Friday, February 26, 2010

Union Budget 2010-11 Highlights

UNION BUDGET 2010

Indian Finance Minister Mr. Pranab Mukherjee presented the Union Budget 2010 today in Parliament. A revision in the base year for calculating gross domestic product (GDP) coupled with higher growth figures has allowed finance minister Pranab Mukherjee to present a lower fiscal deficit at 5.5 % per cent of FY11 GDP. The current year's deficit has been revised to 6.9%.

The government plans to borrow 3.45 trillion rupees from the market to meet the deficit. Mukherjee also said the government aimed to reduce the fiscal deficit further, to 4.8% in the year beginning April 1, 2011.

In last Budget speech, Mr Mukherjee stated a deficit of 6.8% of GDP to support the economy during the global downturn.

· Gross Domestic Savings (GDS) at current prices in 2008-09 were estimated at Rs 18,11,585 crore, amounting to 32.5% of GDP at market prices as against 36.4 % in the previous year

· Govt. says hat there is a need to review Stimulus.

· At 6.8%, the government’s deficit roughly translated into Rs 400,000 crore of borrowing in FY 2009-10.

· Final Figure of FY10 GDP may be higher than 7.2%

  • It would be for the first time that the Government would target an explicit reduction in its domestic public debt-GDP ratio.

TAX REFORMS:

· On the Direct Tax Code (DTC) the wide-ranging discussions with stakeholders have been concluded – Government will be in a position to implement the DTC from April 1, 2011.

· Centre actively engaged with the Empowered Committee of State Finance Ministers to finalize the structure of Goods and Services Tax (GST) as well as the modalities of its expeditious implementation. Endeavour to introduce GST by April, 2011.

KEY CHALLENGES:

  • To quickly revert to the high GDP growth path of 9 per cent and then find the means to cross the ‘double digit growth barrier’.
  • To harness economic growth to consolidate the recent gains in making development more inclusive.
  • To address the weaknesses in government systems, structures and institutions at different levels of governance.

DISINVESTMENT POLICY:

· Ownership has been broad based in Oil India Limited, NHPC, NTPC and Rural Electrification Corporation while the process is on for National Mineral Development Corporation and Satluj Jal Vidyut Nigam. This will raise about Rs 25,000 crore during the current year.

· Higher amount proposed to be raised during the year 2010-11.

FOREIGN DIRECT INVESTMENT:

· Number of steps taken to simplify the FDI regime.

· Methodology for calculation of indirect foreign investment in Indian companies has been clearly defined.

· Complete liberalization of pricing and payment of technology transfer fee and trademark, brand name and royalty payments.

BANKING:

· RBI to consider new banking licenses for private sector.

POSITIVE FOR BAJAJ GROUP & MUTHOOT GROUP.

· Rs.16,500 crore provided to ensure that the Public Sector Banks are able to attain a minimum 8 per cent Tier-I capital by March 31, 2011.

· Government to provide further capital to strengthen the RRBs (Regional Rural Banks) so that they have adequate capital base to support increased lending to the rural economy.

· To Extend farm loan payment by 6 Months

· Rs 1,900 Cr additional capital in four PSU banks.

POSITIVE FOR ALL THE BANKING STOCKS LIKE STATE BANK OF INDIA, PNB, BANK OF INDIA, UNION BANK, UCO BANK.

EXPORTS:

  • Extension of existing interest subvention of 2 per cent for one more year for exports covering handicrafts, carpets, handlooms and small and medium enterprises.
      • POSITIVE FOR ALL THE TEXTILE COMPANIES LIKE CENTURY TEXTILES, BOMBAY DYEING, WELSPUN GUJARAT, ARVIND MILLS, BOMBAY RAYON FASHIONS

  • AGRICULTURE:

    • Rs. 400 crore provided to extend the green revolution to the eastern region of the country comprising Bihar, Chattisgarh, Jharkhand, Eastern UP, West Bengal and Orissa.

    POSITIVE FOR JAIN IRRIGATION, CHAMBAL FERT, NAGARJUNA FERT, RCF, NFL, DEEPAK FERT, GNFC, GSFC.

