TM

Budget Analysis 2011-12 28th FEB 2011

RR, All rights reserved Page 1 of 10

Budget Analysis - 2011-12

RR View
The budget aims to sustain economic growth, strengthen infrastructure, moderate the price rise, particularly of
agricultural produce and reduce social imbalances through inclusive development.

Overall, the centre’s direct tax reliefs will cost Pranab Mukherjee Rs 11,500 crore, while his indirect tax levies will
bring in Rs 11,300 crore. The fiscal deficit will be contained at 4.6% next year against 5.1% this year, with the
2013-14 target being 3.5%.

Allowing FII investment into the mutual fund is the big positive for the financial market. This will result in
integration of the markets and we will see lot of foreign money coming in next fiscal year. The reduction of
corporate surcharge is good for equity market as it will marginally reduced the tax outgo of companies. Foreign
institutional and non-institutional investors get more options for investment, a good move for market.

Individual taxpayers get a higher basic deduction of Rs 1.8 lakh; now taxpayers get a relief of Rs 2,000. The step
is not enough seeing the inflation in the country. There is an increase in the exemption limit to Rs 2.5 lakh, the
entitlement age for senior citizens reduced to 60.

A new class of super senior citizens aged above 80 introduced with higher IT exemption limit of Rs 5 lakh.
However, this will benefit an insignificant pie of the Indian population.

Service tax to remain constant at 10% with several new services has been added in the list. The move is expected
to be negative for Hotels, five-star restaurants and airlines.

The base excise rate constant at 10%, but exemptions on 130 items has been withdrawn. And a basic rate of 1%
is being levied. This will further push the inflation up. Important to note here is that another 240 items that are
still exempt will be attracting tax when the GST (Goods and Services Tax) is introduced next year.

There was a talk of Inflation, reforms and black money generation, but nothing concrete announcement
witnessed.

Subsidies on fertiliser, kerosene and cooking gas (LPG) will be cash-based by March, 2012. No measures on fuel
deregulation were announced.

The public sector disinvestment target has been upped to Rs 40,000 crore in 2011-12; the current fiscal’s target
was reduced to 22,144 crore due to higher realisations from other sources. We may see further delay in much
talked about ONGC FPO.

Worth Rs 30,000 crore of tax-free bonds will be on offer next year, the Rs 20,000 additional tax deduction
available for investing in infra bonds will be retained for another year. We may see infrastructure growth in line.

Major Announcements
Taxes
¾ Personal income tax exemption limit raised to Rs 180,000 from Rs 160,000 for individual tax payers.
¾ For senior citizens, the qualifying age reduced to 60 years from 65 years and exemption limit raised to Rs 2.50
lakh from Rs 2.40 lakh.
¾ Citizens over 80 years to have exemption limit of Rs 5 lakh.
¾ A new revised income tax return form 'Sugam' to be introduced for small tax payers.
¾ Standard rate of excise duty held at 10 %; no change in CENVAT rates.
¾ Service tax rate kept at 10 %.
¾ Peak rate of customs duty maintained at 10 % in view of the global economic situation.
¾ To reduce surcharge on domestic companies to 5 % from 7.5 %.
¾ To raise MAT (Minimum Alternate Tax) to 18.5 % from 18 %.
¾ Iron ore export duty raised to 20 %.
¾ Nominal one per cent central excise duty on 130 items entering the tax net. Basic food and fuel and precious
stones, gold and silver jewellery will be exempted.
¾ Basic customs duty on agricultural machinery reduced to 4.5 % from 5 %.
¾ Service tax widened to cover hotel accommodation above Rs 1,000 per day, A/C restaurants serving liquor, some
category of hospitals, diagnostic tests.
¾ Service tax on air travel increased by Rs 50 for domestic travel and Rs 250 for international travel in economy
class. On higher classes, it will be 10 % flat.

RR, All rights reserved Page 2 of 10

Budget Analysis - 2011-12

Fiscal Deficit
¾ Fiscal deficit seen at 5.1 % of GDP in 2010-11.
¾ Fiscal deficit seen at 4.6 % of GDP in 2011-12.
¾ Fiscal deficit seen at 3.5 % of GDP in 2013-14.

