1

So, the countdown has begun. What remains

to be seen is how Pranab Mukherjee, the crisis
manager of the ruling dispensation, is going
to manage the post-crisis situation. As he's
set to present his second full budget as UPA's
finance minister on February 26, the key
question would be whether he will start
phasing out the stimulus measures,
announced to help the collapsing economy
recover on a fast pitch. And now it's official --
the stimuli have worked and the growth is
back. Citing the rapid rebound in industrial
production and changing macro economic
outlook, a section of the industry, academia
and even the government has urged the
finance ministry to put fiscal discipline at top
of its agenda and start withdrawing stimulus.
Widening fiscal deficit, as a result of the
government's increasing public spending, is a
symptom of an unhealthy economy, say the
fiscal disciplinists.

2010 is not 2009

Presenting his first full budget

of the UPA government in July 2009, the
 2

options before Mukherjee were limited and

challenges galore. The global economy was
still struggling with the Great Recession and
India's economic output was steadily falling.
The economic expansion shrank to 6.7
percent in 2008-09 from 9 percent the fiscal
before, and industrial production as well as
exports was plummeting. The RBI had cut
down rates and the government had already
announced fiscal measures to boost demand
and production. Mukherjee presented a
cautious budget -- put the proposed financial
reforms on the back burner, increased public
spending, retained stimulus measures and
avoided introducing any drastic changes in
the tax structure. But in 2010, the green
shoots offer opportunity for the finance
minister to take imaginative policy actions.
The fear mongers in the academia think the
government should grab this opportunity to
cut spending and bring down deficit. How
sustainable would be such a move?

Let's now look at some figures. The fiscal

deficit for 2009-10 is estimated to be 6.8
percent of the gross domestic product (GDP),
up from 6.2 percent in 2008-09 and 3.1
 3

percent the year before. Deficit has started

widening in 2008, the year global economy
was hit by recession, as the government's
revenue reduced sharply on slowdown and
expenditure grew on stimulus. Many analysts
compare this situation with early 1990s when
India was struggling with the twin problems of
slowdown and deficit. When Manmohan Singh
presented his first budget as finance minister
in 1991, one of his key focuses was to bring in
fiscal rectitude. The gap between the
government's revenues and expenditure shot
up to 8.4 percent of GDP during Madhu
Dandavate, the predecessor of Singh. In his
budget speech for 1991-92, Singh proposed to
bring down deficit to 5.78 percent. To achieve
this, he had two options – increase the
government's revenues through liberalisation
policies and cutting down subsidies.

2010 is not 1991 either

India is now a liberalised economy, but the

very course of liberalisation is under strain as
the western economies, including the US, the
Mecca of free market capitalism, are turning
towards higher regulation and intervention.
 4

There are limitations for Mukherjee to expect

rapid increase in revenues as the industry is
not yet fully out of the woods. Cutting
subsidies is also not a desirable option at this
time as such a move would force consumers
to cut down on their expenditure, resulting in
a slump in demand in the domestic economy.
In this recovery time, anything but a demand
slump could be tolerated. After all, the policy
options of the government are almost used
up. It has already pumped in millions of
rupees into the financial system
through stimulus and has kept the interest
rate at record low for over a year. So, another
financial shock will leave the government
defenceless. That’s why many say, the trouble
shooter is in a fix. What can Mukherjee
possibly do?

Excess breeds collapse

According to many economists, including

Nobel Laureate Paul Krugman, the
administrations committed to fighting crisis
should not give in to “fear mongering” on
fiscal deficit. Krugman says deficit itself is a
symptom of slowdown. Any policy action to
 5

bring down deficit when the economy was still

in sort of a slowdown would be counter
productive, he writes in his blog. Though
Indian and Chinese economies seem to have
overcome the worst, the prevailing crisis in
Europe and the possibility of it spreading
across the Atlantic still make many scared.
The capital markets are still shaky and have
plummeted recently on Euro-collapse fears.
‘The Economist’ magazine writes if 2009 was
a crisis year for the financial sector, 2010
could be crisis time for the economy as a
whole. And Europe indicates just that.

So, it's not the time to play to the gallery.

Mukherjee needs to be imaginative while
formulating policies for the difficult times. He
has to keep the growth rate steady without
letting excess liquidity build more bubbles.
Excess breeds collapse and that needs to be
kept under constant check. A difficult task,
indeed.

i think it wouldn`t be appropriate to scrap th e

stimulus abruptly because that could be fatal
for the now recovering economy of india but
 6

we also cann`t afford to continue with the

huge finacial defict so a middle path has to
there which involves slight increase in the
taxes ,reduction in the subsidy and lot
more...........

To provide a comprehensive and in-dept

analysis of the union budget, a workshop was
organized on "Post Budget Analysis-2010” on
6th March, 2010, which was led and guided by
Shri Vinay Modi, who is Chartered Accountant
by profession and a campus director at WLC.
Union Budget 2010, a key economic tool was
presented by Indian Finance Minister Shri
Pranab Mukherjee on 26th Feb 2010. Shri
Vinay Modi commenced the session giving
various aspects of union budget 2010. He said
that the Indian economy has sustained the
economic crisis well, but the main challenge is
to make growth inclusive. The focus now is to
attain a double-digit GDP growth rate. “The
second challenge is to deepen and broaden
the agenda for inclusive development”.
 7

Mr Modi said that three new things are of

special appeal in union budget, first, the
emphasis on growth is put in unambiguous
terms, which is both economically and
politically right. Secondly, the budget spells
out that the county's economic issues are to
be addressed by macroeconomic and longer
term interventions rather than by ad-hoc
measures. Thirdly, the budget displays that
the nation can now afford and needs giving
attention to higher form intrusion and reforms
than it ever did.