    • Rs. 300 crore provided to organise 60,000 “pulses and oil seed villages” in rain-fed areas during 2010-11 and provide an integrated intervention for water harvesting, watershed management and soil health, to enhance the productivity of the dry land farming areas.
    • Banks have been consistently meeting the targets set for agriculture credit flow in the past few years. For the year 2010-11, the target has been set at Rs.3,75,000 crore.
    • Incentive of additional one per cent interest subvention to farmers who repay short-term crop loans as per schedule, increased to 2% for 2010-11.

    FOOD PROCESSING:

    • In addition to the ten mega food park projects already being set up, the Government has decided to set up five more such parks.
    • 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.

    POSITIVE FOR KOHINOOR FOODS, KRBL, LAKSHMI ENERGY, REI AGRO, ITC

    INFRASTRUCTURE:

    · Rs 1,73,552 crore provided for infrastructure development which accounts for over 46 per cent of the total plan allocation.

    • Allocation for road transport increased by over 13 per cent from Rs. 17,520 crore to Rs 19,894 crore.

    POSITIVE FOR POSITIVE FOR HCC, IVRCL INFRA, IRB REAL ESTATE, GAMMON INDIA, INDIBULLS REAL ESTATE, RELIANCE INFRA, RELIANCE INDUSTRAIL INFRA, ALSTOM PROJECTS, NAGARJUNA CONSTRUCTIONS, GAYATRI PROJECTS

    • Rs 16,752 crore provided for Railways, which is about Rs.950 crore more than last year.

    POSITIVE FOR KALINDEE RAIL NIRMAN, TITAGARH WAGONS, CONCOR, WALCHANDNAGAR INDUSTRIES.

    ENERGY:

    • 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” to create a level playing field in the coal sector proposed to be set up.

    POSITIVE FOR NMDC, GUJARAT NRE COKE, MMTC

    • Plan outlay for the Ministry of New and Renewable Energy increased by 61 per cent from Rs.620 crore in 2009-10 to Rs.1,000 crore in 2010-11.
    • Solar, small hydro and micro power projects at a cost of about Rs.500 crore to be set up in Ladakh region of Jammu and Kashmir.

    POSITIVE FOR SUZLON, MOSERBAER, RELIANCE & BHEL

    EDUCATION:

    · Plan allocation for school education increased by 16 per cent from Rs.26,800 crore in 2009-10 to Rs.31,036 crore in 2010-11.

    • In addition, States will have access to Rs.3,675 crore for elementary education under the Thirteenth Finance Commission grants for 2010-11.

    POSITIVE FOR EDUCOMP SOLUTIONS, CORE PROJECTS, APTECH, NIIT.

    HEALTH:

    • Plan allocation to Ministry of Health & Family Welfare increased from Rs 19,534 crore in 2009-10 to Rs 22,300 crore for 2010-11.

    RURAL DEVELOPMENT:

    • Rs. 66,100 crore provided for Rural Development.
    • Allocation for Mahatma Gandhi National Rural Employment Guarantee Scheme stepped up to Rs.40,100 crore in 2010-11.
    • An amount of Rs.48,000 crore allocated for rural infrastructure programmes under Bharat Nirman.

    POSITIVE FOR POSITIVE FOR HCC, IVRCL INFRA, IRB REAL ESTATE, GAMMON INDIA, INDIBULLS REAL ESTATE, RELIANCE INFRA, RELIANCE INDUSTRAIL INFRA, ALSTOM PROJECTS, NAGARJUNA CONSTRUCTIONS, GAYATRI PROJECTS

    • 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.10,000 crore.
    • Allocation to Backward Region Grant Fund enhanced by 26 per cent from Rs.5,800 crore in 2009-10 to Rs 7,300 crore in 2010-11.
    • Additional central assistance of Rs 1,200 crore provided for drought mitigation in the Bundelkhand region.

    URBAN DEVELOPMENT & HOUSING:

    • Allocation for urban development increased by more than 75 per cent from Rs.3,060 crore to Rs.5,400 crore in 2010-11.
    • Allocation for Housing and Urban Poverty Alleviation raised from Rs.850 crore to Rs.1,000 crore in 2010-11.

    POSITIVE FOR POSITIVE FOR DLF, UNITECH, HDIL, PARSVANATH DEVELOPERS, IVRCL INFRA, IRB REAL ESTATE, GAMMON INDIA, INDIBULLS REAL ESTATE, RELIANCE INFRA, RELIANCE INDUSTRAIL INFRA, ALSTOM PROJECTS

    • Scheme of one per cent interest subvention on housing loan upto Rs.10 lakh, where the cost of the house does not exceed Rs.20 lakh — announced in the last Budget — extended up to March 31, 2011. Rs.700 crore provided for this scheme for the year 2010-11.
    • Rs.1,270 crore allocated for Rajiv Awas Yojana as compared to Rs.150 crore last year.

    MICRO, SMALL & MEDIUM ENTERPRISES:

    • High Level Council on Micro and Small Enterprises to monitor the implementation of the recommendations of High-Level Task Force constituted by Prime Minister.
    • Allocation for this sector to be increased from Rs.1,794 crore to Rs.2,400 crore for the year 2010-11.
    • The corpus for Micro-Finance Development and Equity Fund doubled to Rs.400 crore in 2010-11.

    SOCIAL WELFARE:

    • Plan outlay for Women and Child Development stepped up by almost 50 per cent.
    • The ICDS platform being expanded for effective implementation of the Rajiv Gandhi Scheme for Adolescent Girls.
    • Saakshar Bharat” to further improve female literacy rate launched with a target of 7 crore non-literate adults which includes 6 crore women.
    • Mahila Kisan Sashaktikaran Pariyojana to meet the specific needs of women farmers to be launched with a provision of Rs 100 crore as a sub-component of the National Rural Livelihood Mission.
    • Plan outlay of the Ministry of Social Justice and Empowerment enhanced by 80 per cent to Rs.4500 crore. With this enhancement, the Ministry will be able to revise rates of scholarship under its post-matric scholarship schemes for SCs and OBC students.
    • Plan allocation for the Ministry of Minority Affairs increased by 50 per cent from Rs.1,740 crore to Rs.2,600 crore for the year 2010-11.

    BUDGET ESTIMATES:

    • The Gross Tax Receipts are estimated at Rs. 7,46,651 crore.
    • The Non Tax Revenue Receipts are estimated at Rs. 1,48,118 crore.
    • The net tax revenue to the Centre as well as the expenditure provisions in 2010-11 have been estimated with reference to the recommendations of the Thirteenth Finance Commission.
    • The total expenditure proposed in the Budget Estimates is Rs. 11,08,749 crore, which is an increase of 8.6 per cent over last year.
    • The Plan and Non Plan expenditures in BE 2010-11 are estimated at Rs. 3,73,092 crore and Rs. 7,35,657 crore respectively. While there is 15 per cent increase in Plan expenditure, the increase in Non Plan expenditure is only 6 per cent over the BE of previous year.
    • Fiscal deficit for BE 2010-11 at 5.5 per cent of GDP, which works out to Rs.3,81,408 crore.
    • Taking into account the various other financing items for fiscal deficit, the actual net market borrowing of the Government in 2010-11 would be of the order of Rs.3,45,010 crore. This would leave enough space to meet the credit needs of the private sector.
    • The rolling targets for fiscal deficit are pegged at 4.8 per cent and 4.1 per cent for 2011-12 and 2012-13, respectively.
    • Against a fiscal deficit of 7.8 per cent in 2008-09, inclusive of oil and fertilizer bonds, the comparable fiscal deficit is 6.9 per cent as per the Revised Estimates for 2009-10.
    • Conscious effort made to avoid issuing bonds to oil and fertilizer 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.

    TAX PROPOSALS:

    • The income tax department to notify SARAL-II form for individual salaried taxpayers for the coming assessment year.

    • Direct Taxes

    § Income tax slabs for individual taxpayers to be as follows:

    Income Upto Rs 1.6 Lakh

    Nil

    Income above Rs 1.6 Lakh and upto Rs. 5 Lakh

    10%

    Income above Rs. 5 Lakh and upto Rs. 8 Lakh

    20%

    Income above Rs. 8 Lakh

    30%

    § Deduction of an additional amount of Rs. 20,000 allowed, over and above the existing limit of Rs.1 lakh on tax savings, for investment in long-term infrastructure bonds as notified by the Central Government.

    § Besides contributions to health insurance schemes which is currently allowed as a deduction under the Income-tax Act, contributions to the Central Government Health Scheme also allowed as a deduction under the same provision.

    § Current surcharge of 10 per cent on domestic companies reduced to 7.5 per cent.