Revenue
¾ Gross tax receipts seen at 9.32 trillion rupees in 2011-12.
¾ Non-tax revenue seen at 1.25 trillion rupees in 2011-12.

Spending
¾ Total expenditure in 2011-12 seen at 12.58 trillion rupees.
¾ Plan expenditure seen at 4.41 trillion rupees in 2011-12, up 18.3 %

Growth, Inflation Expectations

¾ Economy expected to grow at 9 % in 2012, plus or minus 0.25 %.
¾ Inflation seen lower in the financial year 2011-12.

Disinvestment
¾ Disinvestment in 2011-12 seen at 400 billion rupees.

Borrowing
¾ Net market borrowing for 2011-12 seen at Rs 3.43 trillion compared to Rs 3.45 trillion in 2010-11.

Policy Reforms
¾ To create infrastructure debt funds.
¾ To boost infrastructure development with tax-free bonds of Rs 300 billion.
¾ Food security bill to be introduced this year.
¾ To permit SEBI registered mutual funds to access subscriptions from foreign investments.
¾ Raised foreign institutional investor limit in 5-year corporate bonds for investment in infrastructure by $20 billion.
¾ Public debt bill to be introduced in parliament soon.

Sector Spending
¾ To allocate more than 1.64 trillion rupees to defense sector in 2011-12.
¾ Corpus of rural infrastructure development fund raised to 180 billion rupees in 2011-12.
¾ To provide 201.5 billion rupees capital infusion in state-run banks in 2011-12.
¾ To allocate 520.5 billion rupees for the education sector.
¾ To raise health sector allocation to 267.6 billion rupees.

Agriculture
¾ Removal of supply bottlenecks in the food sector will be in focus in 2011-12.
¾ To raise target of credit flow to agriculture sector to 4.75 trillion rupees.
¾ Gives 3 % interest subsidy to farmers in 2011-12.
¾ Cold storage chains to be given infrastructure status.
¾ Capitalization of National Bank for Agriculture and Rural Development (NABARD) of 30 billion rupees in a phased
manner.
¾ To provide 3 billion rupees for 60,000 hectares under palm oil plantation.
¾ Actively considering new fertilizer policy for urea.

On the State of the Economy

¾ Fiscal consolidation has been impressive. This year has also seen significant progress in those critical institutional
reforms that will pave the way for double digit growth in the near future.
¾ At times the biggest reforms are not the ones that make headlines, but the ones concerned with details of
governance which affect the everyday life of aam aadmi (common man). In preparing this year's budget, I have
been deeply conscious of this fact.
¾ Food inflation remains a concern
¾ Current account deficit situation poses some concern
¾ Must ensure that private investment is sustained
¾ The economy has shown remarkable resilience.

On Governance
¾ "Certain events in the past few months may have created an impression of drift in governance and a gap in public
accountability ... such an impression is misplaced."
¾ Corruption is a problem, must fight it collectively.

RR, All rights reserved Page 3 of 10

Budget Analysis - 2011-12

Aam Aadmi Impact

Budget has more negatives than positives for a common man.

Positives

¾ Personal income tax exemption limit for individual tax payers raised to Rs 1.8 lakh from Rs 1.6 lakh.

¾ Tax exemption limit for senior citizens increased to Rs 2.5 lakh from Rs 2.4 lakh.

¾ Eligible age for senior citizens reduced to 60 years against 65 years.

¾ No new tax exemption limits for women.

¾ Tax exemption limit for ‘very senior’ citizens over 80 years at Rs.5 lakh.

¾ Deduction of Rs. 20000 for investment in Infrastructure bonds has been extended for one more year.

¾ Contribution to New Pension Scheme by employer shall be eligible for tax rebate in addition to Rs. 1 Lakh
deduction allowed under section 80C.

¾ Focus on Agricultural production and stress on giving impetus to growth in agricultural will help increase food
supply and consequent reduction in food inflation.

