Budget 2011

“An opportunity missed…yet again...” – 1st Mar, 2011

Highlights

Listed companies
Steps taken Industries/Sectors affected Impact
affected
IL&FS, AB Nuvo, Motilal
Foreign investors can invest in Mutual Fund Houses and Oswal Financial Services,
Indian markets through Mutual banks having asset Edelwiess, India Infoline, Positive
Funds management business Kotak Mah. Bank, ICICI
Bank

FII investment in corporate bonds

issued by Infra. Cos. Raised to
IVRCL, HCC, NCC, Patel
$25bn. FIIs allowed to invest in Infrastructure developers Positive
Eng. GMR, GVK etc.
unlisted bonds of Infra SPV and
allowed to trade among themselves

Rs. 6000 crs to be provided for

UCO, Dena, Canara,
recapitalizing PSU banks to make PSU Banks Positive
United Bank etc.
their Tier-I equal to 8%

Recapitalising Regional Rural Banks Slightly

PSU Banks SBI, PNB etc.
with Rs. 500 crs Positive

HUL, ITC, TTK Pretige,

Create Indian Micro Finance Equity Rural consumption aiding
Everest Inds. Hyderabad Slightly
Fund of Rs. 100 cr with SIDBI. Create FMCG and other related
Inds., Hero Honda, Bajaj Positive
a women self help group industries
Auto etc.

Commitment to rural infra increased

Infra. Companies in rural Infra companies in
from Rs. 16000 cr to Rs. 18000 cr. Slightly
infra and warehousing. general and cement and
Additional focus on warehousing Positive
Cement, steel. steel companies.
facility.
Refinancing facility with SIDBI for
MSME loan increased from Rs. 4000 MSME Sector - Positive
crs to Rs. 5000 crs.

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1% interest rate subvention on
housing loan limit extended to loan
amount of Rs. 15 lac, from Rs 10 lac Housing construction, HDIL, Parsvanath, HCC,
earlier for houses upto Rs. 25 lac Housing Finance, NCC, DLF, Unitech, ACE, Positive
Housing loan upto Rs. 25 lac under Construction Equipment etc. Voltas, Blue Star etc
priority sector, compared to Rs. 20
lac earlier
Enhance rural housing fund from Rs. Everest Inds., Hyderabad
Rural housing Positive
2000 crs to Rs. 3000 cr. Inds., Visaka Inds etc.
Allocation to Rashtriya Krishi Vikas Monsanto, Syngenta,
Yojna increased from Rs. 6755 cr to Agriculture sector Kavery Seeds, Jain Positive
Rs. 7860 cr. Irrigation etc.
Allocation to Rashtriya Krishi Vikas
Yojna increased from Rs. 6755 cr to
Rs. 7860 cr. Help general pulses
availability and bring down -
Allocate Rs. 300 cr to promote pulses prices and hence
60,000 pulses villages to increase address inflation. Positive
production

Targets higher palm oil seed

Lower palm oil prices
production by investing Rs. 300 cr to
positive for FMCG HUL, ITC Positive
bring 60000 hectares under palm oil
companies.
plantation
Agri Credit target increased by 27%
to Rs. 4.75 lac crs.
Interest rate subvention on crop Agriculture sector and rural - Positive
loan to continues making it cost 7%. consumption
Discount of 2% for timely repayment
increased to 4%
Viability gap funding available for Agriculture sector and Voltas, Blue Star, Lloyd
Positive
cold storage chain. cooling solutions company. Electric, Hitachi

Infra spending to increase by 23.3%

to Rs. 2,14,000 crs at 48.5% of Gross
Budgetary support. Infrastructure developers, Infrastructure Companies,
EPC contractors, Equipment ACE, Voltas, Escorts, Positive
Tax free infra bonds worth Rs. 30000 Suppliers, Cement, Steel Sanghvi Movers, TIL
cr to be issued by IRFC (Rs. 10000
cr), NHAI (Rs. 10000 cr), HUDCO (Rs.
5000 cr) and Ports (Rs. 5000 cr)

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Bharat Nirman to get additional
allocation of Rs. 10000 cr, taking it
to Rs. 58000 cr
Under MGNREGA scheme, daily FMCG, Everest Inds.,
wage of Rs. 100 per day would be Higher rural income Hyderabad Inds., Visaka Positive
linked to CPI Inds etc.

