under this head will be Other Communication Services which mainly relates to the license fees from the telecom operators and receipts on account of spectrum usage charge revenue churner. The receipts from Other Communication Services are budgeted to increase to Rs 497 bn in FY11 from Rs 137 bn yielded in FY10 RE. Disinvestment proceeds will also play a role in augmenting revenue collections; proceeds from disinvestment of equity in public sector enterprises is budgeted to increase to Rs 400 bn in FY11 from Rs 259 bn in FY10 RE. Further, market borrowings are slated to come down by over 13% during FY11. The Budget has given cognizance to a calibrated approach towards lowering fiscal deficit without hampering the economic growth process. The fiscal deficit is budgeted at 5.5% in FY11 while the rolling targets for FY12 and FY13 have been set at 4.8% and 4.1% respectively. While the containment of the fiscal deficit will take place only over a period of time, the budget has very clearly set the time-lines for it. 3

6 SECTORAL IMPACT Sector Rating Agriculture Positive+ Social Sector Positive + Infrastructure Positive + Manufacturing Capital and Engineering Goods Positive Cement Negative Power Positive+ Pharmaceuticals & Healthcare Positive Oil and Gas MSME Consumer Goods Real Estate and Construction Automotive Textiles Gems & Jewellery Services Banking and Insurance Finance Information Technology Hospitality & Tourism Media and Entertainment Telecom Neutral Positive Neutral Positive Marginally Positive Negative Negative Positive Positive Negative Marginally Positive Positive Mariginally Positive Ratings: Positive + Positive Marginally Positive Neutral Negative Predominantly positive proposals Positive proposals Positive proposals but not up to industry expectations Negative proposals offsetting positive proposals Negative proposals impacting the sector 4

7 Agriculture The total plan outlay for agriculture & allied sector is to be increased by 15.80% to Rs bn. The target for agriculture credit is proposed to be raised to Rs 3, bn for FY11 from Rs 3, bn in FY10. The proposal to provide Rs 4.00 bn for the extension of the green revolution to the eastern region of the country comprising Bihar, Chattisgarh, Jharkhand, Eastern Uttar Pradesh, West Bengal and Orissa, with the active involvement of Gram Sabhas and the farming families. The proposal to provide Rs 3.00 bn to organise 60,000 pulses and oil seed villages in rain- fed areas during FY11 and provide an integrated intervention for water harvesting, watershed management and soil health, to enhance the productivity of the dry land farming areas. In view of the drought in some states and the severe floods in some other parts of the country, the period for repayment of the loan amount by farmers extended by 6 months from December 31, 2009 to June 30, 2010 under the Debt Waiver and Debt Relief Scheme for Farmers. The proposal to increase the interest subvention for timely repayment of crop loans to 2% for FY11 as against 1% in FY10. An allocation of Rs bn for National Horticulture Mission. An allocation of Rs bn for National Food Security Mission. An allocation of Rs bn for Macro Management in Agriculture. An allocation of Rs bn Micro Irrigation. An allocation of Rs 9.50 bn for National Agricultural Insurance Scheme. An allocation of Rs 5.00 bn for integrated oilseeds, oil palms, pulses and maize development. As a part of the farm to market initiative, External Commercial Borrowings to be available for cold storage or cold room facility, including for farm level pre-cooling, for preservation or storage of agricultural and allied produce, marine products and meat. The deficit in the storage capacity is met through an ongoing scheme for private sector participation where the Food Corporation of India (FCI) has been hiring godowns from private parties for a guaranteed period of 5 years. This period is proposed to be extended to 7 years. The proposal to provide project import status with a concessional import duty of 5% for the setting up of mechanised handling systems and pallet racking systems in mandis or warehouses for food grains and sugar as well as full exemption from service tax for the installation and commissioning of such equipment. 5

8 The proposal to provide project import status at a concessional customs duty of 5% with full exemption from service tax to the initial setting up and expansion of cold storage, cold room including farm pre-coolers for preservation or storage of agriculture and related sectors produce and processing units for such produce. The proposal to provide full exemption from customs duty to refrigeration units required for the manufacture of refrigerated vans or trucks. The proposal to provide concessional customs duty of 5% to specified agricultural machinery not manufactured in India. The proposal to provide central excise duty exemption to specified equipment for preservation, storage and processing of agriculture and related sectors and exemption from service tax to the storage and warehousing of their produce. The proposal to provide full exemption from excise duty to trailers and semi-trailers used in agriculture. The transportation by road of cereals and pulses is proposed to be exempted from service tax. The concessional import duty on specified machinery for use in the plantation sector is proposed to be extended up to March 31, 2011 along with a countervailing duty exemption. The testing and certification of agricultural seeds is proposed to be exempted from service tax. An allocation of Rs bn for agricultural research & education, including an allocation of Rs 2.00 bn for launching of climate resilient agriculture initiatives such as soil health, water conservation and preservation of biodiversity. An allocation of Rs 2.94 bn for World Bank aided National Agricultural Innovation Project. Positive+ The significant hike in the plan outlay for the agriculture and allied sector as compared to the previous fiscal is indicative of the Government s thrust towards increasing the production & productivity of the agricultural sector. Moreover, a slew of announcements to facilitate storage, transportation & processing of agricultural produce assume significance given the fact that a shortfall in post-harvesting facilities & cold storage facilities results into huge wastage of agricultural produce every year. The reduction in wastage of farm output would help in improving the supply of agricultural produce and containing the inflationary pressures in the food articles. Further, the proposal to allow external commercial borrowing for set up of preservation or storage facilities for agricultural & allied products is expected to increase private investment in these facilities. The proposal for extension of green revolution to the eastern region of the country is commendable as this will not only help in increasing the agricultural production but also lead to increase in income & employment opportunities in this region. Apart from this, allocation for research & 6

