Volume 1, Issue 3 March 5, 2011
Vinod gupta school of management, IIT KHARAGPUR
B U D G E T 2 0 1 1 - 2 0 1 2
The Indian economy has shown a remarkable
turnaround from the slow growth rate after reces-
sion. The current growth at 8.6% is up from the
8.0% of last fiscal. The growth has not been lob-
sided but broad-based with agriculture, industry
and services growing at 5.4%, 8.6%, and 9.6%
respectively. This growth has not been achieved
About Fin-o-Menal at the cost of fiscal weakening. Basic economic
parameters have improved as is evident from the
fiscal deficit of 5.1% as against an expected 5.5%.
Fin-o-Menal is the week- For the next year it is expected to further fall to
ly Financial News Letter 4.6%. In the midterm policy statement, the targets
of VGSoM which is pub- have been revised to 4.1% for 2012-13 and to
lished by Finte`est, the 3.5% for 2013-14. The central government debt-to
Finance Club. -GDP ratio, which the Thirteenth Finance Com-
Come, Take Interest in mission had projected to be at 52.5% of GDP, is
Finte`est! 44.2% of GDP. This is remarkable as economies
the world over are suffering from high debt-to-
GDP ratios. Further, the borrowing estimate for
the next year has been low despite expected hike
Editors in social spending.
But, the optimism is tempered by the fact that
Harish Thangaraj some of the projected fiscal statistics and esti-
Lavanya Rajasekaran mates are based on statistical revision and opti-
Niloy Ghosh
mism which is difficult to justify. For example,
reduction in fiscal deficit has been due to some
historic adjustments and wind fall gains from the
3G auctions. The FM expects the fuel subsidy
spending to decrease in the next fiscal. Keeping
fuel subsidy under tab could be a challenge as
Rates This Week
global fuel prices go skywards. This, in turn, would
raise the input costs of industries and affect In-
dia’s current account deficit. Although moderated
by a relatively higher export growth rate (exports
grew at 29.4% compared to import growth rate of
44.86 62.74 17.6%), the current account deficit of 3.5% is still
a cause of concern.
Steadily rising inflation is one of the biggest chal-
lenges before the Indian Economy. Controlling
prices of other commodities linked to oil prices,
like vegetables etc., would be difficult and will add
73.01 6.83 to rising inflation. Bottle necks in the agricultural
sector, spiraling commodity prices, speculative
futures trading in commodities market and an
Article Contributors economy plush with liquidity have been responsi-
ble for the upward movement of prices. Focus on
farm income instead of increasing productivity has
Dhiru Rabha
resulted in food price driven inflation. While RBI
Gautam Gogoi
focuses on monetary measures to control inflation;
P Ramya Krishna the budget is aiming to address the structural
deficiencies. Policies have been formulated to
— A n O v e r v i e w
improve supply chain infrastructure. But there has
not been any provision to regulate speculative
trading in the commodities market.
One of other biggest obstacles for robust growth of
the Indian Economy is Infrastructure. It is estimat-
ed that the Indian economy needs an investment
of $5 trillion over the next 10 years to improve
infrastructure. Addressing this issue, the FII invest-
ment ceiling in corporate bonds of infrastructure
companies has been raised from USD 5 billion to
USD 25 billion. FIIs would also be permitted to
invest in unlisted bonds with a minimum lock-in
period of three years. Also, FDI policy concerning
financial sector has been further liberalized. The
budget has increased FDI in insurance to 49% and
has made attempts to increase the voting power of
foreign investors in banks. But the issues regard-
ing implementation have not been touched upon
and success of existing plans has not been ad-
dressed.
The budget has laid down the road for smooth
implementation of Direct Tax Code. Expected to
come into action from 1st April 2012, the following
tax reforms are proposed under DTC:
 Surcharge to be reduced from 7.5% to 5.0%
for Indian companies and from 2.5% to 2.0%
in case of foreign companies
 Developers of special economic zones to pay
MAT
 Developers of SEZ’s to pay DDT (dividend
declaration tax)
 Tax holiday for power sector has been ex-
tended till 31st March 2012
 Minimum taxable income increased from
`1,60,000 to `1,80,000
Issues that need to be Addressed
The government should come up with a definite
roadmap for FDI investment in the retail sector and
the implementation of GST. To meet the long term
growth expectations, the government would need
to address infrastructural bottlenecks and expedite
key reforms in areas such as tax, labour and edu-
cation. Ability to manage inflation and pushing
through institutional reforms would be critical for
sustainable growth.
Contributed by
Nachiketa Trivedi
1st year MBA
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 Fin-0-Menal Volume 1, Issue 3 March 5, 2011