Allocation to education increased by

24% to Rs. 52057 crs
Camlin, Educomp, Everon,
Education Sector Positive
Sarva Siksha Abhiyan allocation to Navneet Publications
increase from Rs. 15000 crs to Rs.
20000
Tax exemption limit increased to Rs.
Consumption - Neutral
180000
Surcharge for companies reduced
Tax paying corporate sector All tax paying companies Positive
from 7.5% to 5%.
MAT increased from 18% to 18.5%. Manufacturing sectors
Extended to SEZ developers as well operating in SEZ and MAT RIL Negative
as units operating in SEZs. paying companies.
Witholhding tax on interest paid on
foreign borrowing by Infra Infra developers HCC, NCC, GVK, GMR Positive
companies reduced from 20% to 5%
IT exemption under 80CCF extended Infra developers and finance IDFC, L&T finance, REC, Slightly
by one more year. companies. PFC etc. Positive
Raymond, Koutons Retail,
Textile made-ups, i.e ready made
Pantaloon, Kewal Kiran,
garments to to pay excise duty of Ready made garments Negative
Zodiac Clothing,
10% which was earlier optional
Provogue.
Full exemption on AC systems for
Air conditioning and cooling
cold chain infra, including conveyor Blue Star, Hitachi Positive
industry
belts.

Excise on Micro irrigation equipment

Micro Irrigation Jain Irrigation Positive
reduced to 2.5% from 5%

Iron or export to have 20%

Iron ore mining companies Sesa Goa, NMDC Negative
advelorem export duty.
Steel Companies JSW Steel, Bhushan Steel Positive

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Wexcise duty on LED reduced to 5% Slightly
Electrical companies Havells
and CVD exempt Positive
Exicise on Crude Palm Stearin used
in laundry soap manufacturing laundry soap manufacturers HUL, Godrej Consumer Positive
removed
Excise duty exemption for BHEL, L&T, Thermax, BGR,
Power equipment suppliers Positive
equipment suppliers to UMPP Bharat Forge
5% customs and 5% CVD extended
Jagran Prakashan, D. B
to mail room equipments for print Print Media Positive
Corp., HT Media,
media.
UTV, Balaji telefilms,
Jumbo rolls of 400 & 1000 ft exempt Slightly
Movie production houses Shree Ashtavinayak, Sun
from CVD. Positive
TV, Sri Adhikari Brothers,

Service tax on Hotel accommodation

with declared tariff in excess of Rs. East India Hotels, Indian
Slightly
1000 per day with 50% abatement Hotels and restaurants Hotels, ITC, Royal Orchid
Negative
and AC restaurants serving liquor Hotel.
with 70% abatement

Service tax on air travel increased by

Kingfisher Airlines, Jet Slightly
Rs. 50 for domestic and Rs. 250 for Aviation industry
Airways Negative
International flights.

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Summary

Union Budget 2011-12 was presented amidst some interesting developments as far as equity markets were
concerned. We had witnessed one of the steepest intraday fall in Indian bourses just few days prior to the budget
for reasons which were global in nature. The crisis engulfing Middle East had catapulted global equity markets
into jittery regarding crude oil supplies to different geographies across the world. The situation was scarier for
India as we import more than 80% of our crude requirement and most of it comes from areas adjoining Middle
East.

Thus it looked as if investors in India and abroad tracking Indian equity markets were more preoccupied with
crude oil price trajectory than impending Union Budget. Hence the first thing that can be said about Union
Budget 2011-12 was that equally important if not more potent event overshadowed Union Budget-2011-12.
Hence we can safely assume that because of this fall in Indian bourses just prior to Union Budget 2011-12, the
downside due to entirely any shortfall in Budget announcements seems to be capped. Thus another way to
describe Union Budget 2011-12 in its run up was not much expectations attached in the first place.

The most striking thing about this budget is that fiscal deficit target of 4.6 % is way below widely expected
number of 5.1% or 5.2%.In fact this is lower than the fiscal deficit number of 5.1% for FY11. Having said this, lot of
eyebrows have been raised about this fiscal deficit number in a situation of high crude prices, no special bonanza
like 3G auction that happened during FY11 and likely divestment proceeds from several PSU in not so buoyant
equity market. Even if we assume a buoyant equity market in later part of FY12, mega issues like Coal India are
likely to be absent in FY12. Hence there are reasons to believe that this projected fiscal deficit number of 4.6%
may actually be exceeded when we draw a close to the fiscal year one year forward.

