Nothing radical or path-breaking from Finance Minister Pranab Mukherjee in his Budget 2011-12, his sixth such presentation. But, not many were surprised as it comes at a time when the government is battling rising inflation, major charges of corruption and an overall negative market sentiment. Working with these constraints, the FM, predictably, chose to use the populist wand by focusing on sectors such as agriculture, direct subsidies, women’s welfare schemes while leaving a bit more money in the hands of the salaried. Along with these steps, he introduced some significant moves such as opening up the domestic equity mutual funds for foreign investors and deepening of the debt market. His intent of taming the fiscal deficit at 4.6% of GDP was rewarded by the markets even though many questioned how he will achieve the feat given that there is going to be no windfall such as the 3G auction proceeds last fiscal. Mukherjee has pegged a disinvestment target of raising Rs 40,000 crore to meet the deficit but will that be achieved is another question mark. VCCircle brings to you some quick comments and reactions from a cross-section of industry leaders and experts. Read on to know how Mukherjee scored this Budget:-
Rajesh Srivastava, CMD, Rabo Equity Advisors: The Budget is again a very well crafted and balanced one, touching upon the right nerve centres. It is both reformist (eg. fastens the DTC implementation date, opens up FDI in Mutual Funds, allows infrastructure debt funds etc.) and populist (eg. financial inclusion agenda, women’s welfare scheme, direct tax thresholds etc). Containing fiscal and revenue deficits will strengthen market sentiments and further stabilize the country’s rating which are good signs for fresh investments, both domestic and foreign. The environment for Private Equity will continue to be buoyant as the country/companies are poised to charter a high growth path. India is already in the overdrive of global competiveness which gets a further fillip by the budget, which, in turn, will drive more M&As for domestic consolidation. Concurrently, India’s attractiveness as a major centre for technology, intellectual capital and consumption will strongly drive cross border M&As.
Angel Broking CMD Dinesh Thakkar: Together with new bank licenses and increased foreign bank participation over the course of next year, the gap between savings and investments should get narrowed, keeping interest rates also in check – a positive for banks, infrastructure and the overall economy. On governance, there seems to be a firm commitment to plug leakages (direct transfer of cash subsidy), reduce black money, tackle corruption, monitor performance of ministries as well as continue fiscal consolidation. Without over-stretching itself, this Budget includes a decent set of measures without compromising on its fiscal deficit position and considering this, I would assign the Budget a rating of 7 out of 10.”
Uday Ved, Head of Tax, KPMG: The Finance Minister’s announcement of increase in basic exemption limit from Rs 1.6 lakh to Rs 1.8 lakh will be a welcome relief to the “aam admi” providing tax savings of Rs 2000 per person. Also, reduction of surcharge from 7.5% to 5% for companies is a step towards transitioning to new Direct Taxes Code effective April 1, 2012. Relief of withholding taxes on interest payments to 5% on Infrastructure Debt funds by foreign investors will facilitate funding in this important sector. Introduction of Minimum Alternate Tax at 18.50% on SEZ developers and units is a retrograde step and will have adverse impact on the same. Dividends received from foreign subsidiaries will be taxed at a reduced rate of 15% compared to a normal corporate tax rate. This one time relief will help Indian corporates to repatriate dividends from their overseas ventures into India. Similar provision was introduced by the US few years back as a one-time relief and this should act as a welcome step. The FM also wants to introduce a constitutional amendment Bill for the introduction of Goods & Services Tax in this Budget session. The GST will also need buy-in from various states before it is implemented. The implementation of GST is expected to further rationalize prices for final consumers. In nutshell, this is a good balancing Budget and will add to growth in the economy.
Amitabh Jhingan, Partner and Industry Leader, Education Practice, Ernst & Young: Budget 2011-12 has promised double digit fund increases over last year’s outflows and the allocation to primary and higher education is promising. The one-time grants to some Universities would help such institutions to modernize and concentrate on specific initiatives. The scheme for vocational education post secondary education and scholarships for SC/ST is positive for employment generation. The Budget provides fiscal stimulus to corporate–academia collaborations and improving research competitiveness of Indian Universities by increasing the weighted deduction expense limits from 175% to 200%. While the Budget seems to have tinkered with the scope of taxation of education services for service tax purposes, recognized courses continue to be outside the purview of taxation. While there have been many positives, some of the areas we would have liked to see was a road map on the passage of pending education Bills, tax exemption on faculty salaries and dilution of FDI conditions prescribed for construction development of education institutions.
S. Dilliraj, CFO, SKS Microfinance: We are particularly pleased with the reconfirmation that microfinance is a national priority. And, it is backed by concrete measures that will augment the flow of credit to the sector, such as the provision of Rs 5,000 crore to SIDBI for refinancing MSME exposure of banks; increasing the agricultural credit target from Rs 3,75,000 crore to Rs 4,75,000 crore and the credit target to minority communities to 15%. Banks can meet these targets by buying the agricultural and weaker sections receivables (which accounts for 68% of SKS's portfolio) from microfinance institutions; and the creation of India Microfinance Equity Fund of Rs 100 crore with SIDBI, which will help the microfinance institutions to meet capital requirements.
Srikrishna, CEO, Birla Edutech Ltd: The encouraging aspects of the Budget 2011-2012 for the education sector are the overall increase of allocation of funds in education by 24% and a special emphasis on skill development and National Knowledge Network critical for India to be a global leader in the 21st century. However, the concerns are lack of allocation of funds for teacher improvement and training and lack of emphasis on the K-12 sector in terms of school improvement and quality control.
Arun Singh, Senior Economist, Dun & Bradstreet India: Budget 2011-12 seems to be positive and pro-reformist. On scale of 1 to 10, we would rate it at 7. Even as the Budget 2011-12 reinforces the need for continuation of the reform agenda, it lacks major big bang announcements. While the emphasis of the budget on active consideration of new fertiliser policy for urea, direct transfer of cash subsidy to BPL people for better delivery of kerosene, LPG and fertilizer, further liberalization of the FDI policy, et al is definitely positive, how these proposals fare on implementation front going forward remains to be seen. The continued thrust on agriculture, infrastructure and education will unlock much of the economic growth potential in the medium-term. As the Finance Minister rightly pointed out “the implementation gaps, leakages from public programmes and the quality of our outcomes are a serious challenge”; we expect the government to focus on resolving these issues going ahead. The direct tax concessions in the form of broadening of tax slabs will put more money in the hands of individual taxpayers, boosting consumption as well as saving. On the fiscal deficit front, the budgeted fiscal deficit of 4.6% below the finance commission target of 4.8% reiterates the government’s commitment on the fiscal consolidation. This is expected to ease some pressure on the yield front thereby easing fund mobilization for the corporates. The widening of indirect tax and service tax base is a welcome move and augurs well for the rationalisation of the tax structure in India.
Credit Analysis & Research Ltd: Increase in the rate of MAT by 50 bsp and inclusion of units operating in SEZs under MAT would negatively impact companies which presently have or are planning to set up manufacturing units in SEZs. Status quo with regards to the duty structure and increase in the weighted deduction for payments made to national laboratories, research associations etc. from 175% to 200% will not have any major impact on the sector. Increase in plan allocation for health by 20% in 2011-12 to Rs 26,760 crore will improve healthcare access in the country which is a marginal positive for the sector. Overall impact would be marginally negative due to impact of MAT on units operating in SEZs.