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Old February 16th, 2011, 04:08 PM   #1
think-tank
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Union Budget Finance Bill for 2011-2012

I thought it'd be a great idea to discuss pre and post budget news here, I'd also welcome your views and predictions. Thanks..


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Download Budget Speech

Budget Highlights

Annual Finance Statement

Expenditure Budget

The Macro Economic Framework Statement

More at: http://indiabudget.nic.in/index.asp

Salient Points from 2011-12 budget


Quote:
FY'11 FISCAL DEFICIT TARGET REVISED TO 5.1%

PLANNED EXPENDITURE UP 18.3% (YOY) AT Rs. 14.41 LAKH CR

NET TAX RECEIPTS FOR FY'12 SEEN AT Rs. 6.64 LAKH CR

GROSS TAX RECEIPTS FOR FY'12 SEEN AT Rs. 9.32 LAKH CR

NON TAX REVENUE FOR FY'12 SEEN AT Rs. 1.25 LAKH CR

TOTAL EXPENDITURE UP 13.4% AT Rs. 12.57 LAKH CR

ALLOCATED Rs. 69199 CR FOR DEFENCE CAPEX IN FY'12

Rs. 8000 CRORE FOR NORTHEAST INDIA

Rs. 8000 CRORE FOR DEVELOPMENT NEEDS OF JAMMU & KASHMIR

OLD AGE PENSION FOR PEOPLE OVER 80 YRS HIKED TO Rs. 500/MONTH

NATIONAL MISSION ON HYBRID VEHICLES TO BE STARTED

PROPOSE Rs. 5000 CR FOR TAKEOUT FINANCING SCHEME

PROPOSE A 5 FOLD STRATEGY TO DEAL WITH BLACK MONEY

TO EXTEND INFRA TAX BREAKS FOR THE FERTILISER SECTOR

CLOSE TO FINALISING NATIONAL FOOD SECURITY BILL

PLAN Rs. 1.6 LAKH CR SPENDING FOR SOCIAL SECTOR PROJECTS

TO BRING BROADBAND CONNECTIVITY TO ALL VILLAGES

ALLOCATION FOR BHARAT NIRMAN RAISED TO Rs. 58000 CR

NREGA WAGE RATE INDEXED TO CONSUMER PRICE INDEX

SCHEDULED TRIBES ALLOCATION RAISED TO Rs. 2.44 LAKH CR

ALLOCATION FOR EDUCATION RAISED TO Rs. 52057 CR

PLANNED ALLOCATION FOR HEALTHCARE UP 20% TO Rs. 27,600 CR

IIFCL'S FY'12 DISBURSEMENT TARGET AT Rs. 25,000 CR

SPEND ON INFRA SECTOR TO BE HIKED BY 23%

GOVT AGENCIES CAN RAISE Rs. 30,000 CR FROM TAX FREE BONDS

COLD STORAGE TO BE BOUGHT UNDER AMBIT OF INFRA SECTOR

FURTHER SUBVENTION OF 3% FOR REPAYING FARM LOANS ON TIME

INTEREST SUBVENTION FOR FARM LOANS AT 7% TO CONTINUE

FII LIMIT IN INFRA SECTOR CORP BONDS RAISED TO $25 BN

TO SIMPLIFY SERVICE TAX REFUND PROCESS

MFG SHARE IN GDP TO RISE TO 25% OVER NEXT 10 YEARS

TO SET UP 15 MORE MEGA FOOD PARKS

RBI TO BRING OUT GUIDELINES ON NEW BANKING LICENCES

Rs. 6000 CR TO ENABLE BANKS TO MAINTAIN 8% TIER 1 CAPITAL

TO MOVE INSURANCE, PENSION AND BANKING BILLS IN PARLIAMENT

TO INFUSE Rs. 500 CR IN REGIONAL RURAL BANKS

ROLLOUT OF DTC TO BE EFFECTIVE FROM APRIL 1, 2012

TO SET UP INDIA MICROFINANCE EQUITY FUND WITH Rs. 100 CR

PROPOSE TO GIVE Rs. 3000 CR TO NABARD

TO GIVE Rs. 5000 CR TO SIDBI TO REFINANCE SMALL FIRMS

LIBERALISE INTEREST SUBVENTION OF HOME LOAN UP TO Rs. 15 LAKH

TO ENHANCE FUNDS UNDER RURAL HOUSING FUND TO Rs. 30,000 CR

MORTGAGE RISK GUARANTEE FUND FOR HOME LOANS TO POOR

HAVE HIKED PRIORITY HOME LOAN LIMIT TO Rs. 25 LAKH

TO GIVE PSU BANKS Rs. 20157 CR TO RAISE TIER 1 CAPITAL

NEW COMPANIES BILL TO BE INTRODUCED IN THE CURRENT SESSION

MINORITIES' LOAN TARGET UP AT 15% OF PRIORITY LOANS

ALLOCATION FOR FARM DEVELOPMENT HIKED TO Rs. 7860 CR