The speaker continued saying we were

warned that budget 2010 was never going to
be a sweet pill to swallow as expectations
from the finance minister, as always, are high-
people and corporate want more in their
pockets. There has been no let-up in the rise
of food prices and most middle-class families
still have to wait for annual sales to get
branded products home.
The session concluded with Mr. Modi saying
that this budget lived up to expectations in
areas of public policy and dealt harshly with
some of the most vulnerable in society. The
 8

nation would like to see changes in tax rates,

consumables getting cheaper and credit
continuing to be available easily.
Mr. Modi discussed the outlook of the
audience and responded to the queries raised
by them. He suggested that as students of
management, the participants should take a
balanced view of the budget and analyze its
causes, long and short term benefits and
affects on the market, industry and common
man.

Other Budget News

• VCCircle's summit to gauge
consumer appetite
Feb 17, 2011
MUMBAI: The VCCircle Consumer
Investment Summit is being held for the
second time by VCCircle. The summit
helps to…
 9

• ACMA looks for stable policy regime

Feb 17, 2011
NEW DELHI: The Automotive Component
Manufacturers Association of India
(ACMA) is expecting for a stable policy
regime and this…
• Auto industry demands for excise cut
on big cars
Feb 14, 2011
NEW DELHI: The auto industry has urged
the Central administration to bring down
the excise duty and remove the…
• 'Air India needs Rs 2,000 crore more in
Budget'
Feb 14, 2011
NEW DELHI: The civil aviation ministry
has demanded for Rs 2,000-crore more in
Budget 2011-12 for the national carrier…
 10

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India Budget News 2011-12

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government's finances. Budget session is the
most important economic and financial event
in India. The Indian Union Budget 2011-2012
is scheduled to be presented on 28th
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Indian Budget 11-12 will be discussing on new
tax slabs, licensing of new private banks,
allocation of budget for various development
programs etc.

Labour Ministry anticipates extended

annual budget of Rs 1,300 crore

New Delhi, Feb 08 2011: Union Labour and

Employment Ministry anxiously awaits the
 11

upcoming budget session. The Ministry is

expecting an additional Rs 335 crore from
current fiscal budget which is Rs 965 crore.
With an extended annual budget of Rs 1,300
crore, the Ministry is planning to focus more
on maximizing the number of workers from
unorganized sector and provide health
insurance to the citizens who are below
poverty line.

With the current fiscal budget of Rs 965 crore,

the Ministry plans to contribute towards
monitoring child labour whereas, around Rs
750 crore would be spending on improvement
of 1,400 ITIs across the country. Apart from
the above plan, an extra initiative towards
health has been taken with an announcement
of health insurance scheme called 'Rashtriya
Swathya Bima Yojana' (RSBY). Extra budget is
required for carrying on the scheme to next
level for which the Ministry is relying on the
expected additional budget from the
upcoming session.
 12

Upcoming Budget To Rescue The IT

Sector From Ongoing Taxation Turmoil

New Delhi, Feb 08 2011:

The Rs 10,000 crore
Information Technology (IT)
sector of the country may
now breathe with
contentment. During the
coming budget, the government plans to take
some extra action plans which will end the
complications and uncertainty encircling the
taxation scenario of IT sector. This may bring
an end to the current turmoil of ongoing
Goods Vs Service debate. The double taxation
of Goods & Services which are persisting
since last few years will end during the
upcoming budget and this definitely is a good
news for the IT sector in the country.
However, the expert senses that before
carrying out the new Goods & Services tax
rule, it may be necessary to take some
interim actions to end the issue of double
taxation of the software industry.
 13

A new door likely to open for new

private banks in upcoming budget

New Delhi, Feb 05 2011: The government

is likely to open the door for some
industrialists promoting private sector banks.
The proposal will be discussed at the
upcoming budget session and is expected to
be in favor of the industrialists.

The guidelines for establishing banks and the

affairs thereof is controlled by Reserve Bank
of India (RBI). The Finance Minister Pranab
Mukherjee may pay close attention of these
guidelines for his speech in next budget
session and announce the future plans
accordingly. In the last fiscal budget speech,
the government showed interest in expanding
the banking services by bringing in some new
banks. Therefore, the final changes may be
seen during the upcoming budget.

The earlier guideline calls for issuance of

license to new banks for initial period and
upgrade subsequently thereafter. Some of the
distinguished industrialists keen to enter the
 14

private banking sectors are – Reliance Group

of Companies owned by Anil Ambani, The
Religare Group and Aditya Birla Group

Finance Minister Pranab Mukherjee indicated

that Indian government will return to fiscal
discipline in the coming Budget, after
following policies of stimulus and expansion in
the last two years.
Talking to reporters on the sidelines of the G-
20 Finance Ministers'' meeting here,
Mukherjee said fiscal expansionary policies
were required in the past, in the wake of
global financial crisis.
 15

With the growth returning to high trajectory,

"we should come back to the path of fiscal
consolidation. We are following that," he said.
Fiscal deficit in India''s budget had ballooned
to 6.8% of the Gross Domestic Product in
2009-10 and was pegged quite high at 5.5%
for the current fiscal, as the government had
to provide stimulus dose worth billions of
dollars to the economy.
"When the financial crisis started, most of the
countries resorted to expansion of financial
space. As a result, the deficit in Budget
increased substantially and it got reflected in
the current account balance," he said.
Mukherjee said stimulus package helped India
to grow by 6.8% in 2008-09 and by 8% in
2009-10.
In fact, the process of fiscal consolidation
began in the current year itself as the
government partially withdrew the sops given
to the industry in 2008 and 2009.
The expansionary policies to keep growth in
tact, had their impact on the country''s
current account deficit, which represents the
 16

difference in inflows and outflows of foreign

exchange, barring capital movements. It is is
projected to be at 3.5% in the current fiscal,
against 2.9% in the previous financial year.
The current account deficit above three per
cent is considered to be a dampener for a
national economy, according to experts.
Mukherjee had set a target of 4.8% fiscal
deficit for 2011-12. It is expected he would try
and stick to this target in the coming budget.

