ANALYSIS ON UNION BUDGET 2011-12

Key Highlights:

FY11 fiscal consolidation impressive

Food inflation at 20.2% in Feb-11 still a big concern
GDP growth pegged at 8.6% for FY 11
Divestment target set at Rs. 40,000 Crs.
FIIs allowed to invest in MF schemes
FDI allowed in MFs
FII investment in Corporate bonds hiked 100% to $40 bn
Taxfree bonds worth Rs 30,000 crs for infra to be allowed
IIFCL disbursement target upped to Rs. 25,000 Crs.
Pension eligibility age cut to 60 yrs from 65 yrs
FY11 fiscal deficit seen at 5.1%
FY12 fiscal deficit target set at 4.6%
FY13 fiscal deficit target set at 4.1%
Tax exemption limit raised to Rs 1,80,000 from 1,60,000 for male. No change
in limits for female tax payers. For
senior citizens limited hiked to Rs 2,50,000
New tax exemption criteria for very senior tax citizens above 80 yrs.
Exemption upto Rs 5,00,000
MAT raised to 18.5% from 18%. SEZs to be under the MAT ambit.
Surcharge for companies reduced from 7.5% to 5%.
Rs 20,000 exemption for investment into infra bonds extended by another
one year.
Service tax maintained at 10%.
Government market borrowing target set at Rs 3,43,000 Crs. for FY12
Base rate on excise raised to 5% from 4%.
Health checkups under service tax ambit.
Life insurance service providers to be taxed.

expert View:
 Fiscal deficit FY 11 projections in previous budget at 5.5% have come out to be just 5.1% on
actual basis.
Although the actual have come out to be low, the numbers were expected to be much lower
looking at huge one
time credits like 3G spectrum auctions. Projections for fiscal deficit numbers for FY 12 and FY
13 look quite
impressive.
Market borrowing has been pegged at just Rs 3.43L Crs for FY12 which is way below the
previous years
numbers. Low borrowing has been a big positive for the bond street and would help the yields
soften over the
year.
Inflows through divestment of Rs. 40,000 crs would help improve fiscal health a positive for
both equity and
debt markets.
Allowing FIIs to invest in MF schemes a big move. The move is expected to give depth to the
markets. With India
providing premium interest rates vis--vis developed economies and many emerging nations,
we expect the
move to boost FII inflows into the economy. Reduction of surcharge for corporates also a big
boost for debt
mutual funds.
The government has given a big push towards infrastructure spending by a) allowing
issuance of Rs. 30,000 Crs
of tax-free bonds, b) Setting up disbursement target of Rs. 25,000 Crs for IIFCL, c) extending
the Rs. 20,000
exemption limit on investments on infra bonds by 1 year thus inviting retail investment into
the said sector.
After a year of scorching food inflation, the government has given much deserved attention to
investments into
agriculture sector. It has raised target of credit flow to agriculture sector to Rs 4.75 trillion.
Government has also
given 3% interest subsidy to farmers in 2011-12. Announced to developed
warehousing/storage facilities upto
4M tones in FY12. And cold storage chains to be given infrastructure status and thus inviting
huge chunk of
institutional investments into the said sector.
The tax exemption limit for senior citizens should have been hiked to atleast Rs 3,00,000
looking at the spiraling
food inflation and medical costs. The new tax exemption of Rs. 5,00,000 for senior citizens
above 80 years is a
big move and is expected to benefit a huge section of the society.
Extending service tax on medical checkups and diagnostic services would make medical
services costlier. With
the already existing sky-rocketing prices of medical services, this would be a big drain on the
pockets of senior
citizens who avail these services on a regular basis and have very few sources of income.