B u d g e t a n d t h e I n f r a s t r u c t u r e s e c t o r
Market Data
The infrastructure sector, one of the roadblocks to also been issued for infrastructure bodies like IRFC,
the Indian growth story, has been given a boost in NHAI etc. Apart from this, the domestic power equip-
Index BSE NSE
this year’s budget. The overall planned allocation ment manufacturers have been given a boost by the
Opening for this sector was hiked 23.3% to $47 billion. excise duty exemption extended to goods required
Value 17,811. 5,330.15 Measures have been taken to ease the fund avail- for expansion of existing mega projects. However,
(Feb 28) 08 ability. FII limit on investment in corporate bonds the hike in minimum alternate tax (MAT) to 18.5%
with a maturity of more than 5 years was doubled and the applicability of MAT to SEZ developers
Closing to $40 billion. Withholding tax on notified infra debt comes as a negative. All in all, by avoiding any short
Value 18,486. 5,538.75 funds was reduced to 5% from 20%. Tax free term fixes, it promises better things for this sector in
(Mar 4) 45 bonds (aggregating to about $6.5 billion), have the future.

Change +3.87% +3.85% B u d g e t a n d t h e I T S e c t o r

(As on March 4, 2011)
Commodities this week
Commodity ` Unit
Despite the requests to continue for one more
year, the STPI (Software Technology Parks of
India) scheme has been dropped. Under this
scheme, export oriented units were exempted
from tax on profits. While these exemptions were
initially set to expire in March, 2009; they had
been extended to March, 2011. There are pres-
ently 51 STPIs in India and the medium and small
enterprises might now see a reduction in profits.
Also, the MAT (Minimum Alternate Tax) is increased
to 18.5% from 18%. It should be observed that glob-
ally, MAT is not more than one-third of the corporate
tax; thus, it should not be more than 12%. However,
as the change is marginal, the sector will not be
affected much. The positive aspect is the reduction
in tax on revenues from foreign subsidiaries of the
Indian companies. While companies with foreign
subsidiaries welcome this, the IT sector as a whole
is not happy about the budget.

B u d g e t a n d t h e E d u c a t i o n S e c t o r
GOLD 21093 10 gm
The Education sector in India stands to gain after istry's allocation of funds has gone up from last
the Union Budget of 2011-12 with an increase of year's `43,836 to `52,057 crore while the UGC's
SILVER 52225 Kg 24% for this sector, apart from the 'special-grants' allocation has gone up by 26%. While the figures
to some higher educational institutes in West Ben- quoted depict a bright picture, a HRD Ministry official
gal, Kerala and Tamil Nadu. IIT Kharagpur, the claims that the hike in real terms for the RTE
oldest of the renowned Indian Institutes of Tech- scheme is only marginal and not the 40% that is
OIL 4732 Barrel nology, got a whooping `200 crore as a one-time evident. This time the funds allocated have only
grant along with some other institutes. The Right gone up by `2,000 crore from last year's `4,000
to Education(RTE), alligned with the Sarva Siksha crore. However, it waits to be seen how effectively
(As on March 4, 2011) Abhiyan have been allocated `21,000 crore, com- this sector utilizes the generous allocation of funds in
pared to last year's `15,000 crore. The HRD Min- the future.

Q u o t e U n - Q u o t e

"For the first time in the history of India, a budget spoke about targeting the poor through a direct cash transfer mecha-
nism. Earlier, we couldn't have done it because we didn't have the technology"
- AMIT MITRA, Secretary General, FICCI

T o o n o f t h e w e e k

Quick Quote: Never base your budget requests on realistic assumptions, as it could lead to a decrease in your funding - Scott Adams

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