This Budget has made a serious attempt to leverage our high growth rate and at the same time consolidated the fiscal deficit to a lower level of 4.6 per cent. The budget has given the much needed momentum to social sector investment especially by enhancing productivity and capacity building in agriculture, healthcare and education. The granting of infrastructure status to cold chain and storage will give the necessary boost to food processing sector.
By providing the roadmap for rolling out GST and DTC, right direction has been given to impart efficiency to expenditure management. This should translate into greater certainty and transparency in the taxation mechanism.
In view of macro economic compulsions and West Asian crisis which may fuel inflation and impact several sectors, it will be critical that measures outlined in the budget to plug leakages are implemented at the earliest. The move to allow mutual funds for having direct access to foreign investors with prior registration with the SEBI is welcomed. This will attract more foreign capital inflows to limit current account deficit.
President, Assocham.
Growth will accelerate
It is indeed heartening to note that the projected GDP growth for 2011-12 would be between 8.75 per cent and 9.2 per cent. This means current growth trends will not only continue but will also accelerate. This would also give a demand push for FMCG sector as well as packaging sector.
On direct taxes, reduction of surcharge from 7.5 per cent to five per cent is indeed welcome as it would leave more funds with the corporate sector for re-investment.
Some of the measures in indirect taxes such as announcement of firm steps in bringing GST, for example, constitutional amendment, draft model legislation, strengthening IT infrastructure and so on, retention of peak rate of Customs duty at 10 per cent are steps in the right direction. However, increase in the indirect tax to the extent of about Rs. 11,000 cr would be inflationary. The Finance Minister has also not announced any firm date for bringing about GST.
Sanjay Bhatia
Managing Director, Hindustan Tin Works Ltd
MAT, a dampener
The outlook on controlling fiscal deficit is quite positive. The references to ‘need to strengthen agriculture sector, fiscal incentives for investment in cold chain, interest subsidy to farmers' and recommendations of APMC are quite encouraging, though I did expect more to aid a second Green revolution which is key to ensuring food supply levels and avoid the kind of inflation we are currently witnessing.
The next phase of growth has to happen only through digital infrastructure; some fiscal incentives should have come to this sector to enable penetration of broadband services to Tier-II, III and IV towns and also IT infrastructure.
However, MAT was disappointing. It is threatening to get closer to marginal tax rate and current effective rate of many companies. MAT has to be minimum in words and spirit. The MAT rate should have been brought down to at least 10 per cent to encourage investment of accrual in capital formation/employment creation which is key in the long run.
M.P. Vijay Kumar
Chief Financial Officer, Sify Technologies.
Precursor to GST rollout
The Finance Minister has dished out a conservative Budget with peripheral changes, specifically relating to meeting compliances.
He has estimated revenue flows of Rs 11,300 crore from indirect taxes in the financial year 2011-12.
This has been sought through removal of excise exemptions on few products and bringing within the ambit of service tax two new service categories, that is, hotel accommodation above Rs 1,000 a day, A/C restaurants serving liquor, with a simultaneous increase in the scope of some of the existing service categories.
The indirect tax concessions have been primarily restricted to sectors such as infrastructure, cement, food processing and textiles.
The Budget proposals have attempted to reduce litigations in relation to availing Cenvat credit and refund of the same through the expanded definitions of inputs/input services.
Further, there has been an emphasis on self assessment to improve compliance.
The Finance Minister has pruned the exemption list for excise duty to align it with the VAT exemptions and has also proposed a shift from payment to accrual basis for levy of service tax; an important step towards the implementation of GST.
All in all, from an indirect tax perspective, the Finance Minister has laid down a Budget that serves as a precursor to the roll-out of GST.
Sachin Menon
Head of indirect tax, KPMG.
Opportunity lost to usher in reforms
The Budget has failed to meet the country's expectations and lost an opportunity to announce a bold transformational reform agenda, especially on FDI, in multi-brand retail insurance, and pending tax reforms.
However, it did meet the street expectations on a commitment to fiscal deficit reduction, especially, the lower than expected Government borrowing of Rs 3.4 lakh crore and deepening of the bond markets, which is a crying need of the hour.
It is also interesting to note that the focus of the budget has been on the execution issues rather than just on grand policy announcements.
The stress is on outlining a clear process on how to deliver the subsidies to the targeted segments, or for that matter setting up of a central electronic registry under the SARFAESI Act to prevent fraud in lending, are some clear examples.
Sandeep Soni
President, Alchemist ARC & former MD Citigroup.
Achievable fiscal, revenue targets
The Budget has done a good job giving an overall direction to the growth and implementation of important policy matters such as GST and DTC. It has managed to take care of the populist sentiment and yet set fiscal and revenue targets which are achievable.
What's in it for the financial industry: A pleasant surprise was that foreign investors have been permitted to invest in mutual funds and investing in corporate infrastructure bonds.
Common man
Overall would be mixed for the common man.
The Budget has given Rs 20,000 tax relief (taxable income increased from 1.6 to 1.8 lakh) and big grants and scholarship to educational institutions.
On the other hand, it has increased the cost of air travel, private healthcare.
Saurav Arora
President, United Stock Exchange
Markets will remain buoyant
The Budget 2011 has continued to maintain a pro-growth approach and has primarily focused on ensuring growth sustenance. It has continued to focus on inclusive growth strategies, rural empowerment and socio economic stories.
Ahead of the budget this year, there was a lot of volatility in international events and expectation was that the budget would work towards managing the impact of international events. However, the government has instead focused on sustaining the domestic growth indicators.
From an equity market point of the medium term outlook remains volatile, responding to crude fluctuations. Crude oil price behaviour will be a far more important factor than valuations, which look fair as of now. We continue to believe that infrastructure sector has underperformed, despite its vast potential in the current economic context. With the government focusing on infra financing and debt this segment should see improvements in execution. From a debt market point of view, there is no significant change in our view as far as short term interest rates is concerned. For the longer end of the curve, the Budget numbers look very good and have exceeded most expectations. Some of the assumptions in the calculations for arriving at a lower deficit number appear to be optimistic.
The borrowing program remains reasonably large.
No structural view on interest rates coming down. The fact that deficit numbers are lower than expectations and initial borrowing numbers are low should keep the market stable for now. Also considering that no supply is available, and as per the borrowing program for this financial year another supply of Rs 10,000 crore may possibly come. If this auction is available in March, then we can expect rates to move up a little bit.
There have been some comments from the Finance Ministry that this supply may not come and they may use other funding sources. In that case, we expect the markets to remain buoyant till the borrowing program for next year starts.
The positive of the budget is definitely a lower fiscal deficit number. The government has shown some amount of restraint in unnecessary spending and putting to rest the worry that existed on spending in a big way just before the State elections.
Nimesh Shah
MD & CEO, ICICI Prudential AMC
Lack of provision for garment sector
Expressing disappointment for lack of any special provision for the garment sector in the Budget, Mr Rakesh Vaid, President, Garments Exporters Association regretted that the Budget has proposed to convert the optional levy into a mandatory levy at a unified rate of 10 per cent for readymade garments and made-ups of textiles which were earlier under an optional excise duty regime, which would adversely affect the garment sector of the textile industry.
Although, Cenvat credit of inputs and services would be available the garment factories will now have to register themselves with central excise, increasing the transaction and administrative costs. It would also lead to unnecessary harassment and delays in handling time bound export shipments.
Although, the Finance Minister has dexterously handled the tedious task of striking a balance between the needs of development and social and political compulsions of the UPA Government and the present economic situation, the exporting community feels being left in the lurch without an adequate fiscal relief in the Budget proposals.
However, he has welcomed the proposals to reduce the basic customs duty on certain textile intermediates and inputs and specified inputs for manufacture of certain technical fibre and yarn.
He has also welcomed the proposal to introduce scheme for refund of taxes paid on services used for export of goods and new initiatives to reduce the transaction time and costs for exporters as recommended by the Task Force on transaction cost in exports.
Rakesh Vaid
President, Garments Exporters Association.
Few surprises for retail investors
The Budget has met expectations in terms of marginally raising the IT exemption limits. The extension of tax exemption for infrastructure bonds was welcome, although many foresaw it coming. New Pension scheme has been given a fillip by removing the employer contribution from within the Rs 1-lakh exemption limit. The mutual fund industry had two interesting announcements to digest – one positive, and the other not so.
The raising of the dividend distribution tax to 30 per cent for non-individual investments in debt funds makes the tax arbitrage close to zero for corporate investors. In the medium term, this is likely to be a blow for the corporate inflows into the debt/liquid schemes of fund houses, denting their AUM. On the positive side, however, there is the announcement that foreign investors can invest in Indian equity funds.
Srikanth Meenakshi
Co-Founder & Director FundsIndia.com
Focus on fiscal consolidation
The Budget overall has a positive view as the intention of reducing deficits, marginal increase in taxes and flattish expenditure. It has kept a relatively sharper focus on achieving fiscal consolidation without effecting growth by way of higher taxes.
Tax collections are expected to grow by 24.9 per cent YoY in FY12 despite no increase in indirect taxes and a marginal cut in direct taxes.
The budget has show focus towards social agenda and emphasised to accelerate agriculture growth momentum. The overall expenditure growth which has been budgeted at just 3.4 per cent has been lowest for many years. This has been done by keeping relatively lower numbers for key subsidies such as fuel, fertiliser and food, which are likely to overshoot in the coming year due to higher commodity prices. Any higher subsidies otherwise would remain a key downside risk for the market.
K.K. Mital
Head PMS, Globe Capital.
Nightmare forhome buyers
Overall, the Budget is balanced. However, no major policy changes or impetus for inclusive growth as well as effective utilisation of allocated expenses (without system pilferages) have been outlined. It does not seem to provide any comfort in stemming inflation. From the perspective of housing, the Budget has done negligible. While the interest subvention is welcome, that does not in reality affect a large proportion of home buyers. Change in duty structure for cement will further increase input costs for the industry already reeling under huge input cost increases during the last 10 months and unrealistic and multi-stage tax burdens. Despite being the largest employer in the country and that too for unskilled labour, real estate/housing being not conferred industry status is dampening.
K.S. Sudarshan
Chief Operating Officer, Ozonegroup
IT role in governance gets recognition
We are delighted that the Finance Minister has recognised the role of IT in varied aspects of governance. Initiatives mentioned in the budget towards e-filing, e-payment of taxes, computerisation of commercial taxes and the creation of ‘Sevottam'a Web-based facility for tax payers are strong indicators of the country's movement towards a convenient and automated mechanism of tax administration.
However, it is essential that the ‘Webification' of these critical applications takes place on secure platforms so that majority of tax payers migrate to using this convenient mechanism.
In terms of the IT sector, the issue of STPI extension has not been addressed. But hope that the proposed Direct Tax Code which will be enforced in April 2012 to continue catalysing the growth of this industry. We welcome the Budget's specific and actionable framework towards the enforcement of GST which will work in the industry's favour by bringing about standardisation in taxes. The reduction of corporate surcharge from 7.5 per cent to five per cent will also amount to greater profitability for Indian companies.
Ambarish Deshpande
Director Sales, McAfee India
Housing loan limit hike is welcome
While we welcome the raising of housing loan limit for priority sector lending to Rs 25 lakh and the move to further liberalise FDI policy, overall the Budget has fallen short of expectations in the real estate sector. Not according industry status to real estate was a disappointment. This would have made banking finance easier and cheaper for real estate companies and would have given the much needed impetus to the housing sector.
Rising inflation, tight money market conditions and very high lending rates are concerns looming large over the economy, in general.
Rajamannar Ramaswamy
Group Managing Director, Inno Group
Markets need to look at global cues
Given the macro challenges and political compulsions, the Finance Minister has done a fine balancing job. Keeping deficit under check without imposing additional tax burden and staying away from any populist largesse is a big positive.
The budget can be termed as growth- oriented and has taken incremental measures to boost investment into housing, infrastructure and social sector. Firm targets on roll out of GST, DTC, issuance of new bank licenses and move towards cash subsidies are encouraging. Quantum increase in limit for FII investment in infrastructure bonds and allowing foreign investors to invest in domestic mutual funds are bold moves towards liberalising the capital account.
Fiscal deficit at 4.6 per cent of GDP and net market borrowing number for the next year are better than market expectations and will sooth fears of crowding out and sharp spike in interest rates.
Measures on the taxation and spending in key programmes would keep the consumption story intact while some visible moves have been made to push infrastructure build-up.
Though no major surprise, the Budget should be taken positively by both equity and the bond market. As the event is behind us, the market would now focus on cues from global markets and incremental economic data and corporate earnings.
Navneet Munot
CIO, SBI MF
A pack of reliefs for farm infrastructure
The Finance Minister has recognised that a major cause for food inflation has been due to supply side constraints, exacerbated by huge gaps in post-harvest storage infrastructure for agricultural produce, especially for fruits and vegetables.
Responding to the industry's fervent pleas all post harvest infrastructure, including cold storages have been granted “infrastructure status” by the Finance Minster.
Hitherto, only port handling facilities of agri produce had been declared as “infrastructure”.
There is an estimated 32 million shortage in storage capacity, and even conservative estimates put the immediate investment requirement at Rs 10,000 crore. The grant of infrastructure status to this sector will provide a major fillip for investment in this vital sector.
The Finance Minister's announcement that modern storage infrastructure, such as silos would be eligible for “viability gap” funding is also a good initiative to encourage modern storage practices, as currently post-harvest losses are estimated at Rs 50,000 crore due to poor storage practices.
Along with this, the Finance Minister has also reduced Customs duty to 2.5 per cent on the import of all cold storage equipment which is seen by the industry as a complete package of reliefs provided to this sector.
The announcement to pilot test cash transfers in place of grant of subsidies for kerosene and fertiliser is another excellent initiative but it would have been better had this initiative been extended to food subsidies as well, which currently do not reach the intended beneficiaries.
Sanjay Kaul
MD &CEO, NCMSL
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