BudgetLine - VIII

GST rollout is welcome

“The budget has given both the common man and industry something to cheer and demonstrated the government’s focus on driving sustainable inclusive growth. We are happy to note that significant progress is under way towards introduction of GST and that the constitutional amendment bill would be placed before the Parliament in the current session itself. Though the Finance Minister has not given any definite date for the GST roll out, we are optimistic and look forward for its introduction in FY 2012-13. Leaving service tax and central excise duty rates unchanged is a step in the right direction, given the inflationary pressures. On the flip side, given the current economic outlook and high lending rates, the industry was looking forward to a reduction in corporate tax to enable it to make some big ticket investments. However, this was ignored by the government in this budget. Overall the budget is welcome news for many despite certain challenges that need to be looked at.”

Anil Khanna, Managing Director, Blue Dart Express Ltd.

Healthcare sector feelslet down

The budget 2011-2012 presented by our Finance Minister was a big disappointment from the Healthcare point of view.Our demand from the Union Finance Minister to declare “Healthcare as infrastructure status” was again ignored.Giving infrastructure status to the healthcare sector would have helped it attract more investments necessary to narrow the demand supply gap in hospital services. India is a signatory to the Millennium Development Goals (MDGs). 3 out of the 8 goals pertain to healthcare. India’s ability to achieve the healthcare related MDGs depend on her ability to narrow the demand supply gap in healthcare services. Investments in healthcare infrastructure have not kept pace with population growth and increasing urbanization. India’s average of around 70 beds per 100,000 people compares poorly to the world average of 396 beds per 100,000. Increasing the number of beds to around 200 per 100,000 would mean creation of 1.3 million new beds, which would require fresh investments of $80 billion. Health is a state subject in India and cash strapped state governments are not likely to be able to provide budgetary support for such investment. The private sector therefore will have to step in and provide bulk of these investments. The healthcare sector’s break even period in India is long at 3-5 years. Given these constraints, the private sector needs adequate incentives to enable them to make the huge investments needed to narrow the demand supply gap. Providing infrastructure status to healthcare would enable long term funding from agencies at low rates of interest. Providing infrastructure status to healthcare would also exempt them from payment of service tax to commercial or Industrial construction companies, reducing input costs of healthcare projects. Healthcare companies can also channelize overseas capital to projects in India thru the ECB route. At this point, the ECB limit for hospitals is $100 million per year; providing infrastructure status will raise this cap to $500 million per year. Healthcare projects in select non- urban areas that commence operations in the period April 1, 2008 to March 31, 2013 will enjoy a five year tax holiday under section 80IB as per budget 2008. Infrastructure status to healthcare would enable them to enjoy a 10 year tax holiday. This is particularly important for healthcare sector since the five year tax holiday is too little given the fact that hospital projects take 3-5 years to break even. This will make healthcare sector more attractive for investors. The Budget also did not address the areas of healthcare insurance and Medical education where further reforms are called for. This step would have made healthcare sector more attractive for investors. The government spend in healthcare as percentage of GDP is hardly 0.99% at present ; this spend should be raised to at least 5% of the GDP. The budget failed to address this issue. To add to the healthcare costs of the common man, the FM has added health check-ups and Diagnostics to the service tax net. When he should have encouraged citizens to practice preventive healthcare habits as in the west, he has taxed them instead, which is a retrograde step.

Mr.Rajeev Boudhankar - Vice President - Kohinoor Hospital

'Growth-oriented Budget'

Given the difficult stand viz-a-viz global markets, political issues and their impact on economic considerations, credibility loss in light of so-called ‘scams’ and another controversies and liquidity pressures hanging in line with high inflation, the finance minister has done a reasonably good act in presenting a growth oriented budget.He has tried to attract foreign direct investments in infrastructure, boost agriculture, provide incentive for domestic investment in infrastructure, invite foreign investor interests in the mutual fund industry all with a view to propel the economy further. Recognizing the growth in the automobile sector, the finance minister has protected the sector by not tinkering with excise duties. By increasing the tax exemption limit by ` 20,000 and by providing certain social welfare benefits, to some extent, an effort has been made to tackle the inflation and propel savings. The overall budget is extremely positive as long as the deficit targets/plans are met and the outlined measures are well executed. The only concern is with the imposition of excise on branded apparel. While this is not a negative measure in itself it has to be seen in light of the fact that there should be a heavier penalty on counterfeits and look alikes who do not have any tax records and who can add to their illegal profits unless tackled due to higher margins now with legitimate brands being taxed.