9 development activities, including launching of climate resilient agriculture initiatives such as soil health, water conservation and preservation of biodiversity are some of the key measures intended to provide impetus to the sector. The allocation of micro irrigation projects also augurs well for the overall agricultural growth going forward as this would help in reducing its dependence on monsoons. Social Sector The social sector expenditure is proposed to be increased to Rs 1, bn, which stands at 37% of the total plan outlay in FY11. Human Resource Development and Social Justice An allocation of Rs bn for Integrated Child Development Services. An allocation for Mahatma Gandhi National Rural Employment Guarantee Scheme is proposed to be increased from Rs bn in FY10 to Rs bn in FY11. An allocation of Rs bn under the Swaranjayanti Gram Swarozgar Yojana for establishing micro-enterprises in rural areas through activity clusters and group approach. At least 50% of the Swarozgaries will be SCs/STs, 40% women and 3% disabled. This also includes Rs 1.00 bn for Mahila Kisan Sashaktikaran Pariyojana, a Sub-Component of National Rural Livelihood Mission. The fund corpus for the Micro-Finance Development and Equity Fund is proposed to be increased to Rs 4.00 bn in FY11. The proposal to set up a National Social Security Fund for unorganised sector workers with an initial allocation of Rs bn. This fund will support schemes for weavers, toddy tappers, rickshaw pullers and bidi workers etc. A new initiative, Swavalamban is proposed to be available for persons who join New Pension Scheme (NPS), with a minimum contribution of Rs 1,000 and a maximum contribution of Rs 12,000 per annum during FY11, wherein the Government is proposed to contribute Rs 1,000 per year to each NPS account opened in FY11. An allocation of Rs 1.00 bn is proposed to be provided for this scheme. The 1% interest subvention on housing loans up to Rs 1.00 mn scheme is proposed to be extended up to March 31, The allocation of Rs 7.00 bn is proposed to be provided for this scheme for FY11. An allocation of Rs 3.90 bn for Indira Gandhi Matritva Sahyog Yojana. The plan outlay for Women and Child Development is proposed to be increased by almost 50% in FY11. An allocation of Rs bn for Rajiv Gandhi Scheme for Empowerment of Adolescent Girls. 7

10 The plan outlay of the Ministry of Social Justice and Empowerment is proposed to be enhanced to Rs bn in FY11, marking an increase of 80% as compared to FY10. The plan allocation for the Ministry of Minority Affairs is proposed to be increased from Rs bn in FY10 to Rs bn for the year FY11. An allocation of Rs 6.00 bn towards Special Central Assistance for Scheduled Castes Component Plan to benefit about 0.75 mn beneficiaries. An allocation of Rs bn for Post Matric Scholarships for SC students; Rs 3.50 bn for Post Matric Scholarships for OBC students and Rs 5.58 bn for Post Matric Scholarships for Scheduled Tribes (ST) students. Education An allocation of Rs bn for Sarva Shiksha Abhiyan. An allocation of Rs bn for National Programme of Mid Day Meals in schools. The proposal to increase the plan allocation for school education from Rs bn in FY10 to Rs bn in FY11. In addition, there is a proposal to provide States Governments Rs bn for elementary education under the Thirteenth Finance Commission grants for FY11. An allocation of Rs bn for adult education and skill development. An allocation of Rs bn for University Grants Commission; Rs for technical education and Rs 9.00 bn for National Mission in Education through information & communication technology. Health & Sanitation The plan allocation for the Ministry of Health and Family Welfare is proposed to be increased from Rs bn in FY10 to Rs bn for FY11. An allocation of Rs bn for National Rural Health Mission. An Annual Health Survey to prepare the District Health Profile of all districts is proposed to be conducted in FY11. The benefits under Rashtriya Swasthya Bima Yojana are proposed to be extended to all Mahatma Gandhi NREGA beneficiaries who have worked for more than 15 days during the preceding financial year. The contributions to the Central Government Health Scheme are proposed to be eligible for a deduction under the Income-tax Act. An allocation of Rs 90 bn for National Rural Drinking Water Programme. An allocation of Rs bn Total Sanitation Campaign. 8

11 Regional Development An allocation of Rs mn for North Eastern Development Finance Corporation Limited. The additional central assistance of Rs bn is proposed to be provided for drought mitigation in Bundelkhand region. The allocation to Backward Region Grant Fund is proposed to be enhanced by 26% from Rs bn in FY10 to Rs bn in FY11. Impact Analysis Positive+ The Union Budget for FY11 has laid special emphasis on the social sector, accounting for as much as 37% of the total plan outlay in FY11 as against 25% of the total plan outlay in FY10. The implementation of schemes such as Sarva Shiksha Abhiyan (SSA) and National Programme of Mid Day Meals in schools have made significant contribution in improving enrolment for elementary education. The strengthening of these existing schemes for school education is expected to provide further impetus to the sector. Further, the allocation of funds for post matric scholarships for SC, ST and OBC students would enhance the spread of education amongst the weaker and neglected sections of the society. The allocation for technical education would provide much-needed skilled manpower for the industry. The weaker section has received a special attention in the budget through the proposals such as social security fund for workers in unorganised sector and pension schemes for low income people. The New Pension Scheme is expected to encourage people to save voluntarily for their retirement. Further, the new pension scheme does not require agent or guarantee, which in turn reduces operational costs. Besides, due attention to drinking water, health and sanitation is another positive aspect for the social sector in this Budget. Infrastructure An allocation of Rs 1, bn provided for infrastructure development, which accounts for over 46% of the total plan allocation. An allocation of Rs bn provided for Railways, which is about Rs 9.50 bn more than last year. Mono Rail Projects for urban transport are being granted project imports status under Heading No and would accordingly attract concessional rate of 5% basic customs duty. Deduction of an additional amount of Rs 20,000 allowed, over and above the existing limit of Rs 0.1 mn on tax savings, for investment in long-term infrastructure bonds as notified by the Central Government. 9

