Budget 2011: FM to present Budget on Feb 28; Industry and tax-payers hopeful But Economic Survey Indicates for Massive Disaster in the Indigenous Aboriginal Humanscape as Brahamin Mamata Bannerjee HIJACKED Indian Railway to Win the Hegemony Political Power game!Master Planned Mind CONTROL Curfew envelops India amidst CRICKET Carnival and Media Blitz to Push for Economic Reforms of Ethnic cleansing and Holocaust!Mamata, the Brahamin Kanya all set to Replace Brahmin Marxist Buddhadev Bhattachary to sustain Manusmriti Rule in Bengal, has shown the way, now the DE Facto India Incs Prime Minister, the Kayastha Brahamin from Bengal Pranab Mukherjee has cleared the decks for All Round Corporate MNC India Inc LPG Mafia Raj!
Indian Holocaust My Father`s Life and Time -FIVE HUNDRED NINETY FIVE
Palash Biswas
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24 FEB, 2011, 11.43AM IST,
What to expect from Budget 2011
NEW DELHI: Budgets in India have increasingly lost market relevance over the years, but this year could be an exception—with an economy reeling under 8% inflation for over a year now, and a 15% market correction on largely macro fears. Expectations are high—fiscal prudence is necessary in the face of stubborn inflation, US$100 crude and ensuing elections. Responsible fiscal policy at this juncture would not only help in filling up a critical gap in policy-making, governance, and in the continuation of the UPA-II reforms agenda, but this way could provide a much-needed directional cue to the market.
Here's look at what to expect from the Union Budget 2011.
Diminishing impact of budget over the years: Over the last few years, the union budget has increasingly become a non-event for the markets. Policy announcements occur throughout the year and tax policy could see the most radical changes in the last decade and a half in the proposed DTC (watered-down version included), and the GST. Not just performance a month prior- and post the budget, but market volatility on budget-day has been dipping.
Not this year's budget: A lost parliamentary session, recent policy vacuum in wake of scam-gate, pressures to contain the anemic 8% inflation, in the face of crude and commodities on a one-way trip, and the consequent subsidy burden has led to a considerable macro overhang on the economy, and on the markets. While it may not surpass the May'09 election in impact, this budget is hardly a non-event for a market hungry for cues.
Fiscal response to inflation...easier said than done: Six rate hikes since the beginning of 2010 have seen the repo rate rise 175bps to 6.5% but wholesale inflation has stayed put at 8+%. Further action on this front would warrant fiscal action (as hinted by the central bank too). But with rallying commodity and crude prices, the overall subsidy burden (food, fertilizer, and oil) could cross Rs 1 trillion, throwing prudence out of gear. We believe the finance minister has to walk a tightrope between moving towards fiscal consolidation and at the same time making sure that any rollback in the fiscal stimulus measures does not hurt growth, or derail other political considerations.
Deficit for FY11 in the bag, FY12 still in question: We believe that the fiscal deficit for the current fiscal may surprise on the upside at 5.0% (Budgeted fiscal deficit for FY11 is Rs3.8tn against which the first 9m deficit is just Rs 1.7 tn—on the back of robust revenue receipts (3G), lagging spending, and a larger base). But FY12 might see the fisc still nudging 5.5+% levels.
Sectors and stocks to play for Union Budget 2011: Sector trends over the last few years have become increasingly agnostic to budget announcements (obviating the need for portfolio positioning in anticipation) with some exceptions of agri, irrigation, tobacco and sectors leveraged to fiscal spend (infra, industrials), while increased disposable incomes (shifting tax slabs) has helped discretionary sectors.
Source: Budget 2011 Preview report, Religare
Budget 2011: FM to present Budget on Feb 28; Industry and tax-payers hopeful But Economic Survey Indicates for Massive Disaster in the Indigenous Aboriginal Humanscape as Brahamin Mamata Bannerjee HIJACKED Indian Railway to Win the Hegemony Political Power game!It is Master Planned Mind CONTROL Curfew envelops India amidst CRICKET Carnival and Media Blitz to Push for Economic Reforms of Ethnic cleansing and Holocaust!
Finance Minister Pranab Mukherjee is set to present his sixth national budget Monday, with people hoping for measures that will help them brave high prices and industry expecting steps that would spur demand and reduce tax burden . Mamata, the Brahamin Kanya all set to Replace Brahmin Marxist Buddhadev bhattachary to sustain Manusmriti Rule in Bengal, has shown the way, now the DE Facto India Incs Prime Minister, the Kayastha Brahamin from Bengal Pranab Mukherjee has cleared the decks for All Round Corporate MNC India Inc LPG Mafia Raj!However, Prime Minister Manmohan Singh's embattled government will likely boost spending on social programmes in a populist budget on Monday, even as India is threatened with a potentially ballooning subsidy bill for food and fuel.
Higher spending to appease voters will make it tougher to reach deficit-cutting targets in a year that could see slower economic growth, and could also make policymakers' battle against inflation more difficult.