}\
 17

It’s back to February, the month of

Union Budget – a blueprint for the
allocation of finances for the ensuing
year; and the ways and means of getting
towards it.
Though, this important document is framed in
utter privacy starting few months well in
advance, the long-drawn process starts with
pre-budget consultations with representatives
of different group of stakeholders like
industry, trade unions, economists, etc. to
over-come various business hurdles and
develop new policy frameworks.
 18

Even as we decide to dig deep into the

expectations of the industry and aam-aadmi
building from the Union Budget 2011-12;
there is still a question mark as to how swiftly
the Budget session will move forward from
the logjam over opposition’s demand for
setting up a JPC probe into 2G-spectrum
allocation scam.
Expectations from Union Budget 2011-12

1) Indian Railways – The Bleeding Tooth!

Just few years back, we saw how Lalu Prasad
Yadav orchestrated a financial turnaround of
the Railway department without hiking
passenger fares. However, under Mamta
Banerjee’s leadership, the profitability of
Indian Railways just could not keep up the
tempo.
 19

Estimates suggest that Railways could miss

their target for 2010-11 ahead of the coming
Rail budget. For the 9-month period April to
December 2010, Railway’s earnings have
suffered a setback of Rs. 4000 crore mainly
driven by negative impact on its freight
earnings and losses in passenger earnings on
account of escalation of Naxal activities in
many states.
On the back of worsening scenario of its
operating ratio, the cash-strapped Railways
has asked the finance minister to double the
gross budgetary allocation to nearly Rs.
39,600 crore to support project initiatives
such as modernization of railway
infrastructure and augmenting passenger
services.
 20

The big question is will Railways suffer a

loss this time around?
2) Inflation – The Burning Reality!
Inflation is all over the place and now we
might find its mention across the policy
decisions to initiate corrective measures – be
it monetary policy, use of sophisticate farming
techniques or even budgetary policies framed
to tame increased pricing pressures.
In commitment towards controlling high
double digit food inflation, Pranab Mukherjee
might well unleash some crucial measures in
this Budget including opening up of more
procurement and distribution centers for food
grains, promoting greater investment in agri
infrastructure and increased expenditure on
irrigation in a bid to enhance overall farm
sector productivity.
3) Income Tax Exemption – Yeh Dil
Maange More!
Need to confess that FM Pranab’da has done
well in gradually extending the tax brackets
for the aam-aadmi over the last few years.
But, we, the people, always have higher
 21

expectations. Moreover, the higher tax-

exemption limit has irrefutably brought added
tax revenues to the exchequer as it
discourages suppressing of unaccounted
money.

While the lowest tax bracket at 10% under

the DTC regime aims to envelope Rs.2-5 lakh
taxable income range from FY 2012-13, the
current no-tax limit up to income of Rs.1.6
lakh still provides scope of improvement by
another Rs.20, 000 at the lower end income
group.
4) Fuel price Deregulation – Slow and
Steady wins the Race!
Last year, the UPA government deregulated
the petrol prices in a bid to shrink the
country’s fiscal deficit and help oil marketing
 22

companies to cut losses on selling fuel at

subsidized rates.
How about setting free of diesel price controls
now? While petrol prices are now market-
determined subject to periodic revision, it is
diesel which constitutes a lion’s share of fuel
subsidy bills driven by demand for fuel and
industrial purposes. Currently, government
resorts to ad-hoc hike in diesel prices but has
slowed down even on that as inflation
pressures have worsened recently.
5) Social sector Spending – Amount B/f
from Disinvestment A/c!
Last year, government earned sizeable one-
time revenues from sale of premium 3G
airwaves to the extent of around Rs. 1.1 lakh
crore and large disinvestment proceeds from
stake sale of PSU companies. Both these
revenue-drivers might have accumulated
approximately Rs.1.5 crore in the exchequer’s
kitty.
 23

Formally, the entire disinvestment proceeds

are to be channelled into the National
Investment Fund (NIF) and then utilized for
capital expenditure in social sector schemes
and revive ailing state-owned entities. Thus,
this year, most of these funds should be up
for utilization for grass-root social
development programs in areas such as
primary health, primary education, law and
order, family welfare, and so on.
6) Retail FDI – Time to tighten Supply
Chain!
Most of the recent surge in food prices is
either on account of supply crunch in the farm
production or hoarding of stock by
intermediaries. To deal with the latter case of
price manipulation, FDI in multi-brand retail
segment could go a long way in supporting
the government’s initiatives to de-bottleneck
 24

the supply chain hindered by ineffective

distribution channel.
7) Excise and Service Tax Cut – Status
quo Requested!
Last year, FM had raised the excise duty to
10% on non-oil products as a part of the
efforts to withdraw stimulus and create
sources of funds to bring down the extent of
fiscal deficit situation.

With spiraling inflation and high commodity

costs, the corporate India has requested
Pranab Mukherjee to cap the excise duty and
service tax at previous year levels. Industry
chamber Assocham has also urged FM to
reduce corporate tax to 25% from the current
30% to maintain current levels of investment
and growth prospects.
 25

8) Infrastructure – Work in Progress!