12 Roads and Highways Allocation for road transport increased by over 13% from Rs bn to Rs bn. An allocation of Rs 7 bn for development of National Highways under Border Roads Organisation. Specified road construction machinery items are presently fully exempt from customs duty subject to specified conditions. Sale or disposal of such machinery items at depreciated value is being allowed on payment of customs duties on depreciated value at the rates applicable at the time of import subject to specified conditions. An allocation of Rs bn for Special Accelerated Road Development Project in the North Eastern Region. An allocation of Rs bn for National Highway Authority of India. An allocation of Rs 2.30 bn for Inter-State and Economically Important Roads in different States and UTs. An allocation of Rs bn for Development of National Highways. Rural Infrastructure Rs 661 bn provided for Rural Development. An amount of Rs 480 bn allocated for rural infrastructure programmes under Bharat Nirman. Unit cost under Indira Awas Yojana increased to Rs 45,000 in the plain areas and to Rs 48,500 in the hilly areas. Allocation for this scheme increased to Rs 100 bn. An allocation of Rs 100 bn for providing assistance to rural BPL households for construction of houses (and upgradation of Kutcha houses) under Indira Awaas Yojana. An allocation of Rs 120 bn for providing connectivity to eligible unconnected rural habitations through good all-weather roads. Urban Infrastructure Allocation for urban development increased by more than 75% from Rs bn to Rs 54 bn in Allocation for Housing and Urban Poverty Alleviation raised from Rs 8.50 bn to Rs 10 bn in Allocation of Rs bn for Rajiv Awas Yojana as compared to Rs 1.50 bn last year. An allocation of Rs 9.95 bn for Equity Investment towards Infrastructure development of Mass Rapid Transit System. An allocation of Rs 2 bn for development of Satellite Cities/Counter Magnet Cities. 10

13 Positive+ The plan allocation for the infrastructure sector of around 46% of the total plan allocation points toward a continued thrust on the infrastructure sector provided by the Union budget FY11. The increased allocation for NHDP programme and railways along with granting the project imports status to Mono Rail Projects for urban transport and allowing the resale of certain road construction machinery is expected to provide an impetus to the transportation sector. Tax deduction provided for investment in long-term infrastructure bonds notified by the Central Government is likely to promote savings and direct resources towards infrastructure development. The substantial increase in allocation for Rajiv Awas Yojana (RAY), which aims to create a slum free India at the earliest, is likely to play a pivotal role in urban infrastructure development. The infrastructure sector is likely to benefit from the substantial increase in budgetary allocation for infrastructure both rural and urban. Increase in MAT from 15% to 18% could be a dampener. Manufacturing Capital and Engineering Goods Concessional customs duty of 5% will be applicable for the imports of agricultural machineries. Concessional customs duty of 5% and full exemption from service tax for setting up and expansion of Cold storage, cold room including farm pre-coolers used for preservation and storage and Processing of agriculture products. Full exemption of excise duty on trailers and semi-trailers used in agriculture. Customs duty on imports of refrigeration units required for the manufacture of refrigerated vans or trucks will be fully exempted. Concessional customs duty of 5% will be provided for importing machineries, instruments, equipments and appliances required for setting up of photovoltaic and solar thermal power generating units. Government has also proposed to exempt excise duty on these items. Full exemption from customs duty for importing machinery used in road construction projects. Positive Government announced reduction in customs duty on imports of specified machineries used in processing, storing and preservation of agriculture products. Further, this budget has also increased allocation on various infrastructure and rural development projects which will benefit manufacturers of capital goods and engineering products used in infrastructure, construction and agriculture industry. However, decrease in customs duty on imports of machineries and equipments used in infrastructure, construction and power generation is expected to increase competition for domestic manufacturers from foreign imports. 11

