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Budget amid pandemonium
Budget 2011-12 will provide the right opportunity to the government to
allay the anxiety of one and all given the spate of negative news the
country is dealing with at this point in time. We expect the Budget to be a
populist one mainly for the “Aam Aadmi” (relaxation in tax slabs and high
social spending) given the rising prices of essential commodities. The
Budget should also seriously focus on attracting fresh investments and
focus on providing a better environment for speedy execution of the same
so as to contain the secular consumption growth. Also, this Budget will
mark the end of the fiscal stimulus that it had provided in 2008-09.
Key points to watch out for:
• Budget 2011-12 will see the full exit from the fiscal stimulus. We expect
that there will be a 200 bps roll back in excise duty and services tax,
which will strengthen the indirect tax revenue for the Centre in 2011-12.
There may be a new set of services that will be bought under the
services tax net (like CA audit, services related to corporate finance and
accounts, hospitals, OPD services, etc.)
• Buoyancy in the corporate sector and rising income levels of
individuals will allow the government to budget in higher direct tax
revenues. We expect direct tax revenues to grow at 14.3% and 16.7%
for FY11E and FY12E, respectively
• We expect disinvestment to happen in FY12 to the tune of | 35,000
crore. Though the one-off in the form of 3G auctions will be missing, a
surprise in the form of amnesty scheme can propel the government
kitty
• On the spending side, though there may not be enough for the
government to do, social sector spending and infrastructure spending
will continue to get higher allocation. Special focus may be put on
creating vehicles and systems for long-term funding required for
developing Infrastructure. Limit for tax exemption for investing in
infrastructure bonds may be increased from the current limit of | 20000
per annum
• The government may budget in higher subsidies on account of food
subsidy (high food inflation) and petroleum subsidy (higher oil prices).
For FY11E, we expect the revised bill for subsidies at | 1.65 trillion vs. |
1.16 trillion as per budget estimates
• On the borrowing front, we expect the government to budget in a gross
market borrowing of | 4.8 trillion for FY12E vs. | 4.57 trillion borrowed
in FY11E
• Also, there may be some announcements related to the roadmap of
certain key reforms like enactment and setting a definite
implementation timeline for GST and DTC. Apart from these, we may
see some relief on individual tax slabs (populist move on the other
hand as it will put money in the hands of the common man to combat
inflation). This will be a natural move to align with provisions of DTC
• We expect the government to budget a gross fiscal deficit of 4.8% for
2010-11RE and put a target of 5.1% deficit for 2011-12BE
All in all, we believe Budget 2011-12 will definitely focus on fiscal
consolidation. However, it will also manage to anchor in long-term growth
expectations.
What will the Budget focus on?
Fiscal stimulus in the form of various tax cuts, increase in Sixth Pay
Commission, farm loan waiver and high emphasis on social spending has
had a more than required impact on intensifying the consumption cycle in
the economy over the last couple of years. However, at the same time, the
focus on creating infrastructure to support the secular trend in consumption
is lagging behind by a wide margin. Given the domestic backdrop at this
point in time we expect the Budget to be a populist one so that the
government can put more money in the hands of the common man to
combat the inflationary environment.
We believe the government should rather focus on supply side issues the
economy is facing and try to reduce the velocity of the consumption cycle
so that it enables the system to tackle the problems of high inflation, high
input prices and high interest rates without hurting GDP growth rates much.
On the supply side, we expect the government to focus more on:
• Food security (focus on food security via creation of warehousing &
distribution infrastructure so that demand-supply shocks can be
effectively managed)
• Infrastructure development and execution of the same with less
regulatory hurdles possible (issues relating to land acquisition and
other clearances in sectors such as roads, power and mining)
• Giving more impetus to private sector participation so that execution
becomes more effective and the government, on the other hand,
can focus on the implementation part
• Policy reforms in the oil & gas sector: For instance, effective solution
to the deadlock over the Cairn Energy and Vedanta deal can have a
positive bearing on the forthcoming NELP IX auctions. This will be
encouraging for attracting fresh investments in the energy sector.