Without any dichotomy – the future growth
prospects of the Indian economy lingers
primarily on the infrastructure investment and
timely execution of the projects. Thus, one
such initiative would be to develop a huge
amount of long-term corpus towards
infrastructure development through dedicated
debt funds (the most recent example being
tax-saving infra bonds).
According to RICS India, in order for India to
achieve its envisaged 10% growth during the
coming financial year, the requirement for
sustainable infrastructure development is
crucial to provide impetus to the economic
activities and achieve optimum resource
utilization.
9) Delay in GST Implementation – No
Consensus Yet!
The Centre had promised the implementation
of GST and DTC by April 2011. Amongst the
two, DTC is likely to be rolled-out by 2012
(albeit with a delay of 1 year!) as a major
indirect tax reform initiative by any previous
Indian government.
 26

However, the biggest direct tax reform – GST,

which in turn would phase out other major
taxes like excise duty, VAT, service tax, etc; is
mired by lack of consensus between the
Centre and the State. In its last-ditch attempt
to introduce the reform paper in the Budget
session of Parliament without any further
delay, the FM has shown the much-needed
keenness to align tax proposals for Budget
2011-12 with GST.
Will he succeed in reaching a consensus with
the States? If yes, hopefully, he does not
leave any loopholes open for future
manipulation of the tax-structure!
10) Education – Learning is the way to
Growth!
Growth and education cannot be decoupled
from each other. Education leads to higher
 27

employment and paves way for inclusive

growth across the country. Over the last
couple of years, education as a sector has
seen various reform measures both at
primary and higher education levels.
The adoption of public-private partnership
(PPP) model in the education sector could go
a long way in establishing success and
creating a sustainable momentum in long-
term. While the government’s role could be
that of funding the projects, it is the execution
ability of the private sector which needs to be
banked upon for the ultimate delivery of the
model

India Budget Review – 2010

Submitted by Aditya Rao on February 26,
2010 - 10:38am.
50 thumbs up

• Login or register to post comments

•
 28

In July when Pranab

Mukherjee presented the
First Union Budget Of the 2nd
UPA government, a
roadmap for the long term
growth of India seemed to be emerging.
Today’s Budget is a further continuation of
this. I did not see any hardcore reforms and
from my pre-Budget expectations its clear this
is no surprise. Conservative as hell, this
Budget reeks with the nature of the man
who read it out in Parliament today.
Don’t get me wrong, I’m not saying it’s a
bad Budget, it’s a pretty decent Budget
but an opportunity lost to accelerate
India’s growth furthermore. More could
and should have been done. Still trying
to push India into a double digit growth
rate is an earnest effort.
We are more than happy to see the rollout
dates for the Goods and Services Tax
(GST) and implementation of the Direct Tax
Code. It would have been ideal to have the
 29

GST in effect from April this year but the

Finance Ministry has decided to implement it
from April 2011.Now that we know the
deadline, we can always hold the government
to it because without doubt the simplified tax
structure is pretty much the most important
tax reform for Indian business and now we are
only a year away from it.
I was disappointed to see the Budget
silent on the Insurance and Banking
Bills. Even investment in education,
However in an interview to a TV channel
after the Budget, the Finance Minister
did say that he is working on introducing
these reforms. Moreover these policy
decisions according to him required a
broad political consensus. So even if not
this year, if done right we are hopeful
we will see these legislations soon.
 30

But a positive in the banking sector is the

handing out of licenses to Non Banking
Financial Institutions. But regulation is a must
with this reform.
Consumer products like Cars, Cigarettes, Air
Conditioners, etc cost more from now on. Part
of the reason they cost more is because the
ministry has hiked excise duty. This is to
rollback the stimulus measures doled out
during the recession stage of the economy.
Defense spending as usual has been
hiked so that isn’t any surprise as well.
A target for disinvestment revenue has
been unveiled but I am more interested
 31

in which companies the government

wants to divest, further divestment in
companies already divested will fetch
revenue but over time prove to be
counterproductive in the markets.
Like Oil India, if we see more unlisted
companies hit the Indian markets with
attractive valuations then the revenue
accrued to the government will suitably fit in
with its disinvestment program.
More than anything else,
other measures or lack
thereof the Finance
Minister and his team
must be cautioned on
their approach towards narrowing the
Fiscal Deficit. With the rate of growth,
next year’s 5.5% target can be achieved
but without heavy duty steps which
bring money into India, I wonder how
they plan to do this - Which is why the
urgency to reform must be heeded.
 32

For the common man, this Budget is a mixed

bag. Income tax rates being revised, savings
have gone up. However fuel prices have been
hiked .Petrol costs almost 3 rupees more/litre
and with an impending rise in airline tickets
as well, we will be paying more for travel .
Infrastructure has received a boost because
investment through the bond route has been
applied. In the stock markets Infrastructure
should continue its growth story especially
with this impetus.
Overall, I’d say this is a Budget with the
priority being on Fiscal Management.
The Unorganized Sector has been
ignored. The NREGA program has
received another big investment which is
fantastic. The aim to accelerate growth
remains. The Finance Minister hopes
that India will grow at 10% this year. My
problem however remains the lack of
reforms. Had this Budget focused more
on the Insurance and Banking Bills, The
Education Bill, Deregulating Fuel Prices
 33

and cutting Fertilizer Subsidy(the

government did announce a new
fertilizer policy from next year) then in
time there is no reason we can’t go
beyond 10%.

• New Delhi: Finance Minister will try to

ease inflation-hit voters' pain with a
budget heavy on spending for food, fuel
and fertiliser subsidies, while selectively
lifting taxes to meet fiscal targets.
Pranab Mukherjee, faces a tough time reining
in inflation while keeping the economy on a
high-growth path when he presents his annual
budget for 2011/12 in parliament on Feb. 28.
Last year, government rolled back about $10
billion of a $40 billion stimulus package
implemented during the 2008 global financial
crisis.
This year, the government is unlikely to make
tough belt-tightening decisions. It is on the
 34

back foot over corruption scandals and faces

elections in four major states.
Stubbornly sticky inflation in Asia's third
largest economy, driven by food and other
commodity prices, combined with a high fiscal
deficit has prompted repeated calls from the
central bank for fiscal consolidation.
However, government tends to bank on
higher revenues rather than spending cuts, a
formula that worked in the current fiscal year
thanks to a windfall from the sale of 3G
mobile bandwidth.
Below are some questions and possible
answers that the finance minister faces over
the budget:
WILL INDIA FURTHER TRIM FISCAL
STIMULUS?
Since Mukherjee wants to reduce the fiscal
deficit to 4.8 percent of gross domestic
product in 2011/12 and 4.1 percent in
2012/13, he is expected to continue a gradual
rollback of the fiscal stimulus package
unveiled during 2008 global crisis.
 35