14 Cement The specific rates of duty applicable to Portland cement and cement clinker to be adjusted upwards proportionate to the across-the-board increase in the excise duty from 8% to 10%. Levy of Rs 50 per ton cess on imported coal. Consequent to enhancement in the standard rate of duty from 8% to 10%, the specific rates of duty on cement and cement clinker is also being revised upwards as follows: Negative The increase in rates of duty applicable to Portland cement and cement clinker will result in increase in cement prices. The cess on imported coal is likely to increase input costs of cement companies using imported coal. Power Plan allocation for power sector excluding Rajiv Gandhi Grameen Vidyutikaran Yojana (RGGVY) doubled from Rs bn in FY10 to Rs bn in FY11. Government proposes to introduce a competitive bidding process for allocating coal blocks for captive mining to ensure greater transparency and increased participation in production from these blocks. A Coal Regulatory Authority is proposed to be set up to create a level playing field in the coal sector. This would facilitate resolution of issues like economic pricing of coal and benchmarking of standards of performance. Plan outlay for the Ministry of New and Renewable Energy increased by 61% from Rs 6.20 bn in FY10 to Rs bn in FY11. Solar, small hydro and micro power projects at a cost of about Rs 5.00 bn to be set up in the Ladakh region of Jammu and Kashmir. National Clean Energy Fund for funding research and innovative projects in clean energy technologies to be established. To build the corpus of the National Clean Energy Fund, clean energy cess on coal produced in India at a nominal rate of Rs 50 per tonne to be levied. This cess will also apply to imported coal. Provide a concessional customs duty of 5% on machinery, instruments, equipment and appliances etc. required for the initial setting up of photovoltaic and solar thermal power generating units and also exempt them from central excise duty. Ground source heat pumps used to tap geo-thermal energy to be exempted from basic customs duty and special additional duty. Exempt a few more specified inputs required for the manufacture of rotor blades for wind energy generators from central excise duty. 12

15 Positive + The two fold hike in the plan allocation for the power sector is likely to result in increased capacity addition in the power sector and address the power shortage faced in different parts of the country. Similarly, enhanced allocation for new and renewable energy sector, establishment of National Clean Energy Fund coupled with concessions in machineries required for the initial setting up of photovoltaic and solar thermal power generating units reiterates the government s effort to augment the alternative source of energy and achieve its target of establishing 20,000 MW of solar power by the year 2022 under the Jawaharlal Nehru National Solar Mission. Nonetheless, the increase in the Minimum Alternative Tax (MAT) from 15% to 18% would affect the profitability of the power generation and distribution companies. The government has directed its efforts to ensure that bottlenecks for acquiring coal for thermal power generation is mitigated (as 75% of the power generation is currently coal based) by introducing a competitive bidding process for allocating coal blocks for captive mining. Further, setting up of a Coal Regulatory Authority would further aid in creating a transparent and competitive environment in the coal sector which would lead to economic pricing of coal and establish a benchmark for standard of performance. Pharmaceuticals & Healthcare Plan allocation to the Ministry of Health & Family Welfare increased to Rs 223 bn for FY11 from Rs bn in FY10. Increase in weighted deduction on expenditure incurred on in-house R&D raised from 150% to 200%. Also, weighted deduction on payments made to National Laboratories, research associations, colleges, universities and other institutions, for scientific research enhanced from 125% to 175%. Basic customs duty on all medical, surgical, dental and veterinary equipments etc reduced from 7.5% to 5%. Also the customs duty on all parts and accessories of these equipments reduced from 7.5% to 5%. These goods are also being exempted from special additional duty. Excise duty on bulk drugs increased by 2 percentage points to 10%. Full exemption from customs duty on refrigeration units required for the manufacture of refrigerated vans or trucks. Marginally Positive Increase in weighted deduction on R&D from 150% to 200% is expected to promote the R&D activities of pharmaceutical companies. The Union Budget has increased the excise duty on bulk drugs from 8% to 10%. This would make raw materials for the medicines slightly expensive. However, the impact may be limited as a number of companies have shifted production to excise-free zones. 13

16 The reduction in the customs duty on imports of medical equipments and accessories and parts thereof, from 7.5% to 5% coupled with the exemptions from special additional duty to help in reduction of capital cost for the hospitals and healthcare centres. The exemption of customs duty on refrigeration units required for the manufacture of refrigerated vans or trucks to be positive for logistics of pharmaceutical products specifically vaccines and for biotechnology companies. Oil and Gas Customs duty at the rate of 5% is proposed to be levied on crude petroleum, as compared to nil earlier. Customs duty on motor spirit (petrol) and HSD (diesel) is proposed to be increased from 2.5% to 7.5%. Customs duty on some other specified petroleum products is proposed to be increased from 5% to 10%. Central excise duty on petrol and diesel is proposed to be enhanced by Re 1 per litre each. Dementholised oil, Deterpenated Mentha oil, Spearmint/ Mentha Piperita oils and all intermediates and by-products of Menthol fully exempted from excise duty. Conscious effort made to avoid issuing bonds to oil and fertiliser companies. Government would like to continue with this practice of extending Government subsidy in cash, thereby bringing all subsidy related liabilities into Government s fiscal accounting. Neutral In recognition of the fact that the average price of Indian basket of crude oil has come down from the increased levels experienced during 2008, the Government has only restored back the basic customs duty of 5% on crude petroleum and 7.5% on motor spirit (petrol) and HSD (diesel) and also hiked the excise duty. Nonetheless, it is going to put pressure on the profit margins of the oil and gas companies unless the Government allows the companies to hike the prices of petrol and diesel. On the other hand, continuance of extending the Government subsidy in cash instead of issuing bonds would help in faster realisation of subsidy for the companies. 14