Safir Anand, Sr. Partner and keen business observer, Anand & Anand, India's leading IP Law FIrm.

Disincentive for savings

The Union Budget presented in Parliament by finance minister is a well balanced economic thought under the present scenario. There was much expectation for the salaried class by way of further concessions in the Budget. The increase in hike of income tax level by a mere Rs 20000 is not sufficient considering the level of inflation and escalation of price of essential commodities. The level of Rs 1 lac under section 80C left untouched is a disincentive for savings. Had the 80C level been raised to at least Rs 150000, there would have been investment orientation in the budget. The proposal to do away with filing of tax returns upto an income of Rs. 5 lacs (with certain conditions)and introduction of simple IT form ‘Sugam’ are welcome. This can save a lot of time and paperwork.

Dr P K Viswanathan Faculty Indian Bank Management Academy for Growth & Excellence Chennai.

Fillip to agriculture

Whilst the Union Budget is fairly balanced, it certainly seems to have been formulated bearing in mind that multiple states will face elections in the near future. The Finance Minister seems to have walked the tight rope rather well, but could have done a little more towards social sector spending so as to increase the social development indices in the country. The focus on agriculture in the budget is a very welcome step. Agriculture's share in the GDP has been declining over the years and that indeed is a dangerous trend. Increased allocation of Rs.7860 crores to the Rastriya Krishi Vikas Yojana; infusion of Rs.3000 crores to NABARD; impetus to organic farming methods; interest subsidy of 3% to farmers, will collectively help increase agricultures’ share in the GDP. Further, a majority of India’s agricultural produce is sold in primary form leading to very low income levels to the farming communities. The proposal in the budget therefore to promote private investment in agro-processing; establishing 15 mega food parks and providing infrastructure status to cold storage chains, will collectively help augment income levels in rural India and consequently ensure higher levels of disposable incomes at the hands of rural communities. The Union Budget coupled with Karnataka’s agro-focused budget should certainly help the farming community in the State. Whilst the tweaking of taxation slabs is a welcome step and the finance minister has done well in increasing the exemption limit to 5 lakhs for super senior citizens above the age of 80, the minister could have certainly reduced the peak rate of income tax. India is on a growth path and the factors were ripe for a reduction in the peak rate of tax. Whilst countries such as Singapore have a sub 10% rate of income tax, India continues to tax her citizens 1/3rd of every rupee they earn. The absence of a reduction in the income tax rate is therefore a dampener. The rupees 1000 crore allocation for improving judicial infrastructure is a very welcome move although the allocation could have been larger. Judicial infrastructure in the country needed immediate attention and has been ignored by many previous budgets. Special allocation in the present budget will help speed up the justice delivery mechanism in the country and consequently help in ensuring the rule of law. With a growth rate in excess of 8% and a fairly stable domestic economy, the Finance Minister could have done more to ensure that the budget contained incentives for further industrial growth. The finance minister could have taken advantage of tailwinds and proposed certain financial and institutional reforms to further hasten India’s growth story. Although the budget has many positives, it unfortunately falls short of being visionary.

Sajan Poovayya

Chairman, Karnataka State Council,

Federation of Indian Chambers of Commerce & Industry (FICCI)

Media firms to benefit

Countervailing duty (CVD) and excise duty exemption on jumbo rolls of 400 feet and 1000 feet colour, unexposed cinematographic film.

Excise duty on LED is reduced to 5% and the special CVD is fully exempted.