¾ Items that will become cheaper include solar lanterns, LED lights, hybrid vehicle kits.

Negatives

¾ 5% service tax on all services provided by hospitals with 25 or more beds that have the facility of central air-
conditioning. However, all government hospitals shall be outside this levy. Health Check-Ups in Private hospitals
to become expensive.

¾ Services provided by life insurance companies brought under service tax net.

¾ Hotel stay will also become more expensive as rooms with a tariff of more than Rs 1,000 a day will attract an
effective service tax of 5 per cent. Drinking liquor in air-conditioned restaurants will also be more expensive as it
will now come under the service tax net.

¾ Pay more for branded jewellery: Government has reintroduced 1% excise duty on branded jewellery and branded
articles made from precious metals like gold, silver and platinum after waiving it two years ago.

¾ Airline travel become expensive: Domestic travel to pay Rs 50 service tax, Rs 250 on international travel

¾ Optional levy on branded garments or made up proposed to be converted into a mandatory levy at unified rate of
10 per cent.

¾ Ready-to-eat food items, such as ketchups, soups, 'mudis' (puffed rice), coffee and tea mixes, flavoured milk,
supari will be dearer as they will now attract higher excise duty.

¾ Notebooks and exercise books, which were earlier exempted from excise duty will now attract one per cent duty
without CENVAT credit facility. Moreover, a general effective rate of 5 per cent has been prescribed for these
items and facilities.

¾ Similarly, fountain pen ink, ball pen ink, geometry boxes, colour boxes and pencil sharpeners will also now attract
a similar levy.

¾ Legal cases will also become a costly affair with Mukherjee proposing to cover all legal consultations, except
individual to individual, under the service tax net.

RR, All rights reserved Page 4 of 10

Budget Analysis - 2011-12
Sectoral Impact
Announcements
Agriculture
Credit flow for farmers raised from Rs. 3,75,000 crore
to Rs. 4,75,000 crore in 2011-12.
Interest subvention proposed to be enhanced from 2
per cent to 3 per cent for providing short-term crop
loans to farmers who repay their crop loan on time.
Airlines
The service tax on air travel has been raised by 50
rupees for domestic travel and 250 rupees for
international travel on economy class,
Auto
Higher allocation under NREGA and infrastructure
schemes
Revision in income tax slab
Standard rate of excise duty will be maintained at
10%.
Rate of Export Duty for all types of iron ore enhanced
and unified at 20 per cent ad valorem. Full exemption
from Export Duty to iron ore pellets
Banking
Rs.6,000 crore to be provided during 2011-12 to
enable public sector banks to maintain a minimum of
Tier I CRAR of 8%.
Existing housing loan limit enhanced to Rs. 25 lakh for
dwelling units under priority sector lending
To bring bill to enable RBI to grant more banking
licenses
Microfinance (Rs 100 crore) and Self Help Group (Rs.
500 crore) funds set up for supporting the sector
under SIDBI
Mutual Funds allowed to raise subscriptions from
foreign investors who meet KYC norms for equity
schemes.
Cement
Basic Custom Duty on two critical raw materials of
cement industry viz. petcoke and gypsum is proposed
to be reduced to 2.5 per cent.
RR, All rights reserved
Rationale
Positive for FMCG companies like HUL, Dabur, Colgate, Marico,
ITC, GPCL
Positive for FMCG companies like HUL, Dabur, Colgate, Marico,
ITC, GPCL
Positive for Banking Sector as they can expand exposure to
agriculture sector and fulfill priority lending requirements
It will negatively impact shares of Jet Airways , Kingfisher Airlines
and SpiceJet
Infrastructure development will be a boon for the auto sector,
specifically CV segment. Beneficial for commercial vehicle segment;
Tata Motors and Ashok Leyland,
By raising the minimum tax limit by Rs 20,000. Demand for 2
wheelers & lower end 4 wheelers will be impacted positively with
increase in disposable income at the lower end of the spectrum.
Maruti, Hero Honda, Bajaj Auto, TVS to be benefited directly.
Increase of excise duty would have directly impacted the product
prices in auto sector, subsequently affecting the volumes. Stability
in Excise prices has positively impacted all the auto sector
Positively impact Auto Stocks as it will help in reducing the input
costs. However it will be negative for iron ore industry like Visa
Steel, Tata Steel, Jindal Steel etc. which will see a drop in net
realisations.
Positive for the banking industry with proposed capital infusion to
enable banks strengthen their capital adequacy levels and fund
expansion of operations.
Enhanced limits for housing loans qualifying for priority sector
exposures would act as an incentive for flow of resources to the
affordable housing segment.
Negative for private banks as it will entail more competition
Marginally positive for Microfinance NBFCs viz. SKS Mircrofinance
etc.
Highly positive for mutual fund industry; increases access to larger
investor base and potential for higher assets under management
Positive for cement stocks like ACC, Ambuja etc. as it will help
reduce input stocks
Page 5 of 10
Budget Analysis - 2011-12