DISCUSSIONS ON TO FURTHER LIBERALISE THE FDI POLICY

GOVT TO MAINTAIN MOMENTUM OF DIVESTMENT

GOVT TO MOVE TOWARD DIRECT SUBSIDY TO PEOPLE LIVING BPL

DIRECT CASH SUBSIDY ON KEROSENE, FERTILISERS FOR BPL

EXTENDING NBS TO COVER UREA UNDER CONSIDERATION

PREPARATION OF GST ROLLOUT IN FINAL STAGES

MUST REVISIT EXACT CLASSIFICATION OF EXPENDITURE

TO INTRODUCE GST BILL AMENDMENTS IN THIS SESSION

AIM FOR FISCAL DEFICIT OF 3% BY FY'14

GST AND DTC REFORMS TO MODERATE RATES AND SIMPLIFY NORMS

PROPOSE INTRODUCING PUBLIC DEBT MGMT OF INDIA BILL

EXPECT RBI MEASURES TO MODERATE INFLATION

EXPECT CURRENT ACCOUNT DEFICIT TO COME DOWN NEXT YEAR

EXPECT INFLATION TO COME DOWN NEXT YEAR

CURRENT ACCOUNT DEFICIT STILL A CONCERN

HUGE PRICE GAP IN WHOLESALE & RETAIL NOT ACCEPTABLE

PRICES OF KEY AGRI COMMODITIES HAVE DECLINED

ECONOMY RESILIENT TO EXTERNAL AND LOCAL SHOCKS

EXPECT AGRI SECTOR TO GROW AT 5.4% IN FY'11

GDP ESTIMATED TO GROW 8.6% IN FY'11 IN REAL TERMS

SIMPLIFYING TAXATION, TRADE AND TARIFFS PROCEDURES

MUST ADDRESS STRUCTURAL CONCERNS ON INFLATION MGMT

NEED TO FIGHT CORRUPTION ON ALL FRONTS

NEED TO BALANCE SUPPLY AND DEMAND COMPONENTS

NEED TO BALANCE SUPPLY AND DEMAND COMPONENTS

NEED TO TACKLE SUPPLY SIDE ISSUES IN AGRICULTURE

REVIVAL IN PRIVATE INVESTMENT SHOULD BE SUSTAINABLE

FOOD INFLATION REMAINS A CONCERN

GOVERNANCE PRACTICE REMAINS A PRIORITY

PRIORITIES REMAIN GROWTH, PUBLIC DELIVERY

FY'11 FISCAL CONSOLIDATION IMPRESSIVE

SERVICE GROWING IN DOUBLE DIGITS

INDUSTRY REGAINING ITS MOMENTUM

PRANAB MUKHERJEE PRESENTS THE UNION BUDGET 2011

GOVT SHOULD TAKE MEASURES TO PROMOTE FDI IN ALL SECTORS

SOME AMOUNT OF LIQUIDITY INFUSION IS POSSIBLE

REDUCING FISCAL, INFRA DEFICIT CRUCIAL

MEASURES TO CONTAIN INFLATION ARE VERY CRUCIAL

EXPECT MEASURES FOR FINANCIAL SAVINGS

EXPECT VOLATILITY ON FII FLOWS TO CONTINUE

COMMITTED TO PROVIDING CHEAPER COOKING FUEL

NEED TO PLUG PDS SLIPPAGES TO EXPAND COVERAGE

INITIALLY LICENCES SHOULD BE GIVEN TO NBFCS, MFIS

GIVE TWO KINDS OF BANK LICENCES

EXPECT VOLATLITY ON FII FLOWS TO CONTINUE

SLOWDOWN IN FDI PARTLY OFFSET BY FII FLOWS

BUREAUCRACY IMPEDING FDI FLOWS

STRONG GROWTH IN EXPORTS AT 29.5% FOR APRIL-DECEMBER

DEVELOPMENTS IN MID-EAST, EUROPE NEED TO BE WATCHED

URGENT NEED TO EXPAND STORAGE SPACE, FACILITIES

NEED TO REVIEW GRAIN RELEASE

FAVOURS SMART CARDS FOR KEROSENE, FERTILISER SUBSIDY

SMART CARD, COUPON TO HELP TARGET FOOD SUBSIDIES BETTER

BETTER SUBSIDY TARGETING FOR BETTER FISCAL MGMT

ANTI-INFLATIONARY STANCE WARRANTED

FOOD PRICES, DEMAND PRESSURE TO SHAPE INFLATION OUTLOOK

RISE IN PURCHASING POWER LEADING TO INFLATION UPTREND

SIGNS OF FOOD, FUEL PRICE INCREASES SPILLING OVER

SHARP RISE IN FOOD PRICES A CAUSE OF CONCERN

EXPENDITURE GROWS AT 11.2% FOR FIRST NINE MONTHS

REVENUE RECEIPTS GREW BY 50% FOR FIRST NINE MONTHS

NON TAX REVENUES GREW BY 136.4% FOR FIRST NINE MONTHS

GROSS TAX REVENUES GREW BY 26.8% FOR FIRST NINE MONTHS

NEED EXPENDITURE REFORMS TO REACH PROJECTED DEFICIT

PROSPECT OF REVENUE LED FISCAL CONSOLIDATION