Excise duty reduced from 10% to 5% on parts of ink-jet and laser-jet printers.

Minimum Alternate Tax (MAT) on book profits has been marginally increased from 18% to 18.5%.

Surcharge on domestic companies reduced to 5% from 7.5%.

Budget Impact : The CVD exemption on cinematographic film will be helpful for the Indian film industry which imports this film. The change in taxes on LED is not likely to affect the end consumers much. Reduced prices of printers will bring down the cost of production for the companies in print media. Increase in MAT is very nominal and is offset by a reduction in surcharge.

Company Impact : Production houses like Balaji Telefilms will benefit out of the announcement of dutyexemption on cinematographic film. Also a reduction in the price of printers is a positive for companies like Jagran Prakashan and HT Media.

Raza Syed - Group Account Director, Mudra Max:

“This year’s rail budget has not quite lived up to the expectations of the private sector and India Inc at large. One expected the rail budget to have a little more focus on aspects such as freight policies, infrastructure projects, solid plans and frameworks to encourage the all important private investments so as to Jumpstart the stagnant state of the Indian Railways infrastructure”.

The budget fell short of expectations mainly because:

· The projections in infrastructure and related investments provided by the minister in today’s budget is a far cry from what seems practically possible considering the financial crunch currently faced by the ministry

· The minister also mentioned during the beginning of her speech certain PPP policies announced during the year such as the PFT, SFTO, AFTO, Auto and Ancillary Hub Policies, but the fact remains that these policies were announced during the first two quarters of this financial year and that except for the PFT policy none of the above mentioned policies have garnered any interest let alone any investments from the private sector

· As a matter of fact the PCTO policy which was announced in 2006 and had received participation from 15 private players, is also starting to show decreasing investments as a result of the diminishing faith in IR’s PPP framework due to the frequent dilution of the policy.

· Hence it will take a lot of confidence building measures from the IR on the ground before they can attract private investment & bridge the gap required for investment.

Mr. Sajal Mitra, CEO, Arshiya Rail Infrastructure.

MAT on SEZ, a dampener

The budget aims to control and reduce the fiscal deficit and inflation which is intended to strengthen macroeconomic fundamentals. The incentives provided to the infrastructure sector are welcomed as these incentives should increase capital investment in this sector. The proposal to reduce the surcharge on corporate income tax should spur additional investment. Levying MAT on SEZ developers and units operating in SEZ will negatively impact their cash flows.”

Samir Dhir, Sr.VP Global Delivery Head Centre Head .

Outlay for education is laudable

The Union Budget 2011-12 is an average budget with no change in excise duty, customs duty or service tax structures and no major rationalization measures. Alternate energy or Green energy, Agriculture, Education and Infrastructure are given more importance understanding that this will bring in overall economic growth. One of the positive moves is that the fertilizer industry has been included as a part of infrastructure. This will fuel growth and bring down prices. For the education sector, the outlay has gone up. However, implementation should be a major focus. A key policy initiative such as the launch of the National Mission for Female Literacy with the stated objective of reducing female illiteracy within 3 years by 50% of the current levels is a good step. India’s plan to raise its expenditure in the education sector by about a quarter to Rs 520.6 billion (USD 11.50 billion) in the next financial year is in itself a big plan. Another good aspect of the budget is its outlay for microfinance, more pay for anganwadi workers, presumptive interest loan waivers for people who have retained loans well and the decision of investing as much as Rs 210 billion in Sarva Shiksha Abhiyan, its elementary education programme. However, at this stage we can say that it’s a fine start and one hopes that future will herald a portent of greater and more radical change for the nation.

Fr. Christie, Director, LIBA (Loyola Institute of Business Administration)

Green energy can drive rural growth

This year’s Union budget 2011-12 seems to be neutral and shows a similar trend as shown in the previous year’s budget. The budget has given importance mainly to 4 aspects namely Alternate energy or Green energy, Agriculture, Education and Infrastructure which is definitely a good sign for the economic growth. Concessions for Green energy will encourage the manufacturing and usage of such energy and will also enlighten the mass with the potential of this sector. This would bring about rural development as well as electricity and power would become accessible to them which were by far not the case. Backbone of Indian Economy is Agriculture and right measures have been taken to support and improve that. Similarly the allocation of 23% higher fiscal for infrastructure than last year and steps such as tax free infra bonds worth Rs 30,000 crore by various government undertakings; creation of infra debt funds are positive for the sector and will boost economic growth. Finally Education sector has been given some boost with higher allocation which is 30% more than last year’s budget. Industries depending on the Education verticals which are already on the rise will find it more advantageous and will add to the growth of that sector.

Mr. Subramanian, MD & CEO, TRS Forms & Services Pvt Ltd

Agri-friendly

The overall budget is encouraging for the Agriculture & Food Processing sector as well as rural development. The Finance Minister has declared that loans to farmer will cost just 4% in case they pay in time so this will help in the growth of the food industry. Exemptions from excise duty for equipment required for storage facilities on agriculture produce will attract more investment and it will help to reduce the loss and wastages of agriculture produce. An important announcement is that investments in cold chain will be considered as infrastructure investment – this would attract more investments into the cold storage chain. Further, basic custom duty has also been reduced to 2.5% from 5% for agriculture machinery, which will encourage usage of better technology for the food sector. Setting up of 50 mega food parks, wherein government will invest nearly 50%, will give a boost to the food sector. FM also said that strong support will be given for organic farming, which will lead to better output. It is proposed to introduce the Food Security bill and we hope that it will be in favour of the food sector. FM has announced that the GST Bill will be introduced in this year - so we are hopeful that the food sector will come under the lower bracket of tax since existing tax is very high. Lower tax rates will give a further boost to the food sector. But, the introduction of 1% excise duty on 130 food items will adversely affect the food sector.

Mr. Rajesh Gandhi, Managing Director, Vadilal Industries Ltd.

Food, fuel outlays inadequate

Some positive aspects of the Budget for 2011-12 included a reiteration of Government of India’s commitments to implement GST and DTC as per the time schedules announced earlier, as well as a move towards better delivery of subsidies to prevent leakages. Another significant positive is targeting a better-than-expected budget estimate for the fiscal deficit for 2011-12. However the targeted improvement in the deficit is based on a forecast 18% growth of net tax revenues following a rather positive assumption of a 9% economic growth for 2011-12. Moreover, the allocation for the three major categories of subsidies, namely food, fuel and fertiliser, is lower than the revised estimates for 2010-11. In particular, the outlay for fuel subsidies is likely to prove inadequate in the absence of a significant increase in the prices of regulated petroleum products, given that crude oil prices may remain elevated over the near term. The outlay for food subsidies too is expected to be larger than the budgetary allocation, given the impending introduction of the National Food Security Bill, unless considerable improvement in targeting of food subsidies is made during the course of the year. Accordingly, we expect that the actual fiscal deficit may exceed the budget estimates for 2011-12.

Mr. Naresh Takkar, Managing Director, ICRA Ltd .

Manufacturing gets a boost

Progress towards implementation of GST and supposed implementation of DTC by 1st April 2012 along with Rs.40000 crore worth disinvestments planned are positive reform initiatives. The opening up of the equity schemes of domestic mutual funds to individual foreign investors is a big positive for the mutual fund business and Indian equity markets. Allocation of Rs.2.14 trillion and the announcement of increased borrowing ceilings is expected to help the infrastructure sector growth in India. The announcement of the manufacturing policy to help make Indian industry globally competitive was a new initiative to help increase the share of manufacturing in country’s GDP. The estimate of tax revenue growth of 18.5% against a total revenue expenditure growth of just 4.2% appears aggressive in a context of rising crude prices and high food inflation. Overall the budget promises a lot of action in the months to come on the reforms side and policy point of view.

Sanjay Sinha , CEO, L&T Mutual Fund

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