Another very striking feature is that oil subsidies for FY12 have actually come down to Rs23, 000Cr from RS38,
000 Cr in FY11 when present selling price of petrol and diesel implies an Indian crude basket of US$65/barrel. The
reality is that already Indian crude basket is above US$100/ barrel. Hence the only way this oil subsidy number
may look practical is allowing upward price movement in petrol in line with international crude movement and
substantial deregulation of diesel. This looks very tough proposition in an inflationary environment and history
shows that partial deregulation has always happened only when crude resume downward dive, not upward
journey. Thus there seems to be big discordant with oil subsidy number and consequent impact on fiscal deficit
and government borrowing programme. The irony is that this budget has not provided any relief in terms of
reduction on excise and other indirect taxes which would have paved way for some relief to consumers even
after hike in petrol and diesel prices.

Likewise doubts have been raised regarding drop in fertilizer subsidy from Rs55, 000 Cr to Rs 50,000 Cr and stable
food subsidies at Rs60, 000 Cr. Thus from all calculations, it looks that there may be an under budgeting of at
least Rs50, 000 Cr. This number by all accounts is not a very small number. From time to time, as the fiscal year
progresses, doubts will keep recurring regarding this number and its consequent effects on fiscal deficit and
government borrowing programme. Thus left over for private sector in a rising interest rate scenario is a point of
botheration. Thus it is possible that stock market will keep a close watch on companies in need of substantial
borrowed funds to execute projects apart from all PSU upstream and downstream companies.

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The good part is that expenditure growth for FY12 over revised estimates for FY11 is projected at just 3.5%. This
is accompanied by decline of 1% on non plan expenditure. Thus amidst pressure for more populist measures in
view of several state elections, budget marks the end of historically more than double digit growth in government
expenditure in last decade. This is a fact that is likely to be endorsed by investors both in India and abroad. The
main reason may be direct subsidy and stoppage in leakage due to progress in AADHAR under Unique
Identification Number scheme. Successful rollout of this scheme is likely to put a cap on several wasteful
government expenditures without actually benefitting the targeted class. Thus this is another feature which is
likely to find strong favor among long term followers of India Story.

Foreign investors may be disappointed by the fact that there has been no mention about FDI in retail or steps
taken to improve agricultural supply chain. Probably government might have found that it would add lots of
ammunition to opposition parties to target the UPA as anti rural or anti farmer, a risk hardly any government can
ill afford.

Another big negative was that this Budget made no mention of steps taken to auction off or monetizing natural
resources belonging to the state. Transparent mechanism to monetize state’s natural resources would have
benefitted all stake holders apart from filling government coffers handsomely. The Budget has just informed
formation of another Group of Ministers (GoM) without setting any time limit. This means that another golden
opportunity may be lost which is the crying need of the hour. This action has the potential to emerge as a big
retrograde step for deserving Indian companies facing huge resource crunch and forcing them to acquire natural
resources abroad thus draining out forex reserves and benefitting the foreign countries in terms of royalty and
several other revenue streams.

Another aspect that needs mention is that budget paves the way for investment by foreign nationals into Indian
mutual funds which have been happening through several other routes. But the moot point is that most of the
prominent Indian mutual funds houses have offshore ram targeting foreign nationals. Moreover it is not that
Indian growth story or equity market is very much unexplored or untapped. Lots of foreigners have been already
investing in India. Moreover several Singapore and Hong Kong based India dedicated funds recently closed down
or are scaling down their business as overseas investors sitting in USA and Europe have developed cold feet
towards Indian fund managers operating away from these two places for lack of convenience. Thus how much
incremental new fund will come to domestic mutual funds because of this new provision i s a thing to watch out
for rather than jumping to some big ticket number conclusion. But it is true that in the immediate term it may be
sentimentally positive.

India growth story remains incomplete without any direct or indirect mention of infrastructure sector. To
improve the fund flow into this sector, FII limit has been enhanced to invest in corporate bonds issued by
infrastructure companies. But the reality is that funding from India or abroad has never been a deciding
stumbling block for Indian infrastructure companies. What has malaise the sector is implementation or lack of
procedural simplicities. The budget has made no mention of alleviating these practical and much discussed issues
plaguing the infrastructure sector.

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To sum it up at end, the present budget is an attempt to strike balance in many aspects. As a result it aims for a
real GDP growth of 9% in FY12. This is accompanied by an ambitious gross tax revenue increase of 24.8%.All
these numbers seem impressive at first glance. But there will be no shortage of doubting Thomas’s regarding all
these numbers in days ahead. Thus stock indices are likely to take case by case approach to companies and
sectors rather than becoming straight gung ho on these budget numbers.