Announcements Rationale
Education
Allocation of Rs. 52057 crore increase of 24%  Move  is  along  expected  lines  and  will  have  positive  impact  on 
Everonn, Educomp, NIIT Aptech Ltd , Edserv Softsystems 
Rs. 21,000 crore allocated for Sarva Shiksha Abhiyan,  It will have positive impact on Everonn, Educomp, NIIT Aptech Ltd , 
which is 40 per cent higher than Budget for 2010‐11.  Edserv Softsystems 
Fertiliser
Nutrient  based  fertiliser  policy  for  urea  under  Positive  for  Fertiliser  stocks  like  Nagarjuna  fertilisers,  Chambal, 
consideration  Coromandal International etc. 
To move to direct cash subsidy for kerosene, fertiliser  Positive  for  Fertiliser  stocks  like  Nagarjuna  fertilisers,  Chambal, 
Coromandal International etc. 
General Industry
Current  surcharge  of  7.5  per  cent  on  domestic  Positive for domestic companies with reduced tax outflow 
companies proposed to be reduced to 5 per cent. 
Rate  of  Minimum  Alternative  Tax  proposed  to  be  Move  will  have  neutral  impact  on  the  industry  as  a  whole. 
increased from 18 per cent to 18.5 per cent of book  However,  industry  must  have  heaved  a  sigh  of  relief  as  it  was 
profits.  expecting the rise to 20% 
Infrastructure Sector
Plan  to  allow  FII  limit  in  infrastructure  bonds  to  $25  More Investment in Infrastructure sector will have positive impact 
bn  on fund flow in already fund starved infrastructure in the economy. 
It  will  have  positive  impact  on  Cement  Stocks  like  ACC,  Ambuja, 
Engineering  Companies  like  L&T  and  BHEL  which  will  see  rise  in 
order  book.  Also  infra  companies  like  Reliance  Infra,  LANCO  Infra, 
Jaypee Associates, GMR Infra etc. 
Allocation  of  Rs.  2,14,000  crore  for  infrastructure  in    
2011‐12.  This  is  an  increase  of  23.3  per  cent  over 
2010‐11.  This  also  amounts  to  48.5  per  cent  of  total 
plan allocation. 
IIFCL  to  achieve  cumulative  disbursement  target  of    
Rs.  20,000  crore  by  March  31,  2011  and  Rs.  25,000 
crore by March 31, 2012. 

To boost infrastructure development,  tax free bonds    
of  Rs.  30,000  crore  proposed  to  be  issued  by 
Government  undertakings  NHAI,  Railways  during 
2011‐12. 
Additional  deduction  of  Rs.  20,000  for  investment  in    
long‐term  infrastructure  bonds  proposed  to  be 
extended for one more year. 
Media
Concessional  basic  Custom  Duty  of  5  per  cent  and  Will  help  reduce  input  costs  of  Media  and  positive  for  stocks  like 
CVD  of  5  per  cent  available  to  newspaper  Jagran Prakashan, Orient Paper, HTMedia. 
establishments  for  high  speed  printing  presses 
extended to mailroom equipment. 
Power
Parallel Excise Duty exemption for domestic suppliers  It will have positive impact on Power Stocks  
producing  capital  goods  needed  for  expansion  of 
existing mega or ultra mega power projects. 