17 MSME Micro, Small & Medium Enterprises Allocation for Micro, Small & Medium Enterprises sector to be increased from Rs bn to Rs bn for the year FY11. Allocation of Rs 2.23 bn for Credit Support Programme to provide guarantee cover to banks for extending loans to small/tiny units without collateral. Allocation of Rs 9.06 bn for Prime Minister s Employment Generation Programme. Allocation of Rs 3.36 bn for Quality of Technology Support Institution and Programmes. Extension of existing interest subvention of 2% for one more year for exports covering handicrafts, carpets, handlooms and small and medium enterprises. Limit of turnover for the purpose of presumptive taxation of small businesses enhanced to Rs 6.0 mn. Positive The extension of existing interest subvention of 2% to the small and medium enterprises is a positive development for the sector which is recovering from the aftermath of the global financial crisis. Further, the increase in allocation of around 33.78% (y-o-y) for the Micro, Small & Medium Enterprises sector also augurs well for the overall development of this sector. The increased allocation for Credit Support Programme to provide guarantee cover to banks for extending loans to small/tiny units without collateral is likely to help increase the flow of credit to this sector. Consumer Goods Some structural changes in the excise duty on cigarettes, cigars and cigarillos to be made coupled with some increase in rates. Excise duty on all non-smoking tobacco such as scented tobacco, snuff, chewing tobacco etc to be enhanced. Compounded levy scheme for chewing tobacco and branded unmanufactured tobacco based on the capacity of pouch packing machines to be introduced. Domestic manufacture of mobile phones accessories, exemptions from basic, CVD and special additional duties are now being extended to parts of battery chargers and hands-free headphones. The validity of the exemption from special additional duty is being extended till March 31, Basic customs duty on magnetrons, one of the key components in production of microwave ovens, reduced from 10% to 5%. Reduction in central excise duty on replaceable kits for household type water filters other than those based on RO technology to 4%. 15

18 Neutral The across the-board increase in central excise duty from 8% to 10% is likely to result in overall increase in the prices of consumer goods. The increase in the central excise duty is likely to result in increased prices of cigarettes. However, the rise in disposable income because of the relaxation in personal tax rates will boost demand for consumer goods. The exemption of mobile phone accessories from special additional duty has been extended till March 31, 2011 which is likely to result in stability of prices of the product. The reduction in central excise duty on replaceable kits for household type water filters other than those based on RO technology is likely to result in a fall in prices of the product. Real Estate and Construction Interest subvention of 1% on housing loans up to Rs 1 mn extended up to March 31, 2011 with allocation of Rs 7 bn for FY11. Pending projects of real estate companies allowed to be completed in five years instead of four years for claiming deduction on their profits. Allocation for Housing and Urban Poverty Alleviation for FY11 raised to Rs 10 bn from Rs 8.5 bn in last fiscal. Norms for built-up area of shops and other commercial establishments in housing projects to be relaxed to enable basic facilities for their residents. Positive The continuation of interest subvention scheme on housing loans coupled with reduction in personal income tax rates would drive the demand for residential housing, especially from the lower and middle income groups. Several projects of real estate companies were delayed and halted on account of the economic slowdown last year; extension in the period of completion of pending projects by one year for claiming tax deductions would provide substantial relief to such real estate players. The budget speech indicated continued thrust on growth of SEZs in the next fiscal; approval of more SEZ projects in the next fiscal would provide a great impetus to the growth of the real estate sector. Automotive A 2 percentage points increase in the ad valorem component of excise duty on large cars, multi-utility vehicles and sports-utility vehicles to 22%. Imposition of central excise duty at 4% on electrically operated vehicles. Exemption from basic customs duty and special additional duty for some critical parts/sub- assemblies of electric vehicles. These parts to also enjoy a concessional counter veiling duty of 4%. 16

19 Marginally Positive Vehicle manufacturers are likely to undertake a price hike following the increase in the central excise duty from 8% to 10%. However, we do not expect this to have any significant impact on demand. In fact, the focus on infrastructure development is expected to indirectly give a boost to demand for commercial goods carriers, while the focus on rural development is likely to push up demand for two-wheelers in the rural markets. Also, the proposal to enhance the weighted deduction on expenditure incurred on in-house research & development (R&D) from 150% to 200% is expected to encourage auto companies to invest in R&D activities. The increase in excise duty will result in passenger vehicle manufacturers passing the increased burden to consumers by way of increased vehicle prices. While this may result in postponement in purchase decisions among customers of small cars in the immediate future, we do not expect this to have any adverse impact on demand in the medium or long term. In the case of large cars, multi-utility vehicles and sports-utility vehicles, the likely price increase is not expected to have any major impact on demand for these vehicles, as unlike small cars, customers in these categories of vehicles are comparatively less price-conscious. The allocations made for road infrastructure development and defence is expected to benefit commercial vehicle demand. The exemption from basic customs duty and special additional duty for some critical parts/ sub-assemblies of electric vehicles is expected to bring down production costs for the vehicle manufacturers. The interest subvention of 2% on pre-shipment export credit is expected to benefit auto component manufacturers in the SME segment. Textiles Interest subvention of 2% of pre-shipment export credit extended by one year for handicrafts, carpets, handlooms and SMEs. Extensive skill development programme to be launched; 3 mn persons targeted to be trained over 5 years under the programme. One time grant of Rs 2 bn to Tamil Nadu Government for installation of zero liquid discharge system at Tirupur knitwear cluster. Excise duty exemption on baby and clinical diapers, and sanitary napkins withdrawn and duty levied at 10%. Excise duty exemption on mosquito nets impregnated with insecticide withdrawn and duty levied at 4%. Excise duty exemption on umbrella panels withdrawn and duty levied at 4%. 17