In last year's budget, he trimmed the package

by raising factory gate duties on all major
items to 10 percent from 8 percent and
reimposing the taxes on crude oil, petrol and
diesel that were withdrawn in 2008.
The government rolled out its stimulus
package in three phases during 2008 and
2009 by cutting taxes and lifting spending on
infrastructure to prop up demand.
Meanwhile, an effort to overhaul India's tax
system has been deferred until next year,
meaning Mukherjee may hold off on raising
tax rates across the board and instead lift
rates only for goods such as cars and
commercial vehicles, while bringing more
services into the tax net.
WILL INDIA FOLLOW THE FISCAL
CONSOLIDATION PATH?
Partially. Mukherjee could rely on a surge in
domestic demand and global recovery to
drive tax receipts to meet fiscal targets.
The RBI, which has raised rates seven times
since March to tackle high inflation, hopes the
 36

government moves towards fiscal

consolidation in 2011/12.
The finance minister may also marginally
lower government borrowings below this
year's Rs 4.47 trillion ($98 billion) to show his
commitment to fiscal consolidation, though he
will not have the cushion of revenue from the
3G spectrum auction in the new year.
The government could raise up to Rs 40,000
crore from the sale of stakes in companies,
partially offsetting a swelling food subsidy bill
estimated at Rs 70,000 crore. A downturn in
the stock market, however, has curbed
investor appetite for new issues for the time
being.
• The Economic Survey that sets the
tone for the Budget every year will be
presented in Parliament on February 25
this year.
The Survey will formulate steps to balance
growth with inflation--how to sustain a double
digit growth as inflation continues to worry
the country. Last year the Economic Survey
said India would return to a 9% growth rate in
2011-2012. We're currently at around 8.6%,
 37

so that looks fairly achievable. But what will

the Finance Minister have to do to meet his
target?
As reported in the Business Standard:
Finance minister Pranab Mukherjee may spell
out the government's reform agenda,
especially related to the opening of critical
areas in the service sector like health
insurance and the retail sector, to achieve this
goal.
But, as a finance ministry official told the
paper:
"...a major change in tax rates in this Budget
was unlikely, some relief on both income tax
and excise duty to cut the impact of price rise
could certainly be expected."
Whether the Budget factors in the aam admi
and does much for them this time will be
something to watchout for, given the current
scheme of things--from corruption to inflation.
India
Today » Business » Budget » Budget
2010-11 » Reactions
 38

TMC, DMK demand rollback of fuel hike

PTI
The common people face a burden in case of
price rise, says Mamata. New tax
slabs | Your tax savings | Highlights |
Dearer/cheaper
No relief to the poor and farmers:
Sushma Swaraj
ITGD
The Opposition on Friday slammed the Union
Budget for 2010-2011 as anti-poor and anti-
farmer.
Govt ignored concerns on rising prices:
Yadav
ITGD
The Opposition on Friday slammed the Union
Budget for 2010-2011 as anti-poor and anti-
farmer.
Budget against unorganised sector:
Mulayam
 39

ITGD
The Opposition on Friday slammed the Union
Budget for 2010-2011 as anti-poor and anti-
farmer.
Sensex welcomes Budget, gains 175
points
ITGD Bureau
As investors cheered the Union Budget, the
Sensex surged over 350 points to close at
16429.55 with modest gains of 175.35 points.
Nifty ended just short of the 5000 mark.
Market indices | Top Losers | Top Gainers
| World indices
Budget: India Inc lauds FM
PTI
Indian industry today welcomed the Union
Budget for 2010-11 saying it was a balanced
approach though it expressed disappointment
over the hike in minimum alternate tax (MAT)
from 15 per cent to 18 per cent.
'There is no growth impetus in Budget'
 40

Sitaram Yechury
The Budget is totally counterproductive to the
objectives set forth by the government.
Rail budget a non-event for markets:
Analysts
PTI
Market analysts today dismissed the rail
budget as a "non-event" for the stock markets
saying it was mostly on the expected lines
and was discounted in the prices earlier.
Railway finances suffering under
Mamata: Lalu
Headlines Today Bureau
RJD chief Lalu Prasad on Wednesday criticised
Mamata Banerjee's Railway Budget, saying
that the finances of the railways had been hit
during her tenure.
Mamata's budget only for Bengal: BJP
Headlines Today Bureau
 41

The BJP on Wednesday criticised the Railway

Budget presented by Mamata Banerjee as an
attempt to woo the voters of West Bengal.

• Increase in government spending

• Cenvat rate cut by 4%
• Exporters
• Housing
• Support for medium, small, and micro
enterprises (MSMEs)
• Textiles sector
• Infrastructure Financing
ANOTHER STIMULUS PACKAGE
• IIFCL
• Interest rate cuts
• ECB Limits
• CVDs
• FIIs in Debt Markets
 42

• SMEs
• State Governments
• Public Sector Banks
• a)Analysis on the achievement of previous
budget
• 1(b).From where the money will come?
• 1(c) Strong measure to collect money
• 1(d) what will be the policy for subsidy?
• 2. From where the money to be spent?\
• 2(a) Various key sector to be promoted?
• 3. How the deficit will be handled?
• 4. What r various stimulers in the budget?
• 5. What is the future GDP projected?