Sectoral Impact
Infrastructure

In this budget FM has again pronounced infrastructure as the backbone of the economy and its importance
cannot be over emphasized. The budget has made several commitments to increase allocation to infra spending
and make available long term funds for the sector without disturbing the asset liability mis-match of banks and
straining the domestic savings.

To elaborate, finance ministry has proposed to increase infrastructure expenditure by 23.3% to raise it to
Rs.2,14,000 crs. This is a significant amount and a big jump year over year as well. With the government making
an effort to make the environment more conducive for PPP model, this investment can be leveraged significantly
to improve the level of infrastructure in our country. There has been a constant pressure on the banks to fund
these infra projects, however, they do not have liabilities that are long enough to finance long term infra projects
for 15-20yrs and a problem of asset liability mismatch keeps on bothering them. Local debt market is not very
well developed and given the level of budget deficit, the strain on domestic savings is already surmounting.
Hence to solve this problem, govt. has proposed to increase the FII investment limit in infra corporate bonds to
$25 bn. In addition to that, FIIs can now invest in unlisted debt raised by infra SPV having a lock-in for 3 yrs.
However, they can trade among themselves in these bonds. This will loosen the string on capital inflow on debt
side. This should give way to further reforms that allow foreign funds to get invested in infra ventures here
earning a significant margin to what they earn at home. Besides this, govt. will also allow IRFC, HUDCO, NHAI and
Ports to issue tax free bonds aggregating to Rs. 30000 cr for their expansion and development.

Further greater allocation to Rural Infra Development Fund (Rs. 18000 cr from Rs. 16,000) would open up
business opportunity for them. However, more than funding, project clearances and land acquisition are a
greater problem to the sector crippling its growth and adding to the misery of other industries. Industry players
say that there isn’t deficit of funding for viable projects. Hence the move does improves the availability and cost
of funds, but what the investors want to see is that how the government makes the environment more conducive
and plays an enabler to the capital stock creation. We believe that such steps would be taken by the government
and execution would improve going forward and infrastructure companies would stand to benefit from the ste ps
mentioned above as well as general pick-up in infra activity.

Banking

There wasn’t much spoken about the industry in the budget. We have been waiting for increase in FDI insurance,
but nothing was mentioned about it. Govt. decision to recapitalize PSU banks with an amount of Rs. 6000 crs was
very much expected and would help in keeping the Tier-I ratio at 8%. This would help them to raise Tier-II capital

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to meet the demand for advances that is expected to clock 20-25% growth in FY12. However, expenditure in infra
and greater amount being provided to NABARD and SIDBI would translate in to greater business for the banks.
The margins for the banking sector are bound to move southwards as the rates in bulk and retail deposits have
increased phenomenally. Even CDs are being raised at around 10%. However, banks with significant cash to
deploy and lower C-D ratio will stand to benefit now. We remain positive on the sector and believe that the
already high ROEs will be maintained with better volume growth and slightly reduced margins.

The announcement on MFI front does not help existing listed MFIs any significantly. We continue to be negative
on business models and valuation of listed MFIs like SKS Micro. We believe that the option to grow, without
hampering quality will be very difficult and banks and RRBs will take active steps in the direction. The lending
rates will remain capped and the government will never allow the organizations to expand their margins at the
cost of poor borrowers.

Education and Skill development

In the budget for 2011-12, the government has continued its emphasis on education. The allocation for education
has been significantly increased by 24% at Rs 52,057 crores, up from Rs 31,036 crore. The Budget has increased
the allocation for Sarva Shiksha Abhiyan has been increased by 40% at Rs 21,000 crore, up from Rs 15,000 crore
in the current year. This will positively benefit education companies like Educomp solutions Ltd, Edserve Ltd and
Core Projects Ltd. Besides, special grants totaling around Rs 700 crore has been proposed to recognize excellence
in universities and academic institutions. In order to enhance skill development additional Rs 500 crore has been
allocated for 2011-12 under National Skill Development Council (NSDC).

Oil and gas

Public sector oil marketing companies are likely to get cash subsidies instead of bond that is one way positive for
them. But the moot point is that oil subsidy figure of Rs23, 000 Cr seems highly underestimate in view of rising
crude price and lack of duty reduction in petrol and diesel. The oil subsidy number for FY11 was Rs38, 000 Cr
when crude prices were comparatively way below today’s price. Thus it is likely that oil marketing companies will
underperform in coming days if crude price remains high. Another aspect is that even PSU upstream companies
ONGC and Oil India may have to bear subsidy burden in view of this low number .This may make ONGC and Oil
India underperform in case crude price remains high.