    § Rate of Minimum Alternate Tax (MAT) increased from the current rate of 15 per cent to 18 per cent of book profits.

    § To further encourage R&D across all sectors of the economy, weighted deduction on expenditure incurred on in-house R&D enhanced from 150 per cent to 200 per cent. Weighted deduction on payments made to National Laboratories, research associations, colleges, universities and other institutions, for scientific research enhanced from 125 per cent to 175 per cent.

    § Benefit of investment linked deduction under the Act extended to new hotels of two-star category and above anywhere in India to boost investment in the tourism sector.

    § Limits for turnover over which accounts need to be audited enhanced to Rs. 60 lakh for businesses and to Rs. 15 lakh for professions.

    § Limit of turnover for the purpose of presumptive taxation of small businesses enhanced to Rs. 60 lakh.

    § To facilitate the conversion of small companies into Limited Liability Partnerships, transfer of assets as a result of such conversion not to be subject to capital gains tax.

    § Proposals on direct taxes estimated to result in a revenue loss of Rs. 26,000 crore for the year.

    Indirect Taxes

    § Rate reduction in Central Excise duties to be partially rolled back and the standard rate on all non-petroleum products enhanced from 8 per cent to 10 per cent ad valorem.

    NEGATIVE FOR ALL MANUFACTURING COMPANIES

    § The ad valorem component of excise duty on large cars, multi-utility vehicles and sports-utility vehicles increased by 2 percentage points to 22 per cent.

    NEGATIVE FOR MARUTI SUZUKI, TATA MOTORS, MAHINDRA & MAHINDRA, ASHOK LEYLAND, FORCE MOTORS, EICHER MOTORS.

    § Restore the basic duty of 5 per cent on crude petroleum; 7.5 per cent on diesel and petrol and 10 per cent on other refined products. Central Excise duty on petrol and diesel enhanced by Re.1 per litre each.

    NEGATIVE FOR ONGC, RELIANCE INDUSTRIES, ESSAR OIL, BPCL, HPCL, IOCL.

    § 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.

    NEGATIVE FOR ITC, GODFREY PHILLIPS.

    § Provide project import status at a concessional customs duty of 5 per cent with full exemption from service tax to the initial setting up and expansion of:

    (I) Cold storage, cold room including farm pre-coolers for preservation or storage of agriculture and related sectors produce.

    (II) Processing units for such produce.

    § Provide full exemption from customs duty to refrigeration units required for the manufacture of refrigerated vans or trucks.

    § Provide concessional customs duty of 5 per cent to specified agricultural machinery not manufactured inIndia.

    § To exempt the testing and certification of agricultural seeds from service tax.

    § The transportation by road of cereals, and pulses to be exempted from service tax. Transportation by rail to remain exempt.

    § Provide a concessional customs duty of 5 per cent to 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.

    § Central Excise duty on LED lights reduced from 8 per cent to 4 per cent at par with Compact Fluorescent Lamps.

    POSITIVE FOR HAVELLS INDIA, CROMPTON GREAVES.

    § Rates on precious metals indexed as follows:

    (I) On gold and platinum from Rs.200 per 10 grams to Rs.300 per 10 grams

    (II) On silver from Rs.1,000 per kg to Rs.1,500 per kg.

    § Basic customs on Rhodium – a precious metal used for polishing jewellery reduced to 2 per cent.

    § Toy balloons fully exempted from Central Excise duty.

    POSITIVE FOR HANUNG TOYS

    § Reduction in basic customs duty on long pepper from 70 per cent to 30 per cent

    § Reduction in basic customs duty on asafoetida from 30 per cent to 20 per cent

    § Reduction in central excise duty on replaceable kits for household type water filters other than those based on RO technology to 4 per cent

    § Reduction in central excise duty on corrugated boxes and cartons from 8 per cent to 4 per cent

    § Reduction in central excise duty on latex rubber thread from 8 per cent to 4 per cent

    § Reduction in excise duty on goods covered under the Medicinal and Toilet Preparations Act from 16 per cent to 10 per cent.

    § Proposals relating to customs and central excise are estimated to result in a net revenue gain of Rs. 43,500 crore for the year.

    Service Taxes

    § Rate of tax on services retained at 10 per cent to pave the way forward for GST.

    § Accredited news agencies which provide news feed online that meet certain criteria, exempted from service tax.