Indian Union Budget 2011 – Post Budget Analysis (Part 1)

March 3, 2011

It’s that time of the year, when we have Budget Estimates and Declarations knocking the door. However, as the euphoria sinks in finally, what does the Budget really amount to? What’s the impact it could have on our day to day life? Here’s a simple unfolding of What’s In the budget and What’s not.

Indian union budget 2011 review analysis new indian rupee symbol

To begin with, the Economic Survey presented on Saturday estimated our GDP growth rate to border around 9% with a probable quarter shift forwards or backwards. This leaves us with a range of 8.75-9.25% growth rate for the financial year ahead. The positivity about our economy stemmed from the rising consumer demand, shifting demographics and the ever growing services industry. Therefore the Survey signaled on to efficient means of Demand management on the Domestic front. When we talk about ‘Domestic’ there are major issues related to inclusion that need to be tackled with. As per reports by ‘The Economist’, India and China are bound to be the growth drivers for the times to come. We believe, it is this very temperament that fuelled the Budget Allocation for 2011-2012.

Some major indicators:

  • The Fiscal Deficit which has been a cause of great concern lately turned out to be a dud. The estimates are drawn at 4.6% against the projected 4.8% earlier. This improvement has primarily been due to divestments and the 3G auctions which improved liquidity in the Short Run.
  • The Divestment Target for this year has been set up as Rs. 40,000 Crores.
  • Another area of improvement is the „Direct Cash Subsidy’, wherein direct cash will be transferred to people below the Poverty Line.
  • The government continues to Pull out the Stimulus and phase in a Tighter Monetary Policy as treading on to a higher growth rate. Thus, rise in interest rates are likely which would impact future bond prices.
  • With the introduction of two types of Banking Licenses: Basic Banking & Universal Banking Operations, competition within private players is bound to increase.
  • Investments in infrastructure have been revved up with increase in limit for FII’s. Internally, the Infrastructure Outlay has been increased to Rs. 2.14 lac crores. In addition creation of Tax Free Debt funds worth Rs. 30,000 crores will be issued by the Government. In all, Infrastructure has been allocated 48.5% of the total allocation.

 

Some of the Direct Tax changes are as follows:

o IT exemption for general increased to 1.8lacs from 1.6lacs (for males alone)

o IT exemption for Senior citizens (Now from Age 60-80) increased to 2.5lacs

o IT deduction limit of 5lacs for Super Senior Citizens ( Age 80 and above)

o Surcharge on Tax for corporate reduced from 7.5% to 5% for domestic firms and 2.5% to 2% for international firms

o MAT increased from 18% t0 18.5% which will make SEZs bleed

 

Some of the major Indirect Tax changes are as follows:

o Excise duty for non-petroleum goods reduced to 4%-5%

o Full exemption granted for Computers & Cold Storage equipment.

o Ad Valorem duty rates for Cement.

o Increase in export duty of Iron Ores from 15% to 20%

o Service Tax increased for restaurants, hotels, Airfares, Health care, Branded Clothing and Insurance.

The above Guest article was written by Club Ecobizz, IBS, Hyderabad.

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