RR, All rights reserved Page 6 of 10

Budget Analysis - 2011-12

Announcements Rationale
Realty
Rural housing fund corpus raised to Rs 3,000 cr vs Rs  Positive for Realty stocks like HDIL, Unitech, DLF, Sobha Developers, 
2,000 cr  Ansal etc. 
Low‐cost  housing  loans  of  Rs  15  lakh  will  be  eligible  Positive  for  Realty  stocks  offering  budget  housing  like  HDIL, 
for  one  per  cent  interest  subsidy,  where  the  cost  of  Unitech, Sobha Developers, Ansal etc. 
house does not exceed Rs 25 lakh.  
MAT to be charged on SEZ developers and units  Gives wrong signal to investors in such projects. And will negatively 
impact the Units operating in such SEZs and companies engaged in 
SEZ development. 
Increase  in  the  priority  Housing  Loan  Limit  from  Rs.  Positive  for  Realty  stocks  offering  budget  housing  like  HDIL, 
20 Lakhs to Rs. 25 Lakhs  Unitech, Sobha Developers, Ansal etc. 
Shipping
Exemption  from  Import  Duty  for  spares  and  capital  Positive  for  Sesa  Goa,  GE  Shipping,  Shipping  Corp,  ABG  Shipyard 
goods  required  for  ship  repair  units  extended  to  etc. 
import by ship owners. 

RR, All rights reserved Page 7 of 10

Budget Analysis - 2011-12

2009-10 2010-11 2010-11 2011-12

Particulars Actuals Budget Estimates Revised Estimates Budget Estimates
Revenue Receipts 572811 682212 783833 789892
Tax Revenues 456536 534094 563685 664457
Non-Tax Revenues 116275 148118 220148 125435
Capital Receipts 451676 426537 432743 467837
Recoveries of Loans 8613 5129 9001 15020
Other Receipts 24581 40000 22744 40000
Borrowings and other Liabilities 418482 381408 400998 412817
Total Receipts 1024487 1108749 1216576 1257729
Non-Plan Expenditure 721096 735657 821552 816182
On Revenue Account of which, 657925 643599 726749 733558
Interest Payment 213093 248664 240757 267986
On Capital Account 63171 92058 93803 82624
Plan Expenditure 303391 373092 395024 441547
On Revenue Account 253884 315125 326928 363604
On Capital Account 49507 57967 68096 77943
Total Expenditure 1024487 1108749 1216576 1257729
Revenue Expenditure 911809 958724 1053677 1097162
Of which, Grants for creation of Capital
Assets 31317 90792 146853
Capital Expenditure 112678 150025 162899 160567
Revenue Deficit 338998 276512 269844 307270

(5.2) (4.0) (3.4) (3.4)

Effective Revenue Deficit 245195 179052 160417

(3.5) (2.3) (1.8)

Fiscal Deficit 418482 381408 400998 412817

(6.4) (5.5) (5.1) (4.6)

Primary Deficit 205389 132744 160241 144831

(3.1) (1.9) (2.0) (1.6)

RR, All rights reserved Page 8 of 10

Budget Analysis - 2011-12

For Further Details/Clarifications please contact:

RR Information & Investment Research Pvt. Ltd.

47, MM Road Jhandewalan New Delhi-110055 (INDIA)
Tel: 011-23636362/63
research@rrfcl.com
www.rrfinance.com
www.rrfcl.com

RR Research Products and Services:

Online Equity Calls during Market Hours (9:00 AM to 3:30 PM)

Online Commodity Calls during Market Hours (10:00 AM to 11:30 PM)

Daily Morning Pack

¾ Equity Fundamental - Daily
¾ Equity Technical Analysis - Daily
¾ Derivative – Daily
¾ Debt - Daily
¾ Commodity - Daily
¾ Currency – Daily

Daily Market Review

Weekly Pack
¾ Equity Fundamental - Weekly
¾ Equity Technical Analysis - Weekly
¾ Derivative – Weekly
¾ Debt - Weekly
¾ Commodity - Weekly
¾ Currency – Weekly
¾ Mutual Fund Watch

Fundamental Research
¾ Economic Analysis
¾ Industry Analysis
¾ Company Research & Valuations
¾ Result Updates
¾ News Updates

IPO Analysis

Mutual Fund Analysis

Investment Monitor – The complete monthly magazine design for Indian investors

Share Views with Zee Business.