Unicon Investment has come out with a report

on Union Budget 2011-12 Expectations.
Expectations - Union Budget 2011-12
 43

India was among the few countries in the

world to implement a broad-based counter-
cyclic policy package to respond to the
negative fallout of the global slowdown. These
policy actions has helped Indian Economy to
clock a growth of 8.6% in FY11 (advance
estimates). While rising strongly in the world
economic order, India faces the most critical
challenge of crossing the 'double digit growth
barrier'. Current macroeconomic challenges
are manifold 1. Controlling inflation, including
that for essential commodities, 2. Maintaining
fiscal deficit amongst rising oil prices, 3.
Absence of one-time revenues such as 3G,
WiMax license fees, 4. Allocation &
channelising investment in Infrastructure, 5.
Domestic financial sector liquidity
management with large government
borrowing can potentially be a dampener for
 44

private investments, 6. Reducing current

account deficit from current elevated levels,
7. Over and above, handling corruption
issues. The upcoming elections in some of the
major states may prompt the government to
continue to take some populist measures.
Union Budget 2011-12 - Focus on
Agriculture & Infrastructure sector
On backdrop of higher inflation (supply side
constraints), lower industrial growth &
infrastructure investments, Union Budget
2011-12 is likely to undertake measures to
ease such constraints in the form of reforms
in Agriculture & Infrastructure sector.
A) Agriculture sector
1. Larger Investments in Agriculture sector,
2. Improvement in the Agri logistics & cold
storage chains,
3. Steps towards reduction in essential
commodities hoarding,
4. Investment in R&D in agriculture.
5. Irrigation and water management
6. Related to agri inputs
B) The lower growth in the industrial
production last year is also likely to be
 45

addressed; to sustain the growth momentum

and expand manufacturing base of the
economy over medium term, the government
is likely to look at addressing the challenges
of land acquisition, infrastructure bottlenecks
and infrastructure financing, among others.
Besides agriculture, & infrastructure sector,
power, rural electrification, education, logistic
and rural oriented sectors will be the main
focus of the budget, as it would be the main
participants in the acceleration of GDP growth
of country. In addition, we are likely to see
relaxation of FDI norms further in Retail,
Insurance and FDI procedures.
C) Inclusive agenda: After years of substantial
expansion in the social sector spending, the
government is likely to go relatively slower on
its inclusive growth agenda, given limited
fiscal headroom. No major change in the
prevailing tax regime is expected; due to
fears of a slower GDP growth in 2011-12.
Moreover, any major tinkering in the indirect
tax rates is unlikely as the government is
targeting rollout of the integrated goods and
service tax (GST) in a year. Similarly, changes
in direct tax regime may be limited to aligning
it with the upcoming direct tax code (DTC).
 46

One of the problems is funding revenue

expenditure through capital receipts and,
thus, bringing in greater inter-generational
inequalities. In the process, we run the risk of
prioritising the immediate problems at the
cost of our longer-term policy objectives
(reforms and infrastructure creation).
Unfortunately, we are, once again, likely to
get stuck in addressing only the near-term
problems in the coming budget too!
Capital Goods & Infrastructure:
Infrastructure spending is the backbone of
any economy especially in a developing
country like India. With end of XI five year
plan and missing targets, focus would remain
on infra sector. Currently, the sector faces
issues like higher commodity prices, higher
funding cost and over and above slow pace of
award win. At operational level difficulties are
faced in obtaining several clearances for land,
environment etc causing further delay in
project execution and cost over run.
Given the recent reshuffling in the cabinet,
low pace of award win activities and dismal IIP
data over last couple of months, the thrust
would be to accelerate the infrastructure
 47

spending and promote private participation to

achieve inclusive growth of the economy.
Emphasis would be towards higher
infrastructure spending both from public and
private participants in order to achieve higher
GDP growth rate of 8.5%+. We expect higher
fund allocation to various infrastructure
development schemes (like Bharat Nirman,
JNNURM, APDRP, RGGVY etc.) & focus on
higher social spending benefitting
construction and water & rural infrastructure
taking front seat while allocation.
Formalization of Public Private Partnership for
Infra projects is also likely.
Cement: Cement industry currently faces
multiple challenges both internal and
external. On one hand, demand is moderating
especially in the North region and muted to
negative growth in Southern region, industry
is also facing higher input and fuel costs. The
situation was also aggravated due to hike in
diesel prices, making transport cost (freight)
dearer. With low demand in over supply
regime, industry is unable to pass on the
higher costs to end user thereby keeping their
margin under pressure or voluntarily opt to
keep volume low. Given the backdrop of
 48

Government thrust to accelerate economic

growth, industry expectations are high to
reduce excise duty on cement which in our
view is unlikely.
With country's GDP pegged to grow ~8%+
annually going forward, cement industry is
likely to grow in double digit over long term
and outlook for demand remains positive.
With a view to have inclusive growth of all
sectors, emphasis would be to create demand
for real estate sector with focus on affordable
housing, Govt. led higher infra spending in the
form of higher fund allocation and incentive
for public private partnership (PPP) to keep
robust demand for cement. Sector specific,
we do not expect material changes.
Metals / Mining: Metal prices have been in
an uptrend on the back of rising input costs.
Recent disruption in coking coal and iron ore
supply due to floods in Australia have been
responsible for the rising prices of steel. Spot
prices of 63.5 Fe grade iron ore have risen
sharply from ~USD 125 / MT in July 2010 to
~USD 196 / MT currently. China coking coal
prices have increased from ~USD 265 / MT in
July 2010 to ~USD 320 / MT currently. This
 49

steep rise in input costs have resulted in

compression of margins for non integrated
players such as JSW Steel and SAIL while it
has helped the integrated players such as
Tata Steel and Jindal Steel & Power and
mining companies like NMDC and Sesa Goa to
improve their profitability.
Going forward we expect steel prices to
remain firm on account of strong demand
lead by recovering global economies.
However we believe iron ore prices would
come under pressure going forward on
account of high inventory levels. Iron ore
inventory in China's ports has reached 82.8
MT, record high in three years. With the
resumption of supplies from Australia, prices
of coking coal would also normalize from their
highs. We believe this scenario would be
positive for steel companies.
Oil & Gas: The International Energy Agency
(IEA) estimates global oil demand at 89.1
million barrels per day (mb/d) for CY11, an
increase of 1.4mb/d over CY10. Asia and the
Middle East would account for a major portion
of the increase with an expected rise in
demand by 1 mb/d. Per capita consumption of
 50