"Pruning the (fiscal deficit) is tricky, especially when the economy is showing signs of a slowdown, cash-guzzling social sector projects are due to be announced and high commodity prices globally are likely to bloat the subsidy bill," HDFC Bank Chief Economist Abheek Barua wrote in a note.
Unlike in the current fiscal year ending March 31, New Delhi will not be bailed out by unexpectedly strong growth and revenue from the sale of 3G telecom licences. The government's political imperative not to cut subsidies will be hugely expensive. Food subsidies total nearly $13 billion, or 5 percent of the budget, while fuel subsidies total around $5.5 billion, 68 percent more than a year ago.
Political obstacles, including from within the ruling Congress party, which is increasingly moving to the left, will also discourage any major reforms in the new financial plan, such as allowing more foreign investment in the financial services and retail sectors in Asia's third-biggest economy. The government has become bogged down in a slew of corruption scandals, and soaring food prices have only made matters worse.
EYE ON ELECTIONS
Finance Minister Pranab Mukherjee , known more as a wily political operator than as an economic reformer, is likely to have growing public unrest in mind as he crafts the new budget.
Polls in states such as West Bengal and Tamil Nadu will determine the strength of the ruling coalition ahead of the 2014 general election. A poor showing by Congress will bolster the opposition and weaken the party's standing with its already unruly allies.
However, increased government spending has spurred demand in India without commensurate growth in new capacity, adding to inflationary pressures.
To offset higher social spending, the budget is likely to increase excise taxes and widen the service tax base, and include expected 400 billion rupees ($8.8 billion) from the sale of state assets.
While growth in Asia's third-largest economy will reach 8.6 percent this fiscal year, and the government is gunning for double-digits, persistently high inflation, now topping 8 percent, has stirred opposition backlash and street protests.
Yashwant Sinha, a former finance minister and senior member of the opposition BJP, told Reuters Insider that India should sacrifice a bit of growth to tame inflation. "I really hope he (Mukherjee) will not be populist, because populism at this point in time will only cause greater harm to the economy in terms of higher inflation, greater harm to the common man," he said. "It might be sweet in the short term, but it will be very painful in the long term."
DEFICITS AND BUDGET-BUSTERS
India will comfortably beat its fiscal deficit target of 5.5 percent of GDP in the current year thanks to $23 billion in telecoms spectrum auction proceeds, or roughly 1.5 percent of GDP.
26 FEB, 2011, 12.36PM IST, RAGHU DAYAL,
Don't let Railways be hijacked again for somebody's political gain
The rail budget presented yesterday by Mamata Banerjee follows the familiar pattern of essentially populist pronouncements sans any longrange agenda. She relished introducing new trains , sanctioning new projects, doling out largesses and concessions. It mortgages the system's tomorrow for her today. The Parliament lso relishes a list of benedictions showered on different regions, instead of demanding to be apprised of the broad contours of IR's strategies to cope with onerous challenges of a buoyant economy and rising aspirations of a vibrant nation.
The rail budget 2011-12 has indeed been cleverly packaged. On face of it, it prudently balances the 2010-11 accounts with a projected operating ratio of 92.1%, notwithstanding unanticipated increase in expenses of Rs 5,700 crore for rise in fuel rates and higher wage bill. It is achieved essentially on "higher yield per NTKM" . In spite of the deficit of as much as 20 million tonnes of freight, it claims to have achieved the budget level of earnings. Again, the surplus shown at Rs 4,105 crore would evidently leave little for the Capital Fund and Development Fund. The same holds good for the excess projected at Rs 5,258 crore for fiscal 2011-12 , which, no doubt, is but a paltry amount for essential capital expenditure as well as improvement and augmentation of facilities. The railway minister would need to ask herself how Indian Railways (IR) can accomplish the "imperative" of faster than 8-9 % growth with no strategy spelt out to exponentially enhance capacity on its saturated corridors and at terminals .
A litany of new passenger services in the present context would only erode its freight carrying capacity. Freight trains which trail fastrunning passenger trains get less and less room to run. More and more passenger trains only exacerbate capacity constraints on the already clogged inter-megacity rail corridors as well as the terminal and maintenance infrastructure. Infrastructure is indeed the Achilles' heel of the economy. The grave deficiencies can be redressed not merely by policy platitudes, grandiose declarations of intent, daily flagging off new passenger trains or laying foundation stones for ambitious projects. It is no secret that IR has been teetering and faltering with competition outside and complacency within. IR's share for freight, where substantial last-mile road transport is required, is insignificant. This is because of uncertainty in quality of service (e.g., time taken to deliver ), the lack of end-to-end service provisioning (3 PL and 4PL) and high freight tariffs. A sardonic myth constantly reiterated for providing 'inclusive growth' by executing 'socially desirable projects' for backward areas being brought into the mainstream through hugely unremunerative railway lines and services only saddles the system with huge avoidable liability.