20 Negative The increase in standard rate of excise duty to 10% from 8% would have an adverse impact on the textiles sector as it is expected to affect the margins of textile companies. The players capacity expansion and modernisation plans are also expected to be affected by the higher textile machinery prices on account of increase in excise duties. The negative impact of excise duty increase would only be marginally mitigated by the positive announcements, such as the extension of interest subvention for export credit by one year. The proposed Skills Development Programme for textiles and garments sector would provide long-term benefit to the textile industry, which has been facing shortage of skilled labour since the last few years. The installation of effluent treatment plant in Tirupur cluster would not only contribute towards greener environment, but could also provide a greater thrust to exports, by improving the global brand image of Tirupur products and by mitigating any environmental non-trade barriers levied in the international markets. Withdrawal of excise exemptions on certain technical textiles products (baby diapers, sanitary napkins, etc) would encourage indigenous production of these items as earlier the imports of these products were much cheaper (due to zero CVD) due to which players preferred importing the final product than manufacturing the same domestically. Gems & Jewellery Customs duty raised from Rs 200 per 10 grams to Rs 300 per 10 grams on gold and platinum, and from Rs 1, 000 per kg to Rs 1,500 per kg on silver. Basic customs duty on rhodium - a precious metal used for polishing jewellery reduced from 10% to 2%. Basic customs duty on gold ore and concentrates reduced from 2% ad valorem to a specific duty of Rs 140 per 10 grams of gold content with full exemption from special additional duty. Further, the excise duty on refined gold made from such ore or concentrate reduced from 8% to a specific duty of Rs 280 per 10 grams. Negative Budget announcements have not met the expectations of the Indian gems and jewellery sector. Increase in customs duty on gold, platinum and silver is expected to have an adverse effect on the cost of manufacturing jewellery. Further, the hike in excise duty as part of a partial roll back of stimulus measures is also expected to make gold and silver costly. However, the reduction on basic customs duty on gold ore will encourage domestic refining capacity for gold. 18

21 Services Banking and Insurance Banking Agricultural and Rural Finance Regional Rural Banks (RRBs) would be provided with additional capital, so as to provide them with adequate capital base to support increased lending to the rural economy. For FY11, the target for agricultural credit was raised to Rs 3,750 bn from Rs 3,250 bn in the current year. The period for repayment of the loan amount under the Debt Waiver and Debt Relief Scheme by farmers has been extended by six months, from December 31, 2009 to June 30, An additional 1% interest subvention, which was provided in the last Budget as an incentive to those farmers who repay their short-term crop loans as per schedule has been raised from 1% to 2% for FY11. Thus, the effective rate of interest for such farmers will now be 5% per annum. To give momentum to the pace of financial inclusion, an augmentation of Rs 1 bn each has been made for the Financial Inclusion Fund and the Financial Inclusion Technology Fund in National Bank for Agriculture and Rural Development (NABARD), which shall be contributed by the Government of India, the Reserve Bank of India (RBI) and the NABARD. Financial Inclusion Aimed at increasing the geographical spread of banks, the RBI is considering granting some additional banking licenses to private sector players. Non-Banking Financial Companies could also be considered for the licenses, if they meet the eligibility criteria of the RBI. The fund corpus for the Micro-Finance Development and Equity Fund has been doubled from Rs 2 bn to Rs 4 bn in FY11. Interest Subvention for Exports and Low-Cost Housing Interest subvention of 2% on pre-shipment export credit that was available up to March 31, 2010, has been extended for one more year for exports including handicrafts, carpets, handlooms and small and medium enterprises. The scheme of 1% interest subvention on housing loans up to Rs 1 mn, where the cost of the house does not exceed Rs 2 mn has been extended up to March 31, Accordingly, a sum of Rs 7 bn has been provided for this scheme for FY11. 19

22 Capital Support In addition to the Rs 19 bn infused as Tier-I capital in four public sector banks in FY09, an additional sum of Rs 12 bn is being infused now. It has been proposed to provide a sum of Rs165 bn to ensure that public sector banks are able to attain a minimum 8% Tier-I capital by March 31, Insurance In view of the success of the Rashtriya Swasthya Bima Yojana (RSBY), its benefits were extended to all Mahatma Gandhi National Rural Employment Guarantee Act (NREGA) beneficiaries who have worked for more than 15 days during the preceding financial year. Positive These Budget announcements are expected to have a positive impact on the Banking and Insurance sector. A number of measures have been announced, including extension of interest subvention schemes, which are expected to translate into a higher credit off take for banks, while ensuring affordable credit to thrust areas like microfinance, agricultural credit and export credit. Also, the Budget placed significant emphasis on financial inclusion, with measures being announced towards granting more banking licenses, strengthening the RRBs and the Micro- Finance Development and Equity Fund. The announcement towards the capitalisation of public sector banks would also provide some stability to the sector. Finance It has been decided by the Government, to set up an apex-level Financial Stability and Development Council, to monitor the macro prudential supervision of the economy, including the functioning of large financial conglomerates, and address inter-regulatory coordination issues. The Council would also focus on financial literacy and financial inclusion initiatives without interfering with the purview of the regulatory bodies. The Government has proposed to set up a Financial Sector Legislative Reforms Commission to make the required changes to the financial sector laws, to bring them in line with the requirements of the sector. The Direct Tax Code, along with the goods and services tax (GST) is expected to be implemented from April 1, In order to look into various technological and systemic issues in the tax administration and financial governance system, a Technology Advisory Group for Unique Projects has been proposed to be set up. Surcharge on domestic companies reduced from 10% to 7.5%. 20