energy in India is still one of the lowest in the

world (around 0.3 tonnes of oil equivalent
compared to world average of l .8). The rise in
oil demand can be attributed to a buoyant
economic recovery globally. To cater to this
demand, IEA estimates OPEC supply at 29.9
mb/d, non-OPEC supply at 53.4mb/d and
OPEC NGLs to contribute 5.8 mb/d in 2011.
With demand expected to remain strong we
expect crude prices to remain high going
forward which is negative for the sector,
especially the downstream players.
Uncertainty regarding subsidy continues to
bleed the oil marketing companies. The three
OMCs will end the fiscal with around INR 800
bn of revenue losses on selling diesel,
domestic LPG and kerosene below cost,
compared to ~INR 440 bn last year. The focus
on laying of natural gas and gas transmission
pipelines continues with transmission and
distribution companies like GSPL, IGL, GAIL
and GGCL having performed very well over
the last year. With issue of coal availability,
ramp up of KG basin production and
government's thrust on cleaner fuels, natural
gas business is expected to grow very rapidly.
 51

Power: Investments in power transmission &

distribution (T&D) are currently lagging
behind compared to investments in power
generation and are expected to play catch up
in the coming years. Given the heavy
investment (INR 8370 bn for XIth Plan)
requirement in this sector, we believe that the
thrust on spending will be maintained. We
expect the incentives to continue and in a
best case scenario, there could be some more
positive surprises as well. Incase of customs
duty exemption, there would be reduction in
the cost of power generation which will help
our economy at large besides encouraging
more industries to come forward to set up
power plants. All initiatives from industries to
set up Independent, Merchant and Captive
Power Plants are expected to be encouraged
by Government of India. Focus of the budget
is expected to be on improving the T&D
infrastructure in the country & promoting
renewable energy.
Auto: The budget last year had partially
rolled back the stimulus provided to the auto
players by increasing the excise duty to 10%.
We may see a complete withdrawal of the
stimulus with excise duties on two wheelers
 52

and small cars back to 12%. The auto industry

has begun showing signs of a slowdown,
imminent on the back of a high base due to
strong growth last year on account of pent up
demand post the recession. Increasing input
costs, rising vehicle & crude prices, general
inflationand an upward spiral in interest rates
have also resulted in moderating the auto
demand. Most auto majors have expressed
their concerns and we expect the industry to
grow at 10-12% in CY11 compared to 31% in
CY10.
Textiles: Indian Textile industry contributes
14% of the total industrial output and 15% of
exports. The Industry ranked second in terms
of employement generation employing more
than 35 mn people. The industry is going
through major technology upgradtion to
increase the productivity during the last few
year to counter global competiton. The
Government expects the industry numbers to
triple by the next decade to USD 220 bn from
the current USD 70 bn considering the rising
demand from the western countries. With the
US economy showing good signs of recovery,
textile demand would increase at a rapid pace
going forward. The textile industry with help
 53

from TUFs scheme has already modernised

with a lot of textile majors now having
integrated business models right from raw
materials to garments. To further support the
growth story of the industry there are
favourable expectation from the union
budget.
Paper: The Indian paper industry is currently
passing through a very difficult phase due to
high input cost of raw materials. Since the
industry is highly fragmented in nature, it has
not been able to take advantages economies
of scale as has been the case with its global
counterparts. As a result, production in India
is very low at 14% compared to 60% in
developed countries with high cost of
production. Paper industry in India depends
on import of waste paper for manufacture of
paper/paperboards, as there is a huge
shortage of the raw material domestically. We
think the government will provide releif to the
paper industry by reducing the customs duty
on waste paper and pulp which would be
positive for the paper companies.
FMCG: FMCG companies witnessed growth in
volumes across product categories. However,
 54

rise in raw material costs took a toll on the

operating margins across companies, with
margins contracting by ~ 200 bps to 500 bps.
The increasing competition among players
also resulted in greater Advertising &
Promotion (A&P) expenses of majority FMCG
companies barring a few. The companies in
this space either, have already taken price
hikes during the quarter or are planning to
rise prices to protect margins from erosion.
The recent correction in FMCG stocks has
made them attractive, given the fact that
underlying consumption story remains intact.
Rural sector accounts for about 33% of
sector’s total revenue. The rural FMCG market
is growing on the back of rising demand
driven by rising income levels, changing
lifestyles and favorable demographics. The
pace of rural consumption is growing much
faster than urban areas. The acquisitions by
FMCG companies in other emerging as well as
developed markets would also be earnings
accretive in the long run. The sector is
expected to be a market performer. Overall,
we remain positive about the sectors
prospects given the acceleration in rural
spend and urbanization.
 55

Pharmaceuticals: The domestic pharma

industry continues to grow at 11-12%,
dwarfing the global average of five-six
percent. Similarly, improved traction in
productivity trends has prevented margin
pressures, notwithstanding the intensifying
competitive landscape domestically. The
government's Vision 2015 statement indicates
an 18% plus CAGR for the pharma sector,
translating to a doubling of revenues to
USD40 bn over the next five years. Growth
will be driven by all verticals: domestic
formulations, generics exports, and
outsourcing (CRAMS). The government has
recently announced the setting up of a
venture fund that will target the infusion of
INR 20 bn into the sector.
Fertilizers: Urea has taken centre stage in
fertiliser sector in Budget 2011-12. Urea
represents almost 50% of all fertiliser
products consumed in the country with an
annual consumption of 27mn tonnes (mt), of a
total fertiliser consumption of 55 mt. The
Committee of Secretaries is currently working
out a viable model to determine how the
subsidy component would be fixed, as urea
production is based on different forms of
 56

