This budget will be more closely watched given the “COALITION COMPROMISES” that the PM referred to, “ELECTIONS”, “HIGH INFLATION”, and “SUBSIDIES for the common man” excluding the one given to telecom subscribers. With Mr. Raja behind bars until a few days after the budget is announced could mean that the Parliament will function during the budget session. This is a positive and a relief for equity investors whose confidence and wealth have been impacted by 1) Inflation and rising interest rates; and (2) Ethical Deficit and its fallout on key decisions. However, given the forthcoming elections in Tamil Nadu, Kerala & West Bengal and COALITION COMPROMISES, the government may defer tough decisions on decontrolling diesel prices and curbing other subsidies until inflation cools off. At $100/bbl crude oil prices, losses could be in the region of `110,000-120,000 cr with the government’s 33% share at Rs. 35000-40000 cr as against Rs. 21000 cr for Apr-Dec-10. At 45% sharing as in 3QFY11, the burden rises to Rs. 50000-55000 cr. Fertilizer subsidy (Rs. 50000 cr BE) and food subsidies (Rs. 56000 cr BE) that were budgeted at 11% of FY11 budget expenditure are likely to expand with food inflation and higher oil price. A mechanism and framework for direct subsidy to end users being established is a positive. Direct money transfer to the rural consumer in the form of NREGA (Rs. 40100 cr BE) will continue to be the focus and could see its outlay rise with the rise in CPI (AL). The final fiscal deficit for FY11 is likely to be lower than the 5.5% budgeted due to Rs. 106000 cr inflow from the Telecom auctions. From companies, indirect tax changes could be minimal given that GST will be big change. Clarity on implementation of GST will be a positive. Additional services under the tax net is a possibility. The STPI clause extension for another year will be a keenly watched event from IT companies perspective. The Direct Tax Code being implemented in FY13 will mean cosmetic changes on income tax in the budget as a psychological relief to inflation burdened middle class. From a stock market perspective, we would keenly watch for clarity of taxation on Long-term under DTC as any tax on long-term gains could lead to profit booking before the tax comes into place. Another, key point will be disinvestment proceeds that could be below target for FY11 with a large target for FY12 to compensate the 3G inflows in FY11.
Tuesday, February 22, 2011
Manish Shah - Associate Director, Equity,Motilal Oswal Securities
This budget will be more closely watched given the “COALITION COMPROMISES” that the PM referred to, “ELECTIONS”, “HIGH INFLATION”, and “SUBSIDIES for the common man” excluding the one given to telecom subscribers. With Mr. Raja behind bars until a few days after the budget is announced could mean that the Parliament will function during the budget session. This is a positive and a relief for equity investors whose confidence and wealth have been impacted by 1) Inflation and rising interest rates; and (2) Ethical Deficit and its fallout on key decisions. However, given the forthcoming elections in Tamil Nadu, Kerala & West Bengal and COALITION COMPROMISES, the government may defer tough decisions on decontrolling diesel prices and curbing other subsidies until inflation cools off. At $100/bbl crude oil prices, losses could be in the region of `110,000-120,000 cr with the government’s 33% share at Rs. 35000-40000 cr as against Rs. 21000 cr for Apr-Dec-10. At 45% sharing as in 3QFY11, the burden rises to Rs. 50000-55000 cr. Fertilizer subsidy (Rs. 50000 cr BE) and food subsidies (Rs. 56000 cr BE) that were budgeted at 11% of FY11 budget expenditure are likely to expand with food inflation and higher oil price. A mechanism and framework for direct subsidy to end users being established is a positive. Direct money transfer to the rural consumer in the form of NREGA (Rs. 40100 cr BE) will continue to be the focus and could see its outlay rise with the rise in CPI (AL). The final fiscal deficit for FY11 is likely to be lower than the 5.5% budgeted due to Rs. 106000 cr inflow from the Telecom auctions. From companies, indirect tax changes could be minimal given that GST will be big change. Clarity on implementation of GST will be a positive. Additional services under the tax net is a possibility. The STPI clause extension for another year will be a keenly watched event from IT companies perspective. The Direct Tax Code being implemented in FY13 will mean cosmetic changes on income tax in the budget as a psychological relief to inflation burdened middle class. From a stock market perspective, we would keenly watch for clarity of taxation on Long-term under DTC as any tax on long-term gains could lead to profit booking before the tax comes into place. Another, key point will be disinvestment proceeds that could be below target for FY11 with a large target for FY12 to compensate the 3G inflows in FY11.
Vikram Kotak, Chief Investment Officer, Birla Sun Life Insurance
There is a dire need for a transformational budget as India is witnessing astonishing changes both at local and global levels. There are unanswered questions around slowdown in Industrial Capex, Interest rate stability, Inflation and Polluted Business Climate. It will be very important to see fiscal policy particularly on revenue expenditure discipline. This would require cuts in spending on defence, and a reduction in central government assistance to the states. Such cuts are necessary in an environment of high inflation and robust growth. They would also help create room for other high priority expenditure in areas like health and education.India today needs almost $ 1 tn in next five year plan towards infrastructure spending. To achieve such ambitious target we need to have financing in place and domestic financing cannot even support half of total infra spending. There is a need to look at more innovative routes like creating special Infrastructure vehicles or reviving IIFCL. Also, budget should get more liberal to FDI route for many sectors and that can fund large part of our infrastructure deficit.
There is immense nervousness in the mind of decision makers and investors in India on the back of scams and backlash of the past. However, rural growth, aspiring middle class and strong and sustained demand are the silver linings. This is good time for the Finance Minister to fill the gap between strong growth and supply challenges by putting a solid execution road map for Infrastructure, GST and Direct tax code. Gujarat, Delhi & Bihar are good examples of sucess.
Times are challenging but opportunities are overwhelming. We need a transformation that fillips our progress & puts economy on a path that is in best interest of the country & society.
Friday, February 18, 2011
S. Raghunatha Prabhu, Punnapra
Personal Income-tax should be abolished. It would have been abolished years ago if at least 25 % of our politicians, who declare only subsistance- level income, paid any income-tax. Income tax forms just 2 % of the government's revenue. It could be recovered through an expenditure tax. Abolition of Income-tax will solve many problems such as tax-evasion, black money, filing and keeping Income-tax returns besides keeping a large number of income-tax personnel. 2-G spectrum scam lost us Rs.1,76,000 crore. S-band spectrum caused us a loss of Rs.2,00,000 crore. There are huge sums of Indian black money in foreign tax havens. So the honest salaried class deserves total income-tax exemption. Moreover, it is not those who work, earn and invest and indirectly contribute to the society's well being who should be taxed. The government should tax those who consume and get benefits from the society .Expenditure tax will serve this purpose better than Income-tax. Interest on Bank deposits should be exempted from income-tax. It is the salaried class and lower middle-income groups who deposit money in banks. The wealthier class prefers stock market and realty. Interest on bank deposits is the only source of additional income for most of the the lower-income groups and retired persons.Exempting bank deposit interest from income-tax will be a great relief for the bank depositors and banks will be saved from the tedious task of TDS. Banks will attract more deposits.
J. Balasubramanian, Madurai
In the present day scenario Service Sector Income is also a major contributor to the Gross Domestic Product (GDP) as compared to the Manufacturing Industry. Hence all the provisions contained in the Statutes governing Goods shall be suitably amended in the Statutes governing Services. Trade Discount is one such issue being discussed here. Trade Discount in any merchandise is a common phenomenon especially between Channels of distribution. The Valuation of Services under Service Tax Rules governed by Sec 67 of the Finance Act does not contain any specific provisions dealing with Trade Discount, whereas a specific provision is available in the Central Excise Act.More...
Darius Pandole, Partner, New Silk Route Advisors
For the union budget 2011, the FM will have to balance the twin imperatives of encouragingdomestic demand and stimulating growth, whilst keeping the fiscal deficit and inflation undercontrol.A prerequisite for domestic growth is channeling investments into Indian infrastructure, includinghealthcare and education. This would require increasing the availability and reducing the cost oflong term funding through dedicated infrastructure debt funds, fiscal incentives such as taxexemption of interest income from infrastructure bonds, and encouraging PPP models toimprove on-ground project execution. Improved infrastructure would lower the cost of doingbusiness in India, and provide multiplier benefits for the economy.
More...
Manish Mandhana, MD, Mandhana Industries Ltd.
The textile sector accounts for nearly 14% of the total industrial output and about 30% of the total exports, whereas the apparel industry in the biggest sector in foreign earnings sharing 12% of the country’s export total. In spite of this not much activity appears to be in effect from the Government’s side on strengthening the industry’s position. The first thing in demand by the industry would be to lift the indefinite abeyance on the fresh sanction of term loans under TUFS by banks, immediately and need security on it along with pumping of fresh investments in the sector. Secondly the country’s trade deficit is projected to touch a record US$ 135 billion this fiscal year and this widening trend is a macro economic concern for the country. Promoting exports is the need of the hour to beat this trend.More...
Getamber Anand, Managing Director, ATS Group, Vice President (North), CREDAI
In any economy, Real Estate plays the role of one of the most important driving forces. More so in developing economies, wherein not only is the Real Estate an important economic driver but also facilitates social reengineering, inclusive growth and addresses various facets of urbanization. Hence it is time that Government takes practical cognizance of the vitally important role that the real estate sector plays in the Indian economy in the forthcoming Union Budget 2011-2012.
Some of the stark realities of India’s unequal distribution of growth is evident from the common statistics like 15% of the country’s urban population living in slums, 35% of all urban households living in single room dwellings, shortage in urban households currently being 25 million houses etc. It is time that the Union Budget takes serious cognizance to the issue and offer more sops under affordable housing.
In this budget, Rajiv Awas Yojana should be clarified and the ambiguities addressed to enable focussed activities under the Yojana. Furthermore, under affordable housing, government should consider incentivising the buyers, among others, through capitalization of interest subsidy so that contribution deficiency of potential customers could be addressed. This would create a demand which will provide stimulus to the developers to actively pursue this segment of the market in tier 3 and tier 4 locations.
I also expect the forthcoming budget to address the issue of the complex tax structure for the real estate sector. Government should work towards creating a nationwide, unified taxation system, which currently differs between states.
Some of the stark realities of India’s unequal distribution of growth is evident from the common statistics like 15% of the country’s urban population living in slums, 35% of all urban households living in single room dwellings, shortage in urban households currently being 25 million houses etc. It is time that the Union Budget takes serious cognizance to the issue and offer more sops under affordable housing.
In this budget, Rajiv Awas Yojana should be clarified and the ambiguities addressed to enable focussed activities under the Yojana. Furthermore, under affordable housing, government should consider incentivising the buyers, among others, through capitalization of interest subsidy so that contribution deficiency of potential customers could be addressed. This would create a demand which will provide stimulus to the developers to actively pursue this segment of the market in tier 3 and tier 4 locations.
I also expect the forthcoming budget to address the issue of the complex tax structure for the real estate sector. Government should work towards creating a nationwide, unified taxation system, which currently differs between states.
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