23 Minimum alternate tax (MAT) raised from 15% to 18% of book profits. Excise duty raised from 8% to 10%. In order to encourage people from the unorganised sector to voluntarily save for their retirement and to lower the cost of operations of the New Pension Scheme (NPS) for such subscribers, the Government will contribute Rs 1,000 per year to each NPS account opened in FY11. This initiative will be available to persons who join NPS, with a minimum contribution of Rs 1,000 and a maximum contribution of Rs 12,000 per annum during FY11. An allocation of Rs 1 bn for FY11 has been made towards this scheme, which shall be available for three years and will be managed by the interim Pension Fund Regulatory and Development Authority. Positive Announcements have been made in the Budget which were indicative of the movement towards reforms in the financial sector, including areas like tax structure, IT infrastructure and legislative issues. The announcement of setting up of an apex-level Financial Stability and Development Council would also have a positive impact on the financial sector. Overall, the announcements made in the Budget would have a positive impact on the financial sector, particularly in the medium term. Information Technology Minimum Alternative Tax (MAT) to be increased from 15% to 18%. Refund of accumulated credit to exporters of services to be made easy with necessary changes proposed in the definition of export of services. Allocation of Rs 19 bn for Unique Identification Authority of India (UIDAI) for FY11. The Budget does not mention about the extension of sunset clauses for deduction in respect of export profits under sections 10A and 10B of the Income Tax Act beyond FY11. Negative The Budget failed to address the critical issue of Software Technology Park of India (STPI) Act. The non-extension of the sunset clause under the STPI Act beyond FY11 will significantly increase the tax burden of IT/ITeS companies which have tax exemption under the Act till FY11. Moreover, the tax liability of many of these companies will increase during FY10 due to 3% rise in MAT. The hike in excise duty is likely to have a negative impact on the revenues of computer hardware manufacturers if they decide to pass on this hike to the end customer. The IT industry is expected to indirectly benefit from Government projects such as UIDAI, which will create an online database with biometric and identity details of Indian residents, and 21

24 computerisation of commercial taxes in states The clarity on the definition of export of services and procedures is expected to ease the process of refund available for credit to exporters, which are mainly from the IT/ITeS industry. Hospitality and Tourism In order to give a boost to investment in the employment-intensive tourism sector, the benefit of investment-linked deduction, as against profit-linked deduction, has been extended to new hotels of two-star category and above, anywhere in India. Rs 2 bn has been provided as a Special Golden Jubilee package for Goa to preserve the natural resources of the State, including sea beaches and forest cover. Marginally Positive An announcement was made extending investment-linked deduction to new hotels of two-star category and above. This is expected to have a marginally positive impact on the sector, by boosting investment in the smaller hotels. This is expected to incentivise hotel projects by smaller players, and in many smaller tourist destinations. The special allocation made for preservation of natural resources for Goa would also be helpful in boosting tourism in the state in the long run. Media & Entertainment Customs duty to be charged only on the value of the carrier medium as opposed to digital masters of films for duplication or distribution loaded on electronic medium. The same dispensation would apply to music and gaming software imported for duplication. However, in all such cases the value representing the transfer of intellectual rights would be subjected to service tax. Project import status at a concessional customs duty of 5% with full exemption from special additional duty provided on initial setting up of Digital Head End equipment by the multiservice operators. Accredited news agencies which fulfill certain criteria are exempted from service tax. Positive The customs duty on value of carrier medium as oppose to digital masters will facilitate imports of masters to India, and manufacture of (legal) CDs/DVDs within the country. Project import status at a concessional customs duty on Digital Head End equipment will help to give an impetus to the digitisation in the country 22

25 Telecom Exemptions from basic, CVD and special additional duties are now being extended to parts of battery chargers and hands-free headphones. Also, the validity of the exemption from special additional duty is being extended till March 31, Outright exemption from special additional duty on goods imported in a pre-packaged form for retail sale which would also cover mobile phones even when they are not imported in pre-packaged form. Marginally Positive Budget announcements have not met the expectations of the Indian telecom industry particularly the service providers. However, the mobile equipment manufacturers will benefit from the announcements made in the Budget The exemption on parts of battery chargers and hands-free headphones from basic, CVD and special additional duties will make the production of these accessories cheaper. The exemption on special additional duty will enhance cash flows for the handset importers.. 23

26 CHANGE IN CENTRAL PLAN OUTLAY (Rs bn) % Change Revised Estimates Budget Estimates Ministry of Rural Development Department of Rural Development Ministry of Petroleum and Natural Gas Ministry of Power Ministry of Human Resource Development Railways Department of School Education and Literacy Ministry of Road Transport and Highways^^ Ministry of Health and Family Welfare Ministry of Communications and Information Technology Department of Health and Family Welfare Department of Telecommunications Ministry of Steel Ministry of Coal Department of Higher Education Ministry of Shipping^^ Department of Space Ministry of Social Justice and Empowerment Ministry of Chemicals and Fertilisers Department of Information Technology Department of Fertilisers Ministry of Micro, Small and Medium Enterprises Department of Economic Affairs Ministry of Home Affairs Ministry of Planning ,734.9 Ministry of Tribal Affairs Department of Posts ^^ In Budget Department of Shipping was under the Ministry of Shipping, Road Transport and Highways. 24

27 RECEIPTS (Rs bn) Revised Estimates Budget Estimates A. REVENUE RECEIPTS 1. Tax Revenue Gross Tax Revenue 6, , Union Excise Duties 1, , Customs , Corporation Tax 2, , Income Tax 1, , Service Tax Taxes of the Union Territories Other Taxes and Duties* Less NCCD transferred to the National Calamity Contingency Fund/NDRF Less States' Share 1, , Centre's Net Tax Revenue 4, , Non-Tax Revenue Interest Receipts Dividend and Profits External Grants Other Non-Tax revenue Receipts of Union Territories Total Non-tax Revenue 1, , Total Revenue Receipts 5, ,