Among private sector companies, RIL being a MAT paying company will have to pay more tax as MAT has been
increased from 18% to 18.5%. Another aspect that the new refinery unit is located at SEZ. As SEZ units have been
brought under tax net, it means effectively RIL will have to pay more tax. But this thi ng has to be seen in the
backdrop of RIL & BP deal. RIL is likely to witness increase in gas production from KG basin which it had been
struggling of late. Thus despite this small negative aspect in budget, RIL is likely to do well in bourses.

Cement

The existing excise duty rates on cement companies have been replaced with composite rates having an ad
valorem and specific component with some rationalization. This is a positive step for cement companies. The

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basic customs duty on two critical raw materials of this industry viz. petcoke and gypsum is proposed to be
reduced to 2.5 per cent.

For cement clinker, there would be an ad valorem duty of 10% plus Rs 200 per tonne from flat Rs 375 per tonne
earlier.

Rate of minimum alternate tax (MAT) on book profits has been increased from 18% to 18.5%.

Impact on cement companies

Increased budgetary allocation towards infrastructural development and housing is likely to boost demand for
cement. Thus, cement manufacturers will continue to benefit owing to increase in volumes.

Impact of cut on customs duty on key raw materials such as petcoke and gypsum would bring some relief to
cement manufacturers who have been facing margin pressures due to rising input costs.

The new excise duty structure will increase the tax incidence on the cement industry.

But there are other concerns irrespective of budget measures

Following substantial increase in coal prices sold by Coal India yesterday, power and fuel cost of cement
companies is likely to go up substantially as it is almost 30% of the overall manufacturing cost. Hence it is being
observed that already price hikes have been announced by several cement companies with others to follow. But
in a situation of oversupply how much of coal price hike can be passed on to consumers is a debatable point.
Moreover another important component in power and fuel namely pet coke has gone up substantially due to
increase in crude prices globally. Hence it is unlikely that reduction in customs duty is going to provide lots of
relief.

Thus we believe that cement companies are likely to be under pressure till demand – supply situation improves.

Media & Entertainment

The budget proposals have been positive for the Media and Entertainment Industry. The budget has proposed to
apply the concessional basic customs duty of 5 per cent and CVD of 5 per cent on mailroom equipment which was
previously just applicable on high-speed printing presses imported by newspaper companies. Reduction in duties
on mailroom equipment will positively impact companies print media like Jagran Prakashan, DB Corporation and
HT Media.

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The colored unexposed jumbo rolls of cinematographic films are not manufactured domestically and have to be
imported. The budget proposed to exempt jumbo rolls of 400 feet and 1000 f eet from CVD by providing full
exemption from excise duty. This proposal will positively impact film production companies UTV, Shree
Ashtavinayak and Sun TV.

FMCG

The budget proposals have been generally positive for the sector. The exemption limit for the general category of
individual taxpayers has been enhanced from Rs 1,60,000 to Rs 1,80,000. This is a positive step and will result in
higher disposal income in the hands of consumers. Central excise duty has been maintained at 10% in this budget
which a welcome step is given high input cost pressure faced by FMCG companies in recent times. It was widely
expected that there would be a steep increase in excise duty for cigarettes but it has not been raised which is
positive for ITC.

Various measures have been introduced to boost agriculture and rural economy. The most significant measure
proposed is to increase allocation for Bharat Nirman Programme by Rs 10,000 crore to Rs 58,000 crore in FY12.
Other measures include viz; a) higher credit flow for farmers from Rs 3,75,000 crore to Rs 4,75,000 crore (b)
interest subvention enhanced from 2 per cent to 3 per cent for providing short-term crop loans to farmers who
repay their crop loan on time (c) capital base of NABARD to be strengthened by Rs 3,000 crore in a phased
manner in view of enhanced target for flow of agriculture credit (d) Rs 10,000 crore to be contributed to
NABARD's short-term Rural Credit fund for 2011-2012 (e) Indexation of the wage rates notified under the
MGNREGA to the Consumer Price Index for Agricultural Labour. Players having strong foothold in rural markets
such as Hindustan Unilever (HUL), Dabur , ITC and Godrej consumer products Ltd and those which are
increasingly focusing on rural markets such Nestle, Colgate and GlaxoSmithKl ine Consumer Ltd will benefit.