FY'11 REV DEFICIT EXPECTED TO BE AT 3.5% OF GDP

FY'11 FISC DEFICIT EXPECTED TO BE AT 4.8% OF GDP

EFFICIENT TAXATION BY A NEW GST

IMPROVING NREGA BY FOCUSSING ON PERMANENT ASSET

SECOND GREEN REVOLUTION IN AGRI

NEED TO STREAMLINE LAND ACQUISITION, ENV CLEARANCES

PRIVATE SECTOR PARTICIPATION IN SOCIAL SECTORS

PLAN TO INCREASE DIESEL PRICES IN A STAGGERED MANNER

GOVT TO CAP AUTO FUEL PRICES IF CRUDE OIL SPURTS

CURRENT ACCOUNT GAP TO MODERATE ON HIGHER EXPORTS

FY'11 FISCAL GAP SEEN AT 4.8% ON HIGHER GDP BASE

INFLATION TO MODERATE ON FISCAL, MONETARY STEPS

INFLATION REMAINS A DARK CLOUD FOR THE ECONOMY

ECONOMY TO GROW BY 8.75% - 9.25% IN FY'12

GOVT TO CAP AUTO FUEL PRICES IF CRUDE OIL SPURTS

PLAN TO INCREASE DIESEL PRICES IN STAGGERED MANNER

COMMITTED TO COOKING FUEL AT AFFORDABLE PRICE

FAVOURS SMART CARDS ALSO FOR KEROSENE, FERTILISER SUBSIDY

NEED TO PLUG PDS SLIPPAGES TO EXPAND IMPROVE COVERAGE

SMART CARD, COUPONS TO HELP TARGET FOOD SUBSIDY BETTER

ECONOMY TO GROW AT 8.75%-9.25% FOR FY’12

FY’11 REVENUE GAP SEEN 3.8% OF GDP

PROSPECTS OF REVENUE-LED FISCAL CONSOLIDATION

BETTER SUBSIDY TARGETING IMPROVING FISCAL MANAGEMENT

BUREAUCRACY IMPEDING FDI INFLOWS

NEED PERSISTENT ANTI-INFLATION MONETARY STANCE

INFLATION SIGNIFICANTLY ABOVE COMFORT LEVEL

NEED TO BE VIGILANT AGAINST DEMAND SIDE PRESSURES

LIQUIDITY MGMT MAJOR CHALLENGE FOR RBI

DIRECT TAX CODE PROPOSED TO BE LAUNCHED APRIL 2012

FY’11 FISCAL GAP SEEN 4.8% ON HIGHER GDP BASE
source



Budget 2011 could extend tax benefit on infrastructure bonds by a year

Quote:
NEW DELHI: The Union budget for 2011-12 could extend the tax benefit on investments made in infrastructure bonds by a year while giving banks access to this special window in an effort to raise debt funds for building physical assets of the country. The last budget had allowed a deduction of an additional Rs 20,000 for investment in longterm infrastructure bonds, over and above the Rs 1 lakh limit prescribed for investments in tax saving schemes. Only dedicated infrastructure companies or lenders were allowed to raise funds through these tax savings bonds.

"Various options for infrastructure financing are being examined," said a government official, adding “extending this window is one of them” . The budget for 2009-10 had limited the tax benefit on infrastructure bonds for one year. This was because the government was hoping to roll out of the Direct Taxes Code from April this year. But now that the new code is unlikely to be implemented before April 2012, the government could extend the tax relief on these bonds.

“Keeping in view the infrastructure fund requirements of the country and also to make the to make the tax deduction more meaningful, the government should enhance the investment limit to . 50,000,” said Vikas Vasal, executive director, KPMG. Infrastructure Development Finance Company (IDFC), IFCI and L&T Infrastructure Finance have already raised about Rs 5000 crore so far in the fiscal through these bonds. IDFC has already raised over . 1,200 crore in two tranches of its infrastructure bond issue in the current financial year. The rate of interest offered on these bonds has been in the range of 8% simple interest per annum.