28 RECEIPTS (Contd...) (Rs bn) Revised Estimates Budget Estimates B. CAPITAL RECEIPTS** Non-debt Receipts Recoveries of Loans & Miscellaneous Capital receipts Total Debt Receipts Market Loans 3, , Short term borrowings External Assistance (Net) Securities issued against Small Savings State Provident Funds (Net) Other Receipts (Net) Total 4, , Total Capital Receipts (A+B) 4, , Draw-Down of Cash Balance TOTAL RECEIPTS ( ) 10, , Financing of Fiscal Deficit (2+Draw-Down of 4, , Cash Balance) Receipts under MSS (Net) excludes recoveries of short-term loans and advances from States and loans to Government servants, etc * Includes Wealth Tax, Securities Transaction Tax and Banking Cash Transaction Tax in RE ; and Wealth Tax and Securities Transaction Tax in BE ** The receipts are net of repayments. 26

29 EXPENDITURE (Rs bn) Revised Estimates Budget Estimates 1. NON-PLAN EXPENDITURE 1 A. Revenue Expenditure 1 Interest Payments and Prepayment Premium 2, , Defence Services Subsidies 1, , Grants to State and U.T.# Governments Pensions Police Assistance to States from National Calamity Contingecy Fund (NCCF)/NDRF 8 Economic Services (Agriculture, Industry, Power, Transport, Communications, Science & Technology, etc.) 9 Other General Services (Organs of State, tax collection, external affairs, etc.) 10 Social Services (Education, Health, Broadcasting, etc.) Postal Deficit Expenditure of U.T. without Legislature Amount met from NCCF/NDRF Grants to Foreign Govts Total Revenue Non-Plan Expenditure 6, , B. Capital Expenditure 1 Defence Services Other Non-Plan Capital Outlay Loans to Public Enterprises Loans to State and U.T. Governments Loans to Foreign Governments Others Total Capital Non-Plan Expenditure Total Non-Plan Expenditure 7, , Note: Issue of Special Securities in lieu of Subsidies (i) Oil Marketing Companies (ii) Fertilizer Companies

30 EXPENDITURE (Contd...) (Rs bn) Revised Estimates Budget Estimates 2. PLAN EXPENDITURE 2 A. Revenue Expenditure 1 Central Plan 1, , Central Assistance for States & Union Territory Plans State Plan Union Territory Plan Total Revenue Plan Expenditure 2, , B. Capital Expenditure 1 Central Plan Central Assistance for State & Union Territory Plans State Plan Union Territory Plan Total Capital Plan Expenditure Total-Plan Expenditure 3, , Total Budget Support for Central Plan 2, , Total Central Assistance for State & U.T. Plans TOTAL EXPENDITURE* 10, , DEBT SERVICING 1 Repayment of Debt** , Total Interest Payments 2, , Total Debt Servicing (1+2) 3, , Revenue Receipts 5, , Pecentage of 2 to % 36.40% # U. T. implies Union Territories * Excludes expenditure matched by receipts (Details in Annex-2 to Expenditure Budget, Volume-1, ) ** For (BE), the figure excludes discharge of 91 days, 182 days & 14 days intermediate Treasury bills, discharge of Ways & Means Advances including overdraft, income and expenditure of National Small Savings Fund (NSSF), investments of NSSF, Reserve Funds and Deposits not bearing interest and suspense transactions. For (Actuals), (RE) and (BE), the figures exclude the above items and also the discharge of all other short term loans and other Public Account disbursements. 28

31 KEY ECONOMIC INDICATORS (Absolute Values) Gross Domestic Product at factor cost (Rs bn) At current prices 45, ,286.5 QE 57,912.7 AE At prices 38, ,549.7 QE 44,530.6 AE Output Foodgrains (mn tonnes) a d Electricity generation (utilities only) (bn kwh)* c Prices Wholesale Price Index (All ^ commodities) e CPI-IW (Average) f b External Sector (US$ mn) Imports 251, , ,829.0 c Exports 163, , ,587.0 c Current Account Balance -15, , ,618.0 h Foreign Direct Investment (net) 15, ,498.0 PE 14,142.0 h Monetary and Finance Money Supply (M3) (Rs bn) 40, , ,394.1 i Foreign Currency Assets (US$ 299, , ,696 # mn)** Exchange rate (Rs/US$) (Average) f Footnotes QE: Quick Estimates; AE: Advance Estimates; PE: Provisional Estimates; a: 4th Advance Estimates as on July 21, 2009; b: Average Apr09-Dec09; c: Apr09-Dec09; d: Second Advance Estimate ; f: Exchange rate for (Apr09-Dec09); ^: average for Apr09-Jan10; h: Apr09-Sep09 * Excludes generation from captive and non-conventional power plants and thermal power plants below 20 MW units and hydro power plants below 2 MW e: annual average with base = 100; f-index with base 2001 = 100; i: As on January 29, 2010 **: FCA excludes US$ mn (as also its equivalent value in Indian Rupee) invested in foreign currency denominated bonds issued by IIFC (UK) since March 20, 2009 #: As on February 12, 2010 and Excludes Rs crore /US$ 250 mn invested in foreign currency denominated bonds issued by IIFC (UK) Source: RBI, CSO, Commerce Ministry, Economic Survey,