Instead, there is a need to streamline the apparatus, shed the flab, make it nimble and trim, and drastically prune the number of yards, sheds, depots, offices and activities. There is little rationale for as many as half-amillion IR manpower being unskilled in the face of state-ofthe-art equipment and technologies invested and installed at huge cost. A clear imperative is that IR generates substantial investible surpluses through dynamic pricing, increased volumes and lower unit cost operations. Long-range planning deals not with future decisions, but with the future of present decisions . Didi will do well to realise that keeping promises is the real test, not just making new promises: shouldn't she seriously ponder how the "several business-oriented" policy initiatives which she catalogued have elicited little effective response?
http://economictimes.indiatimes.com/opinion/comments-analysis/dont-let-railways-be-hijacked-again-for-somebodys-political-gain/articleshow/7578331.cms
The jury is still divided whether the budget would veer towards an anti-inflation approach or be pro-growth. But everybody agrees that the finance minister is going to have to walk a tight-rope to get the right mix of both.
The annual report card on the state of the economy, the Economic Survey 2010-11, did indicate that inflation was here to stay at least in the short-to-medium term even as the country's gross domestic product grows at around 8.6 percent this fiscal and 9 percent in the next.
Food inflation moved up to 11.49 percent for the week ended Feb 12 as compared with 11.05 percent in the previous week. The barometer for measuring food prices has remained in high double-digits for most part of 2010-11.
The annual inflation based on wholesale prices stood at 8.23 percent in January.
Mukherjee, often touted as the government's primary trouble-shooter, however has another problem at hand. Following the unrest in the middle east and Libya, global crude prices have soared to around $112 a barrel Friday on concerns that political unrest in the Arab world will create supply shortages.
Even though oil marketing companies have the freedom to charge for petrol as per global prices, a further hike will only add to the inflationary pressure -- something that the government would look to avoid for as long as possible.
Then there are the social sector programmes of the government, which are already leaking huge amounts of funds in the absence of proper audits. Many of these programmes, which require huge funds cannot be curtailed as a number of state elections are due.
Mukherjee will also have to look at ways of ramping up its revenue collection and curtail expenditure to curtail fiscal deficit , which was a high 5.5 percent this fiscal.
Whether he will be able to bring it down to 4.5 percent of the gross domestic product by March-end 2012 remains to be seen.
Analysts doubt its possibility in the face of continuing subsidies to various sectors like food, fertilizers, oil and absence of a spike in revenues as was seen last year due to one-offs like the 3G auction, which netted the exchequer Rs.67,718 crore ($15 billion).
26 FEB, 2011, 04.15AM IST,ET BUREAU
Economic Survey 2011: Converge schemes without duplication
Reforms and convergence in schemes are the key takeaways for the social sector in the Economic Survey .
"More" reforms in the education system and health sector are needed to reap the benefits of the demographic dividend. It stresses on the need of "vision", "long-term plan" and "bold decisions".
There has been an increase in the expenditure on social services. It increased since 2005-06, from 5.49% of the GDP to 7.27% of GDP in 2009-10. However, the budget estimate for 2010-11 reveals a dip in the share to 6.63% of the GDP. This fits in with the Survey's stress on the government's challenge in mobilising funds, especially in the area of higher education. This is where, the Survey steps in to make a definite pitch for tailor-made public-private partnerships in the social sector — particularly higher education. However, this should not be at the expense of government's regulatory oversight.
A larger outlay by the government, the emphasis put by the Survey must be accompanied by firm policy structures for effective implementation. To this end, the Survey has suggested the use of outcome budgets and Unique Identification ( UID )).
Even as the Survey recognises the role of the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) in creating employment opportunities and putting additional money in the hands of the poor and disadvantaged, it has called for further improvements. The specific improvements include shifting the scheme towards permanent asset building and infrastructure development activities, reducing transaction costs, and extending the scheme to urban areas.
Two other interventions have been suggested for this employment guarantee scheme. First, its implementation shouldn't result in shortage of labour during the agricultural season. Secondly, efforts should be made to ensure its convergence of various employment and poverty alleviations schemes to avoid duplication and leakage.
A discussion on human development indices necessitates a simultaneous one on the environment, especially as adaptation to climate change is becoming increasingly important. Adaptation effort inevitably is about assisting vulnerable population, and helping them build their lives to be able to deal with impacts of climate change on their livelihood pattern and habitat. Once again there is a close connection between the social sector, poverty alleviation and employment schemes. The Survey reiterates the need for proper balancing of the "climate" challenge and "growth" challenge. In doing so, it would appear to have not adhered to its own suggestion of "vision" and "bold decisions". Instead, the Survey appears to come down on the side of "growth".