feedstock such as gas, naphtha, fuel oil and

coal. The government was also working at
raising the urea prices by 2-5% in 2011-2012.
De-canalisation of urea imports would also
take place once urea comes under the NBS
regime. At present, only authorised agencies
can import urea. The industry is also eyeing
upgradation of investment policy for urea by
the government. The fertilizer industry
expects Rs 50,000 crore in cash for FY12 by
way of subsidies. It also expects further
cushioning for FY11 subsidy. The sector has
also sought removal of import and export
restrictions.
Banking, Financial Services & Insurance:
Banking sector being a backbone of the
economy has shown a strong growth in the
FY11; especially the robust results in the last
few quarters have bestowed strength in the
banking sector. In the first half of the financial
year 2011 the credit growth has been subdue
but later it improved on back of strong
demand for capex, infrastructure and
agriculture. Due to inflationary pressures in
the economy RBI has raised repo & reverse
repo rate six times in last financial year.
Despite this bank's have improved their
 57

performance on all fronts like NII, NIMs, CASA

etc. Going ahead, banks are likely to focus
more on CASA growth by expanding there
branch network (rural and unbanked areas),
improvement in NIMs & reduction in NPA's.
We believe the sector will continue to remain
under pressure in the near term until a sharp
uptick in credit and deposits growth alongside
pressure on yields easing off. We have seen
interest rates on the deposits side, money
markets, etc. inching up at a much faster
pace on account of continued liquidity
shortfall which would affect banks NIMs.
Banks with higher CASA will be able to ride
the wave better and protect NIMs. However,
the inherent strengths of the Indian banking
industry is likely to offset this impact.
Information Technology: While earnings of
the companies have been positive so far,
revenue growth is a concern for IT companies.
Volume growth has been slower than
expected. The managements of IT companies
are confident that future outlook would be
better with increasing IT budgets. Also
discretionary spending is witnessing a revival.
While the big-players are not facing problems
currently, the small and mid-sized ones are
 58

struggling to grow post the recession, and so

a slew of measures such as the STPI
extension and tax clarifications would provide
an improvement in their bottom-lines that
would fuel future growth.
Telecom: Indian mobile market has
undergone revolutionary change during the
past few years to become one of the leading
mobile markets on the global map. The
number of mobile subscribers stands at
752.19 mn in December 2010. With this the
sector has become hyper competitive market
with ~12-13 players as compared to ~3-4 in
most other developed markets. Thus is
expected to witness consolidation in near
term. Mobile number portability could affect
the subscription figures of some companies
but established player may not feel the pinch.
Companies are expected to roll out 3G
services (Rcom , Bharti and Tata have already
started) but the traction generated by it is still
to be seen. Moreover, recent regulator
recommendation has stimulated some
uncertainty in the sector, especially with
regards to recent 2G pricing and license
renewal fees. However, increasing rural
 59

penetration and data services offers immense

potential going forward.
Media: The Indian Media & Entertainment
industry (television, film, radio, print, music,
the internet, animation, gaming and outdoor
media) offers attractive growth potential as
compared to both developed and other
emerging markets. The entertainment sector
is expected to grow at 10 .7% in 2009-13.
Rapid urbanisation and an increase in
disposable income have accelerated the
addition of new viewers driving the viewership
number. The Media and Entertainment sector
is witnessing continues increase in media
spends by various industries. A rapid adoption
of satellite based television services via DTH
and digital cable augurs well for the Television
industry. Regional print is expected, to
continue to show strength backed by
increasing regional demand however, rising
newsprint prices could play a spoiler going
forward. Phase-III licenses are expected to
give a boost to the radio industry.
Hotels: An improvement in the macro
environment and the consequential
improvement in foreign tourist arrivals and
 60

domestic corporate travel have aided a

rebound in the hotel Industry. Occupancies
have shown a remarkable improvement and
this is likely to be followed by an
improvement in average room rates (ARRs).
The tourism industry is expected to grow at a
CAGR of 7.6% for the next 10 years. With
increase in disposable incomes and favorable
demography domestic leisure travel is set to
grow at a healthy pace. Growth in demand is
seen across business as well as leisure
destinations and we maintain our positive
stance on the hotel industry, on the back of
the improving dynamics despite huge
inventory lined up and foreign players also
queuing up to be a part of domestic
hospitality growth saga. There might be some
rate corrections across hotel categories owing
to competition from leading international and
domestic brands entering the market as well
as the availability of quality options in the
mid-market and budget category.
Shipping / Ports / Logistics: India suffers
from an inefficient modal mix in its transport
landscape, because its share of roads over
more operationally as well as cost effective
modes like rail or coastal shipping is large.
 61

The Indian transportation & logistics sector is

increasingly attractive to foreign and
domestic operators as well as strategic and
financial investors. To build a strong platform
for driving long-term economic growth, an
increase in the government’s thrust on this
sector is vital. The domestic shipping industry
is burdened by severe competition on the one
hand and taxes on the other vis-a-vis global
players operating from tax neutral
jurisdictions. The ports sector is anticipating
rapid growth and considerable investor
interest. This would entail major investment in
initiatives to expand capacity of major ports
and make improvements to their facilities.
There is an urgent need for measures to
facilitate growth in ground logistics
(warehousing, rail freight and cold chain
logistics) and we expect some solid reforms to
be announced in the budget.
Retail: With the improving economic
scenario, purchasing power of consumers is
on the rise. However the recent inflation
shock is denting this purchasing power. While
retail companies have so far produced good
results, the future outlook would be under
pressure if inflation continues unchecked.
 62

While little can be done on the global

commodity front, improved FDI in retail could
help bring down prices of consumer goods,
thus fueling growth.
In the short-term, given the inflationary
scenario, we don't expect Retail to
outperform, as people's daily necessities will
take over a large part of their spending
budget. However over the long term, since
the economy is growing, we expect the Retail
Sector to perform well.
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