BudgetLine - VII

Budgetline 2011-12

"The finance minister has made a fair attempt at presenting a socially-inclined budget in the backdrop of spiraling prices. In my view, reining prices and effective implementation of the measures announced will be the key challenge.

Revving up infrastructure investment is crucial since it sets the pace for the entire decade. More importantly, the proposal to launch Rs 300 bn in tax-free bonds to finance railways, ports, housing and highway development is a critical way-forward for infrastructure development of the nation. Heightened focus on agriculture, health, education, food security bill, fiscal consolidation and an ambit that covered the aspirations of the larger ‘Bharat’ were steps in the right direction.

From a real estate perspective, interest subsidy for low-cost housing of Rs 15 lakhs and raising the priority home limit to Rs 25 lakhs is expected to expand the market for homes. Better infrastructure, as I’ve maintained in the past, will also help the sector as new micro-markets develop into sustainable urban destinations and metros become better cities. Besides, mortgage guarantee funds to this segment is bound to provide the required safety net to financial institutions (FIs) which provide home loans to them resulting in higher fund flow to this segment.

Another key positive is the e-Stamping initiative that stands to bring in sanity in records for the sector. Having said that, this is a decent start and a move to digitize land records going forward will boost real estate. Finally, a reduction in corporate tax surcharge from 7.5 per cent to 5 per cent will marginally benefit realty as well'.

Mr Sanjiv Saddy, Executive President, Emaar MGF Land Ltd.

Rural telephony to aid connectivity

The Budget this year provides a number of measures to promote inclusive growth, which is crucial to sustain India’s development ambitions. The emphasis on rural development, both through banking and telephony initiatives, is welcome. The allocation announced for rural telephony will give a fillip to boosting connectivity for villages. The Budget also has a number of initiatives to take banking to the masses

Among them, the move to set up banks in villages of more than 2,000 people, the bill to allow RBI to grant more banking licenses and additional support to Nabard are particularly noteworthy.

On the downside, we would have liked to see infrastructure status being given to rural healthcare initiatives as well, as they play a key role in promoting inclusive growth. On the overall industry front, there are a few initiatives such as treaties to avoid double taxation and reduction in corporate surcharge which will help in promoting growth.

Naresh Wadhwa

President & Country Manager,

Cisco India.

Surcharge cut on corporate income, a positive move

The Budget speech indicated further progress on the Direct Tax Code (DTC) as well as the GST - both critical measures, which is a welcome move. Reduction of surcharge on corporate incomes is again a positive move. There was a lot of nervousness in the market about the indirect taxes - the market has actually heaved a sigh of relief because there was nothing negative on this.

What the Budget has missed is the announcement of reforms such as allowing FDI in sectors such as retail, broadening of ECB norms, higher interest deduction on home loans and so on, which may have had a positive impact on the demand for housing. Apart from the planned reduction in fiscal deficit, another huge positive from the Budget has been the FM’s efforts towards procuring more funds for investment, especially into infrastructure.

Irfan Razack

CMD, Prestige Group.

Key challenges addressed to maintain growth

The Finance Minister through the Union Budget has addressed three crucial challenges of maintaining growth momentum, control of inflation and fiscal stability.

To increase the GDP growth from 8.6 per cent in the current fiscal to 9 per cent in FY 2011-12, the allocation has been significantly enhanced in infrastructure, health, education, agriculture and rural development. In order to control high inflation, supply side problems have been addressed through higher credit to agriculture and building of cold storage capacity. There has been sharper focus on fiscal deficit in the current year which is set to be lowered to 4.6 per cent compared with the earlier estimate of 5.5 per cent. It is likely to further come down to 3.5 per cent in FY 2013-14. The tighter monetary policy being followed by the RBI and now being complemented by tight fiscal discipline will help control inflation.

However, the Budget did not clearly mention the overdue hike in FDI limit for the insurance sector, which might be addressed at the time of amendment in Insurance Bill. Further, there is no hike in tax exemption limit for life insurance, health and pension. The provision of FII investment in mutual funds and infrastructure bonds is a positive move.

Overall, the Budget is growth-oriented and has a progressive outlook.

Deepak Sood

CEO & MD, Future Generali India

Life Insurance Co Ltd.

Silent on funds for future rail projects

The Railway Budget had a long list of initiatives covering passenger and freight business. Surprisingly, the list of business-oriented policies did not mention the oldest private participation initiative of IR - the Private Container Train Operators. This was quite disappointing. It is imperative that Railways should showcase this initiative as a success story and win investors’ confidence. At present, the investors’ risk perception for rail related projects is very high.

The Budget was also silent about means to raise resources for future railway projects. The gap between resources available and requirement of investment for network expansion, terminal capacity enhancement and additional locomotives and wagons is increasing due to higher operating ratio.

The Sixth Pay Commission burden, Pension Fund and Depreciation Reserve Fund requirement leave hardly any surplus to be accumulated for capacity works and new projects.

It is heartening to note that there is an emphasis on new lines, gauge conversion and private investment in ancillary units of railways’ production units. The railway freight rates remained untouched this time as well. Those have not undergone much revision in the recent past and have not kept pace with inflation either.

It can be tapped as a source of additional revenue to meet at least the revenue needs.

Sachin Bhanushali

President, Gateway Rail Freight Ltd.

Issues critical to semiconductor ignored

The Finance Minister has delivered a balanced Budget that aims to correct the imbalance between urban and rural growth. Measures to encourage growth in rural areas through broadband and telephone connectivity as well as banking initiatives will ensure that development is inclusive.

The plan to introduce an amendment in this session of Parliament to bring forth a clear and concise Goods and Service Tax (GST) policy is much appreciated. On the solar energy segment, the cancellation of customs duty for some of the inputs used in the production of solar modules/cells will encourage the build-up of the budding industry.

However, the Budget did not address issues critical to the growth of the semiconductor industry.

Jaswinder Ahuja

Corporate V-P & MD, Cadence

Design Systems, India.

Gold duty rejig to help raise refining capacities

The Budget is very balanced and growth-oriented since markets were worried, especially on expectations of hike in excise duty and service tax, but the Finance Minister has left rates unchanged.

The Budget can well be described as positive and give a big boost to industry that is already reeling under pressure due to inflation and increased cost of inputs due to variety of factors . Addressing the problem of inflation, the Finance Minister also reduced custom duties for agri and agri-related products and has also restructured duties for gold, net impact of which will increase gold refining capacities in India to much higher level from 25-28 per cent. Further, the fiscal deficit target of 4.6 per cent for fiscal 2011-12 was lower than market expectations, which is positive for corporate needs from domestic banks.

The Budget proposals will not be able to do any good to commodities market such as metals and crude oil and so on, until their prices start moving southward, which seems a remote possibility as of now.

Also, however, if interest rates rise further which is quite likely and prices crude oil refuses to become thinner on account tensions in West Asia, growth prospects of developing countries such as India and China could be adversely affected.

D.K. Aggarwal

Managing Director, SMC

Comtrade.

Rise in allocation for healthcare

The Budget seems to have increased allocation for healthcare by 20 per cent. This is a step in the right direction as Government spending on healthcare definitely needs to have increased. What would be interesting to see how this will be achieved and ideally the Government would do well to focus on insurance schemes and creating public private partnerships to utilise the existing government healthcare machinery. The scope of Rashtriya Swasthya Bima Yojana has been expanded in the 2011 Budget and this is a very good move as it will improve the medical safety net of millions more who are under the below poverty line.

Dr Sunita Maheshwari

Paediatric Cardiologist and Chief

Dreamer, RXDX and

Teleradiology Solutions.

Duty on ‘branded’ jewellery takes the sheen away

The reintroduction of the abolished one per cent excise duty on ‘branded’ jewellery, is a retrograde step for the industry. The Gems and Jewellery industry is very unhappy and burdened enormously. The industry believes that while they are working towards ethical, transparent trade practices these kind of levies and back door license raj measures will create hardship, litigation and encourage corruption. Clearly, what the Finance Minister says on the floor of the House is different from what the Excise Department will interpret this to be. The gems and jewellery industry is not an excise duty leviable industry.

Hence, this is an ill-advised move by the Finance Minister and GJF strongly advices the rollback of this untenable levy on branded or unbranded jewellery. The whole country will move to unmarked and unprotected jewellery production and will stall professionalising this sector.

Since issuing the above statement, a 12-member delegate from the federation had been to visit the Finance Minister and below is a statement that was issued.

Vinod Hayagriv

Chairman, All India Gems &

Jewellery Trade Federation.

More focus on farm subsidies

The Indian Budget is hyped as a critical balance between inflation and development, between agriculture and industry. The fact remains that it is still a long way to move ahead compared with France, a country one-tenth the size of India but five times higher spending.

Even the European Union spends about 28 per cent of India’s Budget on farm subsidies, while India allocates only 6 per cent of the total Budget for agriculture and allied sectors.

It needs to be understood what is driving the economy and plans made in short, medium and long term basis to atleast double expenditure in five years. The tools are productivity in the short run, manpower planning and training in medium term and large scale infrastructure development in the long run.

There has to be consistent policy framework for a long term frame work just like CAP of the EU which integrates the agriculture, manufacturing and services sector with income, production and productivity as the benchmark domains.

Amit Saha

Agri-economist

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