"Careful planning and customised policies are needed to ensure that the green growth strategies do not result in slow growth strategy." Clearly, the Survey is not looking beyond a conventional approach to growth. However, within this approach it accepts that environmental protection is important. The Survey has suggested the idea of forest banks, which would mean demarcating certain forest areas as inviolate. The focus of reform in education is clearly in the higher education sector; reform in primary education has been addressed in a measure the Right to Education.
http://economictimes.indiatimes.com/news/economy/policy/economic-survey-2011-converge-schemes-without-duplication/articleshow/7578104.cms
26 FEB, 2011, 08.22AM IST, SWAMINATHAN S ANKLESARIA AIYAR,ET BUREAU
Economic Survey sees India back on 9% growth path in FY12
NEW DELHI: The annual Economic Survey could have been written by Aamir Khan and titled "Aal Izz Well." It is gung-ho about GDP growth rising to 9% next year, and staying there in the medium term. Services (which now have a 57.3% share in the GDP) will be the main locomotive of the economy. This, plus the coming demographic dividend, will offset many policy flaws and sustain fast growth. The Survey cites a new Index of Government Economic Power showing that India is now the fifth greatest global economic power after the US, China , Japan and Germany, and is well ahead of Britain or France.
Analysts may worry about the fiscal deficit, but the Survey declares that India is galloping down the road to fiscal virtue. The fiscal deficit in the first three quarters of this year was just 44.8% of the level in the previous year.
The Survey says the ratio of consolidated government debt to GDP, which touched 79.3% of the GDP in 2004-05, will fall to 68.7% by 2013-14 and 65% by 2014-15. The recent revision of GDP data shows that we have underestimated true GDP for many years, and hence have overestimated the fiscal deficit. This, plus high inflation this year (nominal GDP will rise 20.3% against the expected 12.5%), means that the budget estimate of a fiscal deficit of 5.5% of GDP now translates into just 4.8%.
This actually reveals a dirty economic secret: inflation can, in the short-run, be good for the government's books. Inflation erodes the real value of debt, and the government is the biggest debtor of all. However, inflation with a lag also increases government spending. Neither this nor the prospect of rising subsidies (implied by the Food Security Act and spike in oil prices) disturbs the Survey's fiscal optimism. It does not hint at any painful fiscal squeeze to come, either on the tax or spending side.
What will the government do to bring down prices? The Survey analyses the contribution of supply, demand and international trends to inflation, but spells out no new initiatives. It describes the spike in vegetable prices as temporary bad behaviour which will soon be checked by a reversion to more normal behaviour. Going forward, it expects monetary tightening and other steps to bring down inflation. Rising oil prices pose a challenge, and the Survey says India must adjust to the reality of expensive energy.
Higher infrastructure spending is another reason cited by the Survey for optimism about future growth. However, tucked away in small print is the dismal information that losses of State Electricity Boards are 1% of GDP (which means Rs 76,000 crore). Unaccounted leakages of electricity (theft and transmission losses) are a whopping 35% of the electricity generated. No wonder power continues to be a constraint on growth. Cost overruns in public sector projects had come down to a reasonable 12% in March 2008, but rose to 20.7% by October 2010, thanks partly to higher steel and cement prices. Land acquisition and environmental clearance need to be streamlined to expedite infrastructure, along with standardised contracts and better designed projects.
26 FEB, 2011, 05.55AM IST,
Budget 2011: More needs to be done to push inclusive growth
By Rohini Malkani, Economist, Citi India
Similar to the PM's Economic Advisory Committee report presented earlier this week, the Ministry of Finance's Annual Economic Survey pegs growth at 9% for FY12 (against 8.6% in FY11). This is higher than our relatively optimistic outlook of 8.4% which is based on strong exports, rural/urban wage revisions supporting consumption, and measures being taken to sort out environment-related issues that have stalled investments.
Key factors behind the 9% growth estimates include sustained trends in savings and investments, due to favourable demographics and a thrust on infrastructure development; continued momentum in services, with financing, insurance, real estate, transport and communication being high-growth categories; and efforts toward fiscal consolidation which would facilitate more credit to support growth.
The Survey is also cognizant of risks. These include high inflation , particularly on the food front; 'volatility and waning momentum' in industry, though the Survey believes the short-run nature of the IIP slowdown could be due to 'road-bumps rather than an indication of any long-run problem'; stagnation in the agri sector; efforts toward financial inclusion; and meeting the 12th Plan infrastructure investment target of Rs 41 trillion.
In order to address the risks, the Survey has highlighted near-term measures as well as key growth drivers in the coming years. Near-term measures that would aid growth include resolving issues related to infra financing and addressing time and cost overruns arising due to land acquisition delays.
On the inflation/agri front, measures suggested include reforms pertaining to the Agricultural Produce Market Committees Act that restricts free trade, introduction of FDI in multi-product retail which would help curtail the margin between farm gate and retail prices and raising food processing capabilities via investments in cold chains, logistics and packaging. Lastly on the fiscal front measures proposed include direct subsidy payments/usage of smart cards to curb corruption.
The underlying policy theme is that of 'inclusive growth'. The Survey states that even as significant headway has been made on the 'growth' front, more needs to be done on the 'inclusive' front. Acknowledging that the food security bill is imperative towards reducing poverty and mal-nutrition it has emphasised that the efficacy would depend on the delivery mechanism. To this end, it has suggested the direct transfer of subsidy and the usage of smart cards to minimise leakages and corruption. Another key area of economic inclusion is financial inclusion. This would help mobilise savings through innovative products and an expansion of the banking system.
On a more medium-term basis, the Survey has cited that while savings and investment rates could peak out as the economy operates at full capacity, the key differentiating factor that would result in sustained growth would be innovation and skill development. To this end, focusing on education and research and development is an investment that the Survey believes would 'make up for the eventually waning power of the savings rate.'
http://economictimes.indiatimes.com/opinion/guest-writer/budget-2011-more-needs-to-be-done-to-push-inclusive-growth/articleshow/7578370.cms
26 FEB, 2011, 03.29AM IST,ET BUREAU
Mamata showers goodies on West Bengal even as Railways slips into financial sinkhole
NEW DELHI: Railway Minister Mamata Bannerjee showered goodies on her native state, promising new trains and projects ahead of the assembly elections, but the cost of her populism is bleeding the finances of the network which is India's biggest employer.
The firebrand politician from West Bengal said the government would introduce a new super-AC class of travel, consider running trains at a speed of 200 km an hour and launch a series of new trains, projects and collaborations, many in her state.
But the Railways has not raised fares for the 22 million passengers that uses its over 7,000 stations or the freight rates for the 2.5 million tonnes of goods its carries every day.
The populist agenda, along with the heavy burden of higher wages because of the Sixth Pay Commission, meant that staff costs accounted for 42% of its expenditure. Its costs, as a percentage of revenue, called the operating ratio, has risen to 92%, which analysts say is alarming. "The high operating ratio shows the perilous health of railway finances which requires immediate attention," said Abhaya Agarwal, executive director at Ernst & Young.
Ms Bannerjee said she was trying to balance the needs of an efficient railway network in an economy that is growing at 8-9% and the aspirations of millions of people it serves.
"In this budget we have attempted to combine a strong economic focus with an equal emphasis on social inclusion with a human face. Our lines touch the lives of humble people in tiny villages, as they touch the lives of those in the bustling metropolises," she said.
The Railway Budget for 2011-12 also announced a purchase of 18,000 wagons, surpassing the current fiscal year's record procurement of 16,500 wagons. She also said that work on dedicated freight corridors would be completed on schedule. The railways will count on budgetary support of Rs 20,000 crore, and market borrowings of Rs 20,594 crore through the Indian Railway Finance Corporation, besides Rs 10,000 crore from tax-free bonds. The railways is borrowing heavily as it has failed to generate enough surplus. Shares of companies that count on railways for business fell heavily after the Railway budget. Kalindi Rail Nirman fell by more than 13%. Titagarh Wagons also dropped 13%, while Texmaco fell 8%.
Ms Bannerjee used her budget speech to score a point over the Communist rulers of West Bengal, whom she hopes to dislodge in the assembly elections this year. "As per my announcement, to set up a coach factory at Singur, land has not been made available by the state government. However, several landowners have volunteered to sell their land directly to the railways. To fulfill this commitment, I propose to set up a metro coach factory on the land purchased from willing sellers at Singur/adjacent Polba," she said.
Indian Railways expects freight loading to rise 6.4% to 993 million tonnes from the current year's reduced target of 924 million tonnes. Its working expenses overshot the budget estimate by 2,000 crore and the disruption of train movements caused a loss of Rs 1,500 crore. The network was got a Rs 2,000-crore hit due to the halt in iron ore exports.
The suggestion formed part of a draft paper, unveiled by Commerce Minister Anand Sharma , for finalising a strategy to push India's global trade to USD 1 trillion by 2013-14. "One of the major reasons to take this initiative and put it (a strategy) in place on urgent basis is because of the widening balance of trade," he said.
The Ministry has invited comments on the paper from stakeholders by March 23, on the basis of which an export strategy will be finalised by the end of next month. Eventually, it will be added to the Foreign Trade Policy to be unveiled later this year.
While seeking greater budgetary support from the government, the paper favoured a stable policy environment and continuation of the existing incentive schemes. "A stable policy environment is essential for a vibrant foreign trade and accordingly it will be essential to continue with the existing incentive schemes such as duty drawbacks, tax benefits and interest subvention scheme", the paper said days before the Union Budget , to be presented on February 28.
The paper also calls for a technology upgradation fund, financial support to various sectors and special focus on new markets worldwide, besides clearing of infrastructure bottlenecks which may cost about Rs 31.15 lakh crore.
India's exports this fiscal are likely to increase to USD 225 billion, from USD 178.6 billion in 2009-10. The total trade this fiscal is expected to be around USD 550 billion.
The paper has warned that the trade gap, which stood at USD 89 billion during the first 10 months of 2010-11, is likely to increase to around USD 115 billion for the entire fiscal and may further escalate to USD 278 by 2013-14.
"With the initiative that we proposed in the strategic paper, we hope to close the (trade) gap and bring the gap to below 10 per cent or may be close to 9 per cent of the GDP which in the view of those who manage the economy is perhaps is achievable and also manageable," Sharma said.
Trade deficit, the difference between imports and exports, depletes foreign exchange reserves and puts pressure on balance of payments, worsening the current account deficit. "The projected balance of trade deficit (BOT) on merchandise account of 13 per cent (of GDP) is clearly cause of serious concern because it can lead to an unsustainable CAD," the paper said.
It further added, "even with the achievement of an export target of USD 450 billion, the BOT deficit is still likely to be over 9 per cent of GDP, around the same as at present, which may be regarded as just about manageable".
Will Budget 2011 be a step closer to Direct Taxes Code?
Some people, however, continue to hold the view that the last day of the test match may be exciting and that the unexpected may happen and the team of the aam aadmi may still win the match. These people continue to see Budget 2011 as a last opportunity available to make changes in the existing Act in order to settle past disputes and introduce some changes that ease the burden of tax on the middle/lower-income levels. Purely from a personal-tax perspective, some of the changes that are being expected are:
Given high inflation, which has been working like a doosra for the aam aadmi, revision in the tax exemption slab from current `160,000 to a higher amount is possible. However, given that DTC has proposed a limit of `200,000, the expectation is not too high. Also, abolishment of education cess of 3% would be a welcome move and would help in facing some more spin attack.
Increasing cost of medical care and the ever increasing list of 'what is not covered' under the medical insurance coverage is no less than the teesra delivery being faced by the aam aadmi. Budget 2011 might increase medical reimbursement exemption limit from current Rs 15,000. The limit provided by DTC of Rs 50,000 does provide some extra room to play and people are hopeful of some relief here.
On the other hand, Leave Travel Allowance (LTA) might undergo a change as no such exemption is available under DTC.
The current threshold of Rs 100,000 for specified payments and investments does not provide much relief to the tax payers or an impetus to compulsorily save for a rainy day. Given the hope provided by DTC to raise this amount to Rs 150,000, people are expecting some relief here.
The newly introduced deduction of additional Rs 20,000 for investment in long-term infrastructure bonds does not find its place under the DTC. People are hopeful that this will be continued and will be like the extra's that were not counted in the DTC.
Survey upbeat on growth, fiscal consolidation
New Delhi: The Indian economy is set to revert to the "pre-crisis" growth level of 9 per cent (+/– 0.25 per cent) in 2011-12, says the Union finance ministry's annual Economic Survey for 2010-11. Striking an upbeat note on prospects for economic growth and fiscal consolidation, the Survey, tabled in Parliament on Friday, says the economy is expected to "breach the 9 per cent mark in 2011-12".
The major downside risks to growth are weather, a 'disproportionate spike in the price of crude petroleum' and a slowdown of growth in developed industrial economies.
"Looking further, into the medium to long term, the expectation is that India's pace of economic development will pick up even more," says the Survey. This optimism is based on two factors: first, the new "momentum" in the savings rate (33.7 per cent of the gross domestic product, or GDP) and the investment rate (36.5 per cent of GDP); second, India's "demographic dividend".
Explaining the importance of the contribution of "human capital" for growth, the Union government's Chief Economic Advisor, Kaushik Basu, said that traditional growth models factored in only the impact of savings, investment and capital productivity in estimating growth. However, given the contribution of human capital, any growth model for India must factor in the impact of rising labour productivity on account of the demographic dividend.
This draws attention to the growth-enhancing impact of investment in human development, says the Survey, adding, "Growth then depends much more on skill development and innovative activity." While remaining concerned about inflation, the Survey outlines a new perspective on the medium-term nature of inflationary pressures in a growing economy and in the context of global monetary easing.
Given the Survey's upbeat tone on growth, expectations are that the finance minister will meet his fiscal targets. The estimate for the fiscal deficit for 2010-11 has been placed at 4.8 per cent of GDP (Budget Estimate 5.5 per cent).
Analysts expect the finance minister to stick to the 13th Finance Commission timetable on fiscal correction. practice started in last year's Survey, this year's document offers an analytical chapter titled "Micro-foundations of Macroeconomic Development" with a focus on explaining inflation in India. The Survey believes that, apart from high growth, the processes of financial inclusion and increasing 'monetisation of the economy' may have increased the propensity to hold cash, thereby increasing the overall money supply held by the general public.
Globalisation and greater openness to global money flows also reduce the effectiveness of monetary policy, with 'quantitative easing' by developed economies fuelling inflation in developing economies like India. The Survey forecasts an average annual inflation rate of 5 per cent over the next decade, with spikes around the average, for a variety of reasons outlined and suggests India may have to "revisit" its standard policy package to deal with inflation.
In another major innovation, the Survey puts forward a new Index of Government Economic Power, that shows China and India as 'rising powers'. The four components of the index are: government revenues, foreign currency reserves, export of goods and services, and human capital.