The tax-free infrastructure bonds have a minimum tenure of 10 years and a lock-in period of at least five years to ensure the much-needed long-term funds for the sector. Investors can exit from these bonds only after five years in the secondary market if the bonds are being traded or go in for a redemption if they have opted for bonds that allow this option . According to the planning commission, the sector would require $500 billion worth of funds in the 11Five Year Plan ending in March 2012 and $1 trillion in the 12Plan.

Equity funds are relatively easy to raise for long gestation infrastructure projects, but raising debt funds have been difficult in the absence of a vibrant debt market in India. Giving banks access to this window is another measure the government is thinking about. Bankers had sought this access in their pre-budget interaction with FMPranab Mukherjee. Banks have stepped up infrastructure lending, which has exposed them to asset-liability mismatch of providing long-term funds from deposits that usually mature in three to five year. There is a restriction on the amount lenders can raise through these bonds — a maximum of 25% of their incremental lending to infrastructure sector over the previous financial year.

Savings Calculation

The last Budget allowed tax saving of Rs 20,000 for investment in long-term infrastructure bonds

The Govt had limited the tax benefit on infrastructure bonds for one year as it expected to roll out new tax regime, DTC, from April this yr

Some experts seek enhanced investment limit of Rs 50,000

IDFC, IFCI AND L&T Infrastructure Finance have already raised about Rs 5000 crore so far in the fiscal through these bonds.
source

Budget 2011: Inflation, current account deficit main concerns; says DK Srivastava, Director, Madras School of Economics

Quote:
Fiscal consolidation seems to be on target and we expect the revised estimates for 2010-11 to be marginally better than the budgeted 5.5% of GDP. This would happen for two reasons. First, the nominal GDP growth assumed for 2010-11 was 12.5%, but it may turn out to be higher than 16% given real growth of 8.6% and more than 7% inflation in the implicit price deflator . Second, the government borrowing benefited from an upsurge in non-tax revenues, aided by the 3G spectrum sales, as also from reasonably buoyant tax revenues.

By November 2010, the revenue receipts were 70% of full year target as compared to 50% in the corresponding period last year. By November 2010, the cumulative monthly central tax revenues showed a growth of about 26%, implying a buoyancy of about 1.6 assuming a 16% nominal growth rate. Fiscal deficit was less than 50% of the budgeted by November 2010. In comparison, it was more than 76% of the annual target in November last year. Given this performance for 2010-11 , we expect the government to persist with fiscal consolidation during 2011-12 , largely based on 8.5% plus growth and reasonable tax buoyancy.