Automobile

In the budget for 2011 excise duty rates have not been raised which is positive for the industry and will help in
maintaining the sale volumes and high growth rate for the industry in 2011. The government has significantly
increased the outlay for the infrastructure sector by 23% to Rs 2, 14,000 crore which will lead to higher demand
for commercial vehicles and tractors and companies like Tata Motors and M&M will benefit from this. The
government has tried to encourage the manufacturers of alternate fuel vehicles by proposing (a) Full exemption
from basic customs duty and concessional rate of excise duty on batteries imported by manufacturers of
electrical vehicles (b) concessional excise Duty of 10 per cent to vehicles based on Fuel cell technology (c)
exemption granted from basic custom duty and special CVD to critical parts/assemblies needed for Hybrid
vehicles.

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Steel Sector

Overall the budget 2011 has been positive for the steel sector. The Indian steel sector has been growing at the
rate of 10% over the last 3-4 years and it is expected that this growth momentum will continue in the future
provided the economic growth momentum continues. As we have already discussed in our previous document
dubbed “Budget Primer” that India is slated to become the second largest producer of crude steel in the world by
2015 and already it is the fourth largest producer of crude steel during January–September 2010 producing 50.1
m tonnes (MT) crude steel during the period. In our opinion the government has taken right policy initiatives to
boost the performance of this sector.

The wish list for the sector from the Union Budget 2011 has been as follows:

1. Hike in export duty on all types of iron ore forms.

2. Increase in import duty on steel to 20% from the current 5%.
3. Increase in excise duties from current 8%.
4. Infrastructure status to the steel industry

With respect to this following are the major announcements that have been made that can be construed to be
positive for the sector:

1. Higher allocation towards rural infrastructure and fiscal incentives to infrastructure projects.
2. Basic customs duty on steel reduced from 10% to 5%. Export duty on iron ore, a key input, increased to
20%, however, export duty on pallet has been made nil, which to our view is a negative for the steel
sector
3. Surcharge on domestic companies reduced to 5% from 7.5%
4. Rate of Minimum Alternative Tax (MAT) proposed to be increased from 18% to 18.5% of book profits.

Budget Impact

1. Increased focus on infrastructure development would result in development of highways, ports, power
projects, bridges etc, which will consequently increase the demand for steel.
2. Increased spending on rural development and low income housing will result in higher steel
consumption.
3. Reduction of basic custom duty and levy of higher export duty on iron ore will encourage domestic value
addition vis-à-vis imports. It will also remove fiscal anomalies and to provide a level playing field to the
domestic industry.

Impact on Companies

Positives

Increase in spending on infrastructure and tax benefits due to lower customs duty and surcharge to be beneficial
to major steel players like SAIL, Tata Steel and JSW Steel who account for bulk of the total steel production
capacity in India.

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Increased spending on urban and rural development schemes, especially housing and other infrastructure is likely
to increase the demand for long steel products, a positive for companies like SAIL and Tata Steel, which have a
large dealer network spread across the country.

The anticipated hike in excise duty in auto sector has not happened in the budget which is a likely to prove
conducive for the growth of the sector as such an Increase in demand for auto and consumer durables will result
in rise in consumption of flat steel products. Companies like Tata Steel, JSW Steel and SAIL are poise d to seize the
opportunity here.

Negatives

The exemption of export duty given to iron ore pallet is a sentiment dampener for the sector. It is expected that
iron ore exporting companies may go for palletisation and the main objective of conserving natural resources
may be defeated.

This may be unrelated to the union budget, but Coal India raising coal prices by 30% which are sold to
unregulated sectors like cement, steel, aluminum etc. is a serious problem for the user industry. This is going to
have negative impact on the margins of most of the steel companies procuring coal for captive power generation
from the company

The increase in ad velorem duty on iron ore export to 20% is going to have negative impact on companies like
Sesa Goa and NMDC as their cost are going to go up in the vicinity of $9 per ton of lump exported and around $25
for per ton of fines exported.

Agriculture

Off late food price inflation has been taking a center stage of discussion in all quarters of the society starting from
“aam admi”, economic survey to RBI and it is but obvious that policy initiatives will be taken to address this grim
situation. This also becomes the most important issue as a number of state elections are also going into election.
As such the finance minister has given ample boost to the sector in terms of policy initiatives

Budget Announcements

1. The total allocation of Rashtriya Krishi Vikas Yojana (RKVY) is being increased from Rs. 6,755 crore in
2010-11 to Rs. 7,860 crore in 2011-12.
2. Enhancement of the allocation by Rs. 400 crore to promote Green Revolution in Eastern Region. The
program would target the improvement in the rice based cropping system of Assam, West Bengal, Orissa,
Bihar, Jharkhand, Eastern Uttar Pradesh and Chhattisgarh
3. To promote Integrated Development of 60,000 pulses villages in rain fed areas to enhance production
from 147 lakh tons to 165 lakh tons with a budgetary allocation of Rs 300 crore
4. Proposal to provide an amount of Rs. 300 crore to bring 60,000 hectares under oil palm plantation, by
integrating the farmers with the markets. The initiative will yield about 3 lakh metric tonnes of palm oil
annually in 5 years.
5. To enhance productivity and market linkages in vegetables Rs. 300 crore allocation has been allocated

