The Union Budget 2011-12 is round the corner, and this budget is a real testing time for the finance minister. It is coming at acritical time when a lot of macro level challenges like escalating food inflation, rising crude prices, high current account deficit,governance issues and difficult task of sustaining the growth momentum are making the headlines.
A comfortable and unstoppable Indian growth story has suddenly come under the threat of moderation due to factors such asescalating inflation, tight liquidity, rising interest rates, southward facing investments in industrial as well as infrastructuresectors and top of them the governance and corruption issues which have impaired the investors’ sentiments to a large extent.Given the current political landscape and with elections due in some States, carrying forward the fiscal reforms along withmaintaining the growth momentum would be a tough call.
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A comfortable and unstoppable Indian growth story has suddenly come under the threat of moderation due to factors such as
ReplyDeleteescalating inflation, tight liquidity, rising interest rates, southward facing investments in industrial as well as infrastructure
sectors and top of them the governance and corruption issues which have impaired the investors’ sentiments to a large extent.
Given the current political landscape and with elections due in some States, carrying forward the fiscal reforms along with
maintaining the growth momentum would be a tough call.
Rise in inflation is one of the major challenges that India needs to combat in order to sustain growth rates. Rising inflation has
been left largely to the monetary policy. The supply side constraints are the major contributors to the escalating inflation; and
government is expected to tackle these supply constraints by taking measures such as encouraging investment in agriculture,
increasing agriculture productivity, warehousing and storage and reducing mandi tax & efficient distribution to the end user
directly.
The rising fiscal deficit also poses a serious threat. The fiscal deficit is managed with robust revenue of 3G spectrum and
disinvestment proceeds. Fiscal deficit is expected to remain below 4.5% but the challenge remains to contain it to acceptable
level as per the Fiscal Responsibility and Budget Management Act going forward.
Recent data indicates that the foreign investment has declined from 38.1% in 2007-08 to 36.5% in 2009-10. This needs to be
addressed in order to maintain the infrastructure growth story.
Unearthing black money that has been stacked in tax havens overseas is a daunting challenge. There is a growing anticipation
that the government would pursue this matter rigorously in the coming year.
To sustain the growth momentum & expand manufacturing base the government needs to address the challenges of land
acquisition, labour reforms, infrastructure bottlenecks, mining policy, environmental issues, infrastructure financing among
others.
Agriculture could be one of the top priorities for the budget 2011-12. Supports for various agricultural products and their
effective public distribution system are likely to be announced. This is very critical to contain price of the various food Items
and making them available at reasonable prices.
Strong signals:
3G auction proceeds helped in narrow down fiscal deficit below 4.5% (even though it is one time revenue)
Revenue collections from direct and indirect taxes from 2010-11 so far are buoyant and exceeding expectations
Economic growth vibrant with revised GDP growth estimates at 8.6% & CMIE estimate at 9.2%
Domestic demand robust partially insulating us from the global anxieties on various fronts
General Expectations:
ReplyDeleteCorporate tax rate to be rationalized or lowered by 5% along with removal of surcharge and cess in order to boost
investment in creating fresh capacities. Rationalizing excise duty, sales and value added taxes with early implementation
of Goods and service Tax (GST).
With Direct Tax Code likely to be in place effective from April 1, 2012, the Budget might signal in the direction of
phasing out profit-linked incentives and encourage investment-linked ones to ramp up private investments.
Income tax slab for individuals to be revised as incorporated in the 1st draft of DTC. This will address the pressure on
inflation, consumption & savings and investments
Relief scheme for individuals to promote savings & investment particularly related to Real estate/Infrastructure.
To do away with PAN for senior citizen & pensioners for making investments in fixed deposits and mutual funds below
Rs 2 lacs. No scrutiny for senior citizen & pensioners for IT return income below Rs 10 lac.
February 19, 2010
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Excise duty net may be widened to cover SME’s that is exempt now. This may have some price impact on daily items
used by common man.
Reduce excise duty or petroleum/petroleum products on rising crude prices scenerio.
Reforms:
Raising the FDI limit in Insurance and Retail sector from the current level could be brought about in this budget
Highlights on the implementation of the GST (Goods and Service Tax) and DTC (Direct Tax Code) will be discussed
in this budget
New reforms on Public Distribution system may be announced
Grey Areas of Concern:
Continuous uproar on 2G Auction and non functioning of Parliament during the entire winter session. This could
blurt the importance on Budget presentation this year.
Global anxieties still persists on various fronts that could be a dampener.
Higher inflation causing a great concern and regulatory measures of RBI could stagnant Growth.
Rising food and fuel prices are affecting the common man to a great extent and is a big drain on their savings