This will add to the energy security of the country
• Focusing on creating a vibrant corporate debt market and financial
instruments so as to provide necessary funding for infrastructure
development at a reasonable cost of borrowing
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Budget amid pandemonium
Budget 2011-12 will provide the right opportunity to the government to
allay the anxiety of one and all given the spate of negative news the
country is dealing with at this point in time. We expect the Budget to be a
populist one mainly for the “Aam Aadmi” (relaxation in tax slabs and high
social spending) given the rising prices of essential commodities. The
Budget should also seriously focus on attracting fresh investments and
focus on providing a better environment for speedy execution of the same
so as to contain the secular consumption growth. Also, this Budget will
mark the end of the fiscal stimulus that it had provided in 2008-09.
Key points to watch out for:
• Budget 2011-12 will see the full exit from the fiscal stimulus. We expect
that there will be a 200 bps roll back in excise duty and services tax,
which will strengthen the indirect tax revenue for the Centre in 2011-12.
There may be a new set of services that will be bought under the
services tax net (like CA audit, services related to corporate finance and
accounts, hospitals, OPD services, etc.)
• Buoyancy in the corporate sector and rising income levels of
individuals will allow the government to budget in higher direct tax
revenues. We expect direct tax revenues to grow at 14.3% and 16.7%
for FY11E and FY12E, respectively
• We expect disinvestment to happen in FY12 to the tune of | 35,000
crore. Though the one-off in the form of 3G auctions will be missing, a
surprise in the form of amnesty scheme can propel the government
kitty
• On the spending side, though there may not be enough for the
government to do, social sector spending and infrastructure spending
will continue to get higher allocation. Special focus may be put on
creating vehicles and systems for long-term funding required for
developing Infrastructure. Limit for tax exemption for investing in
infrastructure bonds may be increased from the current limit of | 20000
per annum
• The government may budget in higher subsidies on account of food
subsidy (high food inflation) and petroleum subsidy (higher oil prices).
For FY11E, we expect the revised bill for subsidies at | 1.65 trillion vs. |
1.16 trillion as per budget estimates
• On the borrowing front, we expect the government to budget in a gross
market borrowing of | 4.8 trillion for FY12E vs. | 4.57 trillion borrowed
in FY11E
• Also, there may be some announcements related to the roadmap of
certain key reforms like enactment and setting a definite
implementation timeline for GST and DTC. Apart from these, we may
see some relief on individual tax slabs (populist move on the other
hand as it will put money in the hands of the common man to combat
inflation). This will be a natural move to align with provisions of DTC
• We expect the government to budget a gross fiscal deficit of 4.8% for
2010-11RE and put a target of 5.1% deficit for 2011-12BE
All in all, we believe Budget 2011-12 will definitely focus on fiscal
consolidation. However, it will also manage to anchor in long-term growth
expectations.
What will the Budget focus on?
Fiscal stimulus in the form of various tax cuts, increase in Sixth Pay
Commission, farm loan waiver and high emphasis on social spending has
had a more than required impact on intensifying the consumption cycle in
the economy over the last couple of years. However, at the same time, the
focus on creating infrastructure to support the secular trend in consumption
is lagging behind by a wide margin. Given the domestic backdrop at this
point in time we expect the Budget to be a populist one so that the
government can put more money in the hands of the common man to
combat the inflationary environment.
We believe the government should rather focus on supply side issues the
economy is facing and try to reduce the velocity of the consumption cycle
so that it enables the system to tackle the problems of high inflation, high
input prices and high interest rates without hurting GDP growth rates much.
On the supply side, we expect the government to focus more on:
• Food security (focus on food security via creation of warehousing &
distribution infrastructure so that demand-supply shocks can be
effectively managed)
• Infrastructure development and execution of the same with less
regulatory hurdles possible (issues relating to land acquisition and
other clearances in sectors such as roads, power and mining)
• Giving more impetus to private sector participation so that execution
becomes more effective and the government, on the other hand,
can focus on the implementation part
• Policy reforms in the oil & gas sector: For instance, effective solution
to the deadlock over the Cairn Energy and Vedanta deal can have a
positive bearing on the forthcoming NELP IX auctions. This will be
encouraging for attracting fresh investments in the energy sector.
This will add to the energy security of the country
• Focusing on creating a vibrant corporate debt market and financial
instruments so as to provide necessary funding for infrastructure
development at a reasonable cost of borrowing
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