Underscoring the importance of fiscal consolidation, with reduced subsidies and higher tax/GDP ratio, investment in infrastructure and carrying forward economic reforms, the Survey says, "deepening the reform process would hold the key to sustaining the fiscal consolidation process".
Source: Business Standard
 Economic Survey 2011: How do experts view it?Published on Fri, Feb 25, 2011 at 14:51 | Updated at Sat, Feb 26, 2011 at 15:59 | Source : CNBC-TV18
The Indian economy is expected to grow at 8.75-9.25% in financial year 2012 according to the Economic Survey for the year 2011-12 announced on Friday. Robust growth and steady fiscal consolidation have been the hallmark of the Indian economy in the year 2010-11 so far. The growth rate has been 8.6% in 2010-11 and is expected to be around 9% in the next fiscal year. The growth has been broad-based with a rebound in the agriculture sector which is expected to grow around 5.4%. Manufacturing and services sector have registered impressive gains. Savings and investment are looking up while exports are rising. However, food inflation, higher commodity prices and volatility in global commodity markets have been a cause of concern underscoring the need of fiscal consolidation and stronger reserves. In an interview with CNBC-TV18, Siddhartha Sanyal, Chief India Economist, Barclays Capital, Sonal Verma, India Economist, Nomura and Amit Mitra, FICCI, speak about the Economic Survey and give their outlook going forward. Below are excerpts of the interview. Also watch the accompanying videos. Q: Did you get anything different so far? Sanyal: Actually the survey is pretty much on expected line. To some extent, everyone expected this one to be on optimistic assumptions. You can see that in the growth numbers, in the tax revenue numbers as well as in case of the overall fiscal deficit number. Q: Fiscal consolidation plan is on track this financial year. The fact that it is on track is not good enough, when you get too much of one off, isn't it? Sanyal: Basically this year was a bonanza year. What will happen in the next year? Our own assessment says though the government is coming out with 4.8% kind of a number, we are penciling a number as high as 5.3% of the GDP. This is on the new revised very high nominal GDP. Had that not been the case, it would be somewhere in the range of around 5.6% on the old GDP basis. And that would mean a significant slippage compared with full 4.8% target. Q: What are you penciling in by way of a nominal GDP growth, is it around 15-16%? What is the kind of tax revenue that you are expecting? What is the exactly fiscal deficit number that you are looking at? Sanyal: In terms of the nominal GDP growth, we are taking a number around 14.5% to 15% kind of a growth. So, the nominal GDP for the next fiscal year comes to around Rs 90 trillion or Rs 90 lakh crore. In terms of the fiscal deficit, the 5.3% number is somewhere around Rs 4.73-4.74 lakh crore. Out of that, we think that net borrowing requirement will be as high as Rs 4,20,000 crore. Next year will be a year where the small saving will not be a significant chuck any more of financing fiscal deficit because already the bank deposit rates are higher than the small savings rate. That at times has rescued the government, but that is not going to be the case. The joker in the pack for tomorrow is perhaps whether the government manages to carry forward a significant part of the surplus which they are maintaining today, whether they can carry it forward and reduce the borrowing. Q: You had enough time to read through, key parts of the economic survey. Is there anything to give you a feeling that the fiscal issue is going to be better tackled, more responsibly? I saw some nervous statements like auto fuel prices will also to be capped, if crude oil spurts which means they are not going to be entirely passed on right away? Verma: Looking at the document, it does say that the medium-term prospects for fiscal consolidation look bright. This financial year, they will be able to better the fiscal deficit number because of an inflation tax because of the higher nominal GDP growth that we have seen. We will be very surprised if they don't show the 4.8% number, that the thirteenth finance commission has talked about. The other part is achieving fiscal consolidation in reality versus fiscal consolidation on paper, which are two different things. But on Monday, we do think they will show fiscal consolidation. Q: Anything key that you picked up from the economics survey which gives you a feeling that reform could be back in the budget agenda? Mitra: Very importantly, skill development which is a significant area for human capital formation and promotion of innovation, these have been two demands of FICCI for a long time. We haven't seen it in this survey before but primacy has given to this and that will create the long-term sustainable growth engine of this country. We don't want demographic dividend replaced by demographic deficit. These two are very significant in that direction. The second area which is of interest to us is the primacy given to agricultural sector which calls for greater attention and most interestingly for higher investment in farm sector. This investment has significantly fallen in India compared to China asking for greater investment in farm sector and ushering in a second green revolution. As a critique, yes, fiscal consolidation is okay but not squeezing out the growth potential. The survey speaks about fiscal consolidation. We hope that that does not mean that you go ahead aggressively like in developed economies where markets are complete, where there are no structural changes happening, you go tong and have a fiscal consolidation. If push down the fiscal deficit quickly, you will definitely get a great hit on growth and that will lead to huge employment issue. Twelve million Indians joined the labour force; nine fresh ones and three who have not got jobs before. Every year we have to create 12 million jobs. Now, fiscal consolidation should not squeeze out the potential for job development in the future. Q: Did you pick up anything which is seriously anti-inflationary in the budget? From the survey, would