With both the Direct Taxes Code and the Goods And Services Tax pushed to April 2012, no major structural impact on tax revenues is expected in 2011-12 . The budget 2011-12 faces major macro risks arising from two sources: food prices and current account deficit. High inflation, mainly due to high food and fuel prices, has been a source of persistent discomfort for policymakers this fiscal year in spite of a comfortable growth story. Both of these pressures are likely to continue in the coming year. There is disturbing news about crop risk in China and many countries trying to stock up grains.

International food prices have been firming up. The FAO food price index rose for the seventh consecutive month in January 2011, up 3.4% from December 2010. It has recorded the highest level since 1990. Sourcing grains from international markets will require paying high price as many countries have suffered from extreme weather both in terms of winter and floods. The crude oil prices internationally have also been hovering around $100 a barrel and are not likely to ease.

The expenditure side of the budget may therefore face significant pressures. First, because of the relatively higher inflation rates, the adjustment in DA for salaries and pensions are likely to be high. Second, higher outlays are expected for food subsidies, since the government may have to mount an aggressive procurement programme at high average costs. The proposed Food Security Act would also put pressure. This combined with high crude prices will push the current account deficit further up.

The government may have to cut some agricultural exports putting additional pressure on the current account deficit. I expect fiscal consolidation to be pursued but an uncomfortable year ahead of us because of continued supply-side pressure on inflation and a large current account deficit. The longer term challenge would be to uplift investment in agriculture as the food shortages appear to be chronic and affecting major suppliers across the world because of neglect of environment.

Distorted fertilizer subsidy regime has also done a long-term damage to the productivity of soil in many parts in India. Maintaining fiscal consolidation, resisting the pressure to increase revenue expenditures, using a large part of borrowing on investment in agriculture, and attempting support to infrastructure through private-public partnerships and a suitable special purpose vehicle appear to be workable and desirable options.
source

Budget 2011: Subsidise tech R&D

Quote:
One decade of the new millennium is over and companies, especially in consumer electronics , are wooing customers with new models. Mobile handset vendors are releasing, on an average , about 35 new models in the domestic market every month, indicating a drastic reduction in product lifetime. However, new technology is also at the risk of becoming obsolete very fast. What do rapid evolution of technology and the resultant obsolescence mean for the stakeholders?

Should a customer change her mobile, desktop or laptop every year? How do companies generate economic value out of obsolescence ? Should the government step up investment in public IT infrastructure? First, let us take the effect of technological obsolescence on companies. Technology obsolescence impacts the future economic value of a product or a component, which increases the risk involved in financing its development.

Companies may resort to different strategies to tackle the problem. These include differentiated pricing for an upgraded product, forward or backward integration to gain control of the market for the product, greater R&D intensity to introduce differentiated products or diversification to derisk. In telecom, the move away from proprietary to opensource software adoption, especially in mobile handsets — such as Android — reduces technology obsolescence cost, both for handset-makers and consumers.

Another trend is the emergence of managed services wherein mobile service providers such as Airtel have outsourced network deployment and management to network equipment makers such as Ericsson and Nokia-Siemens . Airtel transfers the obsolescence risk to the network equipment makers. BSNL has gone a step further, adopting a franchisee model in broadband wireless access. Here, the obsolescence risk is transferred to the franchisee. Also, in technology, obsolescence may not be related to the whole product, but might occur for components that make up the product.

Sometimes , obsolescence rate is faster than the component’s lifetime. Technology refresh is required either because the component ages or has reached end-of-life . It is also possible that the technology refresh makes the system much more efficient that the extra features make it worth the refresh , or the maintenance costs go down substantially justifying the refresh cycle. Besides industry, technology obsolescence also impacts the consumer. The customer upgrades the hardware or software to stay on top of the technology trend. Pricebased competition is likely to provide similar alternative products to the subscriber and enable her to reduce the technology obsolescence cost.

The success of featurerich mobiles from domestic handset companies such as Micromax, Lava and Karbonn as reasonable cost-effective alternatives to handsets from multinational companies illustrates this customer rationality. A customer can also trade her old incompatible version to reduce costs.

Technology refresh at low prices, or made available for free, encourages the consumer to stay with the same brand. For example, when Apple introduced the iPhone 4 with a more powerful operating system, it allowed owners of the previous model, iPhone 3GS, to download the new software . Thus, consumers of the older version were able to do a refresh and get access to the new experience without having to spend anything extra.

Adobe does not let us forget that its Flash needs refreshing . So, technology refresh promotes customer lock-ins to products and brands. Against this backdrop is our wishlist for Budget 2011. Domestic R&D will help tide over technological obsolescence since cost-effective indigenous technology, rather than imported one, is more suited to Indian consumer’s needs. The government should encourage R&D for fostering home-grown products and process innovation, using directly-targeted R&D subsidies than tax incentives for imported packaged software.

It is unfortunate that domestic companies spend a relatively smaller proportion of their revenues on R&D . Further, the mere existence of an R&D lab as a counterpart to a foreign R&D lab will not result in technology absorption. Indeed, such domestic R&D labs require producers to convert their ideas into usable innovations. Hence, there is a need for strong industry-lab partnerships. The government should foster better linkages of the industry with publicly-funded research laboratories and IITs as well as universities.

Given that there will be a huge offtake in consumer electronics, hardware and software in future, we should encourage home-grown R&D and innovation to tide over technology obsolescence. Domestic manufacture of hardware and associated software for our consumption — much like what China is attempting to do — will help us reduce the obsolescence risk.
source

Last edited by think-tank; February 28th, 2011 at 10:58 AM.
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Old February 17th, 2011, 10:52 AM   #2
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Budget 2011: Insurers seek separate tax exemption limit for life policies

Quote:
NEW DELHI: The insurance industry wants the government to create a separate tax exemption limit of Rs 50,000 for life insurance premium in the forthcoming budget to encourage more individuals to buy such policies.

"It is suggested that a standalone additional exemption limit of Rs 50,000 (over and above the already existing limit of Rs 1,00,000) be specified for (life) insurance premiums alone under the Income Tax Act,"Canara HSBC OBC Life Insurance Chief Financial Officer Anuj Mathur said.

Currently investment in saving instruments, like risk cover, pension products, PF contributions, National Savings Certificates and others, are eligible for aggregate deduction of Rs 1 Lakh.

Besides, investments in infrastructure bonds up to Rs 20,000 also qualify for deduction.

"We recommend a separate limit for tax exemption for long-term saving instruments like life insurance or increasing the limits on life and health insurance premium could be looked at," Max New York Life Insurance MD & CEO Rajesh Sud said.

Industry experts said changing lifestyle made necessary an assurance for future income generation, thereby increasing the need for a life insurance policy.

Mathur said in order to ensure better insurance penetration, the life insurance companies should be allowed to come under the Exempt, Exempt, Exempt (EEE) bracket.

Under EEE, a policy holder gets tax exemption at various stages during the term of the policy.

Insurance sector needs capital on a periodic basis for expansion and experts hope that the budget session would also see passage of FDI bill in insurance sector to 49 per cent, from the current 26 per cent.

"There is a need for more proactive regulatory architecture for insurance. Foreign insurers could be allowed to set-up under a wholly owned subsidiary with 100 per cent FDI. The life insurance industry is very capital intensive and companies need huge capital to fund growth," KPMG Executive Director Naresh Makhijani said.

The life insurance companies currently pay tax of 12.5 per cent and the Direct Taxes Code, which would replace the archaic IT Act from April 1, 2012, does not specify any specific limit for the same. This would mean being taxed at 30 per cent.

"A significant portion of funds of life insurance companies are invested in infrastructure projects. ALso companies incur huge losses initially due to long gestation period. With higher tax rates, it will be unattractive proposal for new investors to invest in the sector," Max New York Life's Sud said.
source
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Old February 17th, 2011, 04:03 PM   #3
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...first thanks for starting this thread.
the finance bill doesnt say anything about general taxes, plans about capping oil prices, etc etc!!
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Old February 18th, 2011, 09:14 AM   #4
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Expectations: Unicon Investment

Quote:
India was among the few countries in the world to implement a broad-based counter-cyclic policy package to respond to the negative fallout of the global slowdown. These policy actions has helped Indian Economy to clock a growth of 8.6% in FY11 (advance estimates). While rising strongly in the world economic order, India faces the most critical challenge of crossing the 'double digit growth barrier'. Current macroeconomic challenges are manifold 1. Controlling inflation, including that for essential commodities, 2. Maintaining fiