UNION BUDGET 2010-11

KEY POLICY ANNOUNCEMENTS:

• Direct tax Code and GST likely to be implemented from April 1st 2011.
  
• RBI is considering to give additional banking licenses to private banks and NBFC could also be considered for the license.
  
• Allocation of 1,73,552 Cr for Infrastructure sector.
  
• Conversion of small companies into LLP will be tax efficient.
  
• Capping of combined debt at 68% of GDP to be achieved by 2015
  
• The Companies bill 2009 may also be replaced with existing companies act -issue relating to regulation in corporate sector will be stream lined.
  
• Contrul over fiscal deficit & borrowing programme. Fiscal Deficit at 6.9%(2009-10) with the target of 5.5%(2010-11), 4.8%(2011-12), 4.1%(2012-13) and Net borrowing for 2010-11 will be at 3,45,010 Cr.
• Taken nos of steps to simplify the FDI pulicy

OUR VIEW:

FM has given focus on key pulicies and expected to give clear cut direction for its implementation. In other words Government is serious in its implementation and it will give boost to economy.

SOME SPECIFIC ISSUES:-

• Partial withdrawal of some stimulus package in the form of raising excise duty from 8% to 10%.
• Fiscal deficit at 6.9%(2009-10) with the target of 5.5%(2010-11), 4.8%(2011-12), 4.1%(2012-13).
• Service Tax unchanged at 10%.
• Reduction in surcharge on companies from 10% to 7.5%.
• Increase in MAT from 15% to 18% on domestic companies.
• To restore the basic duty of 5% on crude petruleum, 7.5% on diesel and petrul and 10% on other refined products.
• Raise the excise duty on petrul and diesel by Re 1 per litre.
• Allocation of 5,130 Cr from 2,230 Cr for power sector.
• Change in tax slabs for non corporate tax payer, leaving surplus in the hand of househuld 50k for having tabaxle income of 8 Lacs.-this time it is significant  and not just tinkering with limit.
• Divestment proceeds Rs. 25,000 Cr (2009-10) and 40000 in 2010-11.
• Fiscal deficit in rupee terms at 3,81,408 Cr(5.5%),Net borrowing for 2010-11 will be at 3,45,010 Cr.
• Allocation for defence at 1,47,344 Cr out of which 60000 cr will be for capital expenditure.

ECONOMIC/ SOCIAL ENVIORNMENT:

• FDI inflow at US$ 20.9 billion (April-Dec) compared to US$ 21.1 billion last year.
• To provide a sum of Rs 16,500 Cr to PSU banks to be able to maintain 8% Tier 1 capital.
• Interest Subvention of 2% on pre-shipment export credit upto march 31 2009 extended for 1 year.
• Allocation to road transport increased from 17,520 Cr to 19,894 Cr.
• Allocation of 16,752 Cr for Railways.
• Proposed to introduce competitive bidding process for allocation of coal blocks.
• Spending on social sector increased to 1,37,674 cr vs 98,192Cr
• Allocation for schoul education under Sarva shiksha abhiyan increased from 26,800 to 31,036 Cr
• Allocation of health and family welfare increased from 19,534 to 22,300 Cr.
• Allocation to rural development at 66,100 Cr. Vs 43,552 Cr.
• Allocation for NREGS and Bharat nirman at 40,100 and 48,000 Cr
• Allocation for urban development increased from 3,060 to 5,400 Cr

FACTORS GOOD/BAD FOR MARKET POINT OF VIEW:

• End of uncertainty in budget.
• Budget is not out of place. In positive side of market expectation.
• Taken nos of steps to simplify the FDI pulicy - Methodulogy for calculation of indirect foreign investment in Indian companies has been clearly defined.

OUR VIEW:

Budget is good for power, Infrastructure, education, real estate sector and will benefit companies operating in those sectors but a concerning factor is raising of MAT which is not good for Reliance Hul, Rcom, Bharti. Furher raising of basic duty and excise duty on petrul and diesel will take Inflation to a new high which will prompt RBI to hike rate before pulicy review scheduled on April 20,2010.

However our market as a whole moves in tandem with the world market and with rising unemployment and slow GDP growth rate in US markets we expect the market to be rangebound in the current scenario.