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 6. provision of `300 crore is being made to promote higher production of Bajra, jowar, ragi and other
millets, upgrade their processing technologies and create awareness regarding their health benefits.
7. The National Mission for Protein Supplements is being launched in 2011-12 with an allocation of Rs. 300
crore. It will take up activities to promote animal based protein production through livestock
development, dairy farming, piggery, goat rearing and fisheries in selected blocks.
8. Proposal to provide Rs. 300 crore for Accelerated Fodder Development Programme which will benefit
farmers in 25,000 villages.
9. To promote better agricultural practices and organic farming National Mission for Sustainable Agriculture
has been launched
10. Raised the target of credit flow to the farmers from Rs. 3, 75,000 crore this year to Rs.4, 75,000 crore in
2011-12. Banks have been asked to step up direct lending for agriculture and credit to small and
marginal farmers.
11. The existing interest subvention scheme of providing short term crop loans to farmers at 7 per cent
interest will be continued during 2011-12. In addition to this an additional subvention to 3 per cent in
2011-12 has been proposed. Thus, the effective rate of interest for such farmers will be 4 per cent per
annum.
12. During the year 2010-11, the Nutrient Based Subsidy (NBS) policy was successfully implemented for all
fertilizers except urea, now this policy has will be extended to cover urea as well
13. In view of the enhanced target for flow of agriculture credit, NABARD's capital base has been
strengthened by infusing Rs. 3000 crore, in a phased manner, as Government equity. This would enable
NABARD to refinance the short-term crop loans of the cooperative credit institutions and RRBs at
concessional rates.
14. Additionally, a contribution of Rs. 10,000 crore to NABARD’s Short-term Rural Credit Fund will be made in
2011-12 from the shortfall in priority sector lending by Scheduled Commercial Banks.
15. To address the issue of wastage of food articles due to the lack of proper storage capacity the Eleventh
Plan targeted for 30 Mega Food Parks, out of which so far, 15 such parks have been sanctioned and
during 2011-12, approval is being given to set up 15 more Mega Food Parks.
16. Cold chain and post harvest storage segment has been accorded infrastructure status as such to attract
investment in this sector, capital investment in the creation of modern storage capacity will be eligible for
viability gap funding scheme of the Finance Ministry. Investment in cold storage projects is now gaining
momentum. During this year, 24 cold storage projects with a capacity of 1.4 lakh metric tonnes have
been sanctioned under National Horticulture Mission. In addition, 107 cold storage projects with a
capacity of over 5 lakh metric tonnes have been approved by the National Horticulture Board.
17. A concessional rate of basic customs duty of 5 per cent that was provided to specified agricultural
machinery in the last budget has now been reduced further to 2.5 per cent and the concession is also
being extended to parts of such machinery to encourage their domestic production.
18. The basic customs duty on micro-irrigation equipment has been reduced from 7.5 per cent to 5 per cent.
19. De-oiled rice bran cake, an important ingredient of cattle feed, has been provide full exemption from
basic customs duty and to discourage export an export duty of 10 per cent would be levied

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 20. The basic customs duty on solar lantern lanterns has been reduced from 10 per cent to 5 per cent. Basic
customs duty on a few more inputs used in the manufacture of solar modules/ cells is being reduced to
Nil

Budget Impact

Considering the announcement that has been made in the budget that has been stated above augers extremely
well for the rural India and the agricultural sector. The main crux of the issue lies in the proper implementation of
these measures. The country is in the dire need of proper supply chain and cold storage system. However, this
sector has remained neglected for a long period of time mainly due to paucity of funding and lack of interest of
private players to enter in this sector. However, it is expected that this time around the things may take a turn for
the better on account of the funding assistance that can be obtained from the government. The reduction of
excise duty on micro irrigation products and farm equipments also would enable the farmers to afford these
modern equipments and are likely to enhance farm productivity.

Impact on Companies

Companies like Jain Irrigation, Voltas, Blue Star, Carrier, Thermoking, Advanta Seeds, Camson Biotech,
Syngenta, Monsanto, Kaveri Seeds etc. are expected to derive benefits from these budget announcements.