you say that the budget may be an anti-inflation budget or a pro-growth budget? Verma: If the economic survey is talking about a baseline GDP growth forecast of 9%, between growth and inflation, inflation is the bigger focus. Now, one of the things that the survey accepts is that this inflation is because of structural factors, because of the big push that the government has given on the rural side, which means that the solution to inflation that this budget may try to tackle is also through structural measures. Those measures primarily would include the reforms mentioned, in terms of agricultural development. Other than that there is not much that the budget can do in tackling inflation apart from supply side focus on agriculture and fiscal consolidation. There are areas on infrastructure, agriculture and on education which the government needs to focus on. The question is quality of expenditure and the amount of spending on subsidies etc which to be rationalized, which is what we are going to look at. Q: What would be the one or two things that you can expect from the budget given the mood that the survey has created? What would you very much want the budget to do? Verma: It is very important for us to recognize that last year there was a lot of excitement on reforms out of the survey. Interestingly, in the budget there was very little of it. I am somewhat concerned that does the survey point to the nature of the budget at least in the last year or two years experience? We found that it is not necessarily a big connect. The survey is a big vision document. I personally think that the headroom is very little and within that headroom you can't see big reforms where it should be done but I don't see that in the survey and I don't expect it in the budget. What we need is a steady state budget which maintains growth, which controls inflation to the degree of supply side possibilities. On the whole, I would expect better to preserve growth, preserve employment, contain a bit of the inflation and let the economy run its course at this point in time. The survey I think last year was a disappointment vis-à-vis what came later in the budget. This year it is more restrained, more realistic and we are thankful for that. Tags: Siddhartha Sanyal, Barclays Capital, Sonal Verma, Nomura, Amit Mitra, FICCI, GDP growth.Budget, Budget 2011, Union Budget, Budget news, Budget, Indian Union Budget, Budget 2011 India, Budget 2011 highlights, Budget 2011 income tax, Budget 2011 expectations, Budget 2011 in India, Budget 2011 service tax, GST, DTC, Pranab Mukherjee, FM presents Budget, Budget 2010-11,
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The count down for budget is already begun. Commerce big wheels across India are keeping their fingers crossed to get their wish-list fulfilled. There is guess-work going on in business minds- the industries' representatives and honchos, on which of their petitions listed may go ticked 'Yes' in Union Budget 2011-2012 to be presented by Hon'ble Finance Minister in Parliament on 28th February, 2011. 
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Under section 80-I(A) of the Income Tax Act mega power generation projects, with over 1,000 megawatts (MW) in case of thermal and over 500 MW in hydro, are exempted from income tax for 10 years, if they are commissioned before March 2011.
The industry is, however, divided over the issue of levying customs duty on imported power equipment.
The present power infrastructure of the country is inadequate to meet demand in an economy that has been growing more than 8 percent over the past few years. The federal government has forecast a GDP growth of 8.6 percent for 2010-11.
The government's thrust, more off-budget than through budget, is to help the sector add generation capacities, discourage wastage, encourage generation of renewable energy, ensure supply of power equipment and facilitate rural electrification.
However, analysts are suspicious of the government's ability to implement this agenda as speedier as it intends to. The government had cut capacity addition target for 2007-12 (Eleventh Five Year Plan) several times in the past year.
"Overall, policy and regulatory framework for the sector has evolved over the last decade, now the industry expects more in terms of tax and other incentives," Charudatta Palekar, principal consultant, energy, utilities and mining, PricewaterhouseCoopers' said.
ISSUES FOR 2011-12
Indian power equipment manufacturers have been demanding imposition of customs duty to ensure a level-playing field vis-a-vis foreign manufacturers, while power project developers have been lobbying against it on fears the move will dry up supply of cheaper equipment in the market.
At present, there is no customs duty on equipment used for mega-power projects. The government is unlikely to change this given its plan to achieve capacity addition target faster, analysts said.
Another issue is the import duty on power equipment spare parts.
"A concessional rate of duty is applicable for import of power equipment, which is not being extended when I import spare parts," Issac George, Chief Financial Officer, GVK Power said, hilighting the concerns of power producers.
That the power sector has no service tax exemption is an anomaly as other infrastructure segments such as roads, airports, railways, transport terminals, bridges, tunnels and dams are enjoying this benefit, industry officials said.
In its pre-budget memorandum, the Indian Electrical & Electronics Manufacturers' Association (IEEMA) has sought to rectify this anomaly.
The power equipment makers' body has also sought duty-free import of specialised steel, referred to as CRGO electrical steel, until indigenous production commences.
CRGO steel, demand for which is estimated about 3.5 million tonnes per annum for the Twelfth Five Year Plan (2012-17), is a critical raw material for manufacturing transformers, IEEMA said.
The companies are completely dependent on imports for this now.
The 2010-11 budget had more than doubled fund allocation for the sectoral schemes and also extended, by one year, the sunset clause in the Income Tax Act.
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