And many more…

RR Research can also be viewed and downloaded from following websites:

www.moneycontrol.com
www.valuenotes.com
www.reportjunction.com
www.capitalmarket.com
www.myiris.com

RR, All rights reserved Page 9 of 10

Budget Analysis - 2011-12

Disclaimer:
Kindly read the Risk Disclosure Documents carefully before investing in Equity Shares, Derivatives or other instruments
traded on the Stock Exchanges. RR would include RR Financial Consultants Ltd. and its subsidiaries, group companies,
employees and affiliates. The information contained herein is strictly confidential and meant solely for the selected
recipient and may not be altered in any way, transmitted to, copied or distributed, in part or in whole, to any other person
or to the media or reproduced in any form, without prior written consent of RR. The information contained herein is
obtained from public sources and sources believed to be reliable, but independent verification has not been made nor is
its accuracy or completeness guaranteed. RR or their employees may have or may not have an outstanding buy or sell
position or holding or interest in the products mentioned herein. The contents and the information herein is solely for
informational purpose and may not be used or considered as an offer document or solicitation of offer to buy or sell or
subscribe for securities or other financial and insurance products and instruments. Nothing in this report constitutes
investment, legal, accounting and/or tax advice or a representation that any investment or strategy is suitable or
appropriate to recipients specific circumstances. The securities and products discussed and opinions expressed in this
report may not be suitable for all investors, who must make their own investment decisions, based on their own
investment objectives, financial positions and needs. Please note that fixed deposits, bonds, debentures are loans/lending
instruments and the investor must satisfy himself/herself on the financial health of the company/bank/institution before
making any investment. RR and/or its affiliates take no guarantee of soundness of any company or scheme. RR has/will
make available all required information to the prospective investor if asked for in respect of any scheme/fixed
deposit/bond/loan/debenture. RR is only acting as a broker/distributor and is not representing any company in any
manner except to distribute its schemes. Mutual Fund Investments are subject to market risks, read the offer document
carefully before investing. Any recipient herein may not take the content in substitution for the exercise of independent
judgment. The recipient should independently evaluate the investment risks of any scheme of a mutual fund. RR and its
affiliates accept no liability for any loss or damage of any kind arising out of the use of any information contained herein.
Past performance is not necessarily a guide to future performance. Actual results may differ materially from those set forth
in projections. RR may have issued other reports that are inconsistent with and reach different conclusion from the
information presented in this report. The information herein is not directed or intended for distribution to, or use by, any
person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction, where such
distribution, publication, availability or use would be contrary to law, regulation or which would subject RR and its affiliates
to any registration or licensing requirement within such jurisdiction. The securities and products described herein may or
may not be eligible for sale in all jurisdictions or to certain category of investors. Persons in whose possession this
document may come are required to inform them of and to observe such restriction(s). The display, description or
references to any products, services, publications or links herein shall not constitute an endorsement by RR. Insurance is
a subject matter of solicitation. Kindly also note all the risk disclosure documents carefully before investing in Equity
Shares, IPO’s, Mutual Fund Schemes, Insurance Schemes, Fixed Deposit schemes, Debt offers, Hybrid Instruments, or
other instruments traded on Stock Exchanges or otherwise. Prospective investors can get all details and information from
the sites of SEBI, IRDA, AMFI or respective Mutual Fund Companies, Insurance Companies, Rating Agencies, Stock
Exchanges and individual corporate websites. Prospective investors are advised to fully satisfy themselves before making
any investment decision.

NSE - INB 231219636, INF 231219636

BSE - INB 011219632

RR, All rights reserved Page 10 of 10