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Budgetary Numbers
(All amounts in Rupees Crores)
2009-2010 2010-2011 2010-2011 2011-2012
Budget Revised Budget
Budget at a Glance Actual Estimate Estimates Estimates
1 Revenue Receipt (2+3) 572811 682212 783833 789892
Growth 19% 37% 1%
2 Tax Revenue (ne to centre) 456536 534094 563685 664457
Growth 17% 23% 18%
3 Non-Tax Revenue 116275 148118 220148 125435
Growth 27% 89% -43%
4 Capital Receipt (5+6+7) 451676 426537 432743 467837
Growth -6% -4% 8%
5 Recoveries of Loans 8613 5129 9001 15020
6 Other receipts 24581 40000 22744 40000
7 Borrowings & Others 418482 381408 400998 412817
Growth -9% -4% 3%
8 Total Receipt 1024487 1108749 1216576 1257729
Growth 8% 19% 3%
9 Non Plan Expenditure 721096 735657 821552 816182
Growth 2% 14% -1%
10 Revenue Account 657925 643599 726749 733558
11 of which Interest Payment 213093 248664 240757 267986
12 Capital Account 63171 92058 94803 82624
13 Plan Expenditure 303391 373092 395024 441547
Growth 23% 30% 12%
14 On Revenue Acct 253884 315125 326928 363604
Growth 24% 29% 11%
15 On Capital Acct 49507 57967 68096 77943
Growth 17% 38% 14%
16 Total Expenditure 1024487 1108749 1216576 1257729
Growth 8% 19% 3%
17 Revenue Exp (10+14) 911809 958724 1053677 1097162
Growth 5% 16% 4%
of which Grants for capital
18 Creation 31317 90792 146853
19 Capital Exp. (12+15) 112678 150025 162899 160567
Growth 33% 45% -1%
20 Revenue Deficit (17-1) 338998 276512 269844 307270

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 Growth -18% -20% 14%
- As a % age of GDP 5.20% 4% 3.40% 3.40%
Effective Revenue Deficit (20-
21 18) 338998 245195 179052 160417
Growth -28% -47% -10%
- As a % age of GDP 5.20% 3.55% 2.26% 1.78%
22 Fiscal Deficit [16-(1+5+6)] 418482 381408 400998 412817
Growth -9% -4% 3%
- As a % age of GDP 6.42% 5.52% 5.05% 4.57%

Note: Growth percentages for Budget Estim ates 2010-2011 and Revised Estimates 2010-2011, are over Budget
Estimates of 2009-2010. And growth percentage for 2011-2012 are over Revised Estimates 2010-2011

2009-2010 2010-2011 2010-2011 2011-2012

Central Plan Outlay by Sectors Budget Revised Budget
(Amt in Rs. cr) Actual Estimate Estimates Estimates
Agriculture and Allied Activities 11014 12308 14362 14744
Growth 12% 30% 34%
Rural Development 47369 55190 55438 55288
Growth 17% 17% 17%
Irrigation and Flood Control 423 526 413 565
Growth 24% -2% 34%
Energy 114308 146579 126225 155495
Growth 28% 10% 36%
Industry and Minerals 30690 39019 38852 45214
Growth 27% 27% 47%
Transport 86454 101997 98727 116861
Growth 18% 14% 35%
Communications 14748 18529 12169 20256
Growth 26% -17% 37%
Science Technology & Environment 9862 13677 12652 16186
Growth 39% 28% 64%
General Economic Services 4007 7554 14878 15802
Growth 89% 271% 294%
Social Services 86793 127570 127157 144816
Growth 47% 47% 67%
General Services 1244 1535 1377 7230
Grand Total 406912 524484 502250 592457

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DISCLAIMER:
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Analyst Team

Analyst Name Sectors E-mail Contact Number

Samudrajit Gohain Oil & Gas, Engineering samudrajit@ eurekasecurities.co m +91- 9748860335
Kinshuk Acharya Steel, Agriculture kinshuk@eurekasecu rities.com +91- 9681478735
Md. Riazuddin, Banking, Economy,
FRM Power riazuddin@eurekasecu rities.com +91- 9903062346
Rajiv Agarwal Auto, Tea, Sugar rajiv.ag@eurekasecurities.co m +91- 9903076345
Ankit Kanodia Infrastructure ankit_kanodia@eurekasecu rities.com +91- 9163278562
Sakshi Malhotra Media sakshi.malhotra@eurekasecurities,co m +91- 9830084057

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