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India Economics-------------------------------------------------------------------------------------------------
Budget 2011/12 - A preview
● Government budget for 2011/12*, to be announced on 28
February, is likely to somewhat stimulate the economy.
● While the government is likely to set a fiscal deficit target not far
above that of 2010/11 (around 5% of GDP), we think it actually
could be higher − closer to 5.5%.
● Inflation concerns mean the government is likely to step up
allocations for social schemes and agriculture. Import duties on
certain food products and/or fuels may be lowered.
● Widespread expectations for a stable debt issuance are unlikely
to materialise. The government, in our view, is likely to target
net central debt issuance at around INR3.9 tn (INR3.3 tn
estimated for 2010/11). We think actually it could be even
higher.
2011/12 budget - likely to stimulate the economy
We expect the budget to stimulate the economy due to emerging
growth concerns, state elections (Kerala, Tamil Nadu, West Bengal
and Assam) in April and May, and inflation concerns.
2011/12 fiscal deficit could be closer to 5.5% of GDP (est
4.7% in 2010/11)
For 2010/11, the government would announce a revised estimate for
fiscal deficit − likely to look pretty impressive at around 4.7% of GDP,
thanks partly due to the windfall from the sale of 3G telecom licences.
For 2011/12, it is likely to set a budget target not too higher than that
for 2010/11 (close to 5% of GDP). In that case, however, we think an
overshoot is likely. On the revenues side, we think growth in tax
collections is likely to moderate from an estimated 24% in 2010 to
around 18% in 2011, reflecting slower GDP growth in 2011. The oneoff
bounty on telecom revenues would of course drop out. The
government, we think, is likely to target slower spending growth in
2011/12 compared to the average high 19% YoY during 2007/10. But,
we would expect some overshoot on the targeted spending.
Inflation concerns could imply import duty cuts; spending
focus on social schemes and agriculture
Given the increased attention on climbing inflation, particularly in food
prices, import duties on certain food commodities and/or fuel products
could be reduced. The personal income tax exemption limit could be
revised up from the current INR160,00. In terms of spending
increases, the government is likely to weigh in on social schemes
such as the National Rural Employment Guarantee scheme and
education, and sectors like agriculture. As usual, we expect it to
highlight increases in the infrastructure sector; but here,
implementation is the key, not higher allocations.
Debt issuance likely to move higher in 2011
So far many have expected debt issuance to be flat to slightly higher
than in 2010/11. We think the government could announce target net
debt issuance for 2011/12 at around INR3.9 tn (INR3.3 tn estimated
for 2010/11); actually, it could be even higher. So, bond yields are
likely to remain elevated (with other factors unchanged).
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
India Economics-------------------------------------------------------------------------------------------------
Budget 2011/12 - A preview
● Government budget for 2011/12*, to be announced on 28
February, is likely to somewhat stimulate the economy.
● While the government is likely to set a fiscal deficit target not far
above that of 2010/11 (around 5% of GDP), we think it actually
could be higher − closer to 5.5%.
● Inflation concerns mean the government is likely to step up
allocations for social schemes and agriculture. Import duties on
certain food products and/or fuels may be lowered.
● Widespread expectations for a stable debt issuance are unlikely
to materialise. The government, in our view, is likely to target
net central debt issuance at around INR3.9 tn (INR3.3 tn
estimated for 2010/11). We think actually it could be even
higher.
2011/12 budget - likely to stimulate the economy
We expect the budget to stimulate the economy due to emerging
growth concerns, state elections (Kerala, Tamil Nadu, West Bengal
and Assam) in April and May, and inflation concerns.
2011/12 fiscal deficit could be closer to 5.5% of GDP (est
4.7% in 2010/11)
For 2010/11, the government would announce a revised estimate for
fiscal deficit − likely to look pretty impressive at around 4.7% of GDP,
thanks partly due to the windfall from the sale of 3G telecom licences.
For 2011/12, it is likely to set a budget target not too higher than that
for 2010/11 (close to 5% of GDP). In that case, however, we think an
overshoot is likely. On the revenues side, we think growth in tax
collections is likely to moderate from an estimated 24% in 2010 to
around 18% in 2011, reflecting slower GDP growth in 2011. The oneoff
bounty on telecom revenues would of course drop out. The
government, we think, is likely to target slower spending growth in
2011/12 compared to the average high 19% YoY during 2007/10. But,
we would expect some overshoot on the targeted spending.
Inflation concerns could imply import duty cuts; spending
focus on social schemes and agriculture
Given the increased attention on climbing inflation, particularly in food
prices, import duties on certain food commodities and/or fuel products
could be reduced. The personal income tax exemption limit could be
revised up from the current INR160,00. In terms of spending
increases, the government is likely to weigh in on social schemes
such as the National Rural Employment Guarantee scheme and
education, and sectors like agriculture. As usual, we expect it to
highlight increases in the infrastructure sector; but here,
implementation is the key, not higher allocations.
Debt issuance likely to move higher in 2011
So far many have expected debt issuance to be flat to slightly higher
than in 2010/11. We think the government could announce target net
debt issuance for 2011/12 at around INR3.9 tn (INR3.3 tn estimated
for 2010/11); actually, it could be even higher. So, bond yields are
likely to remain elevated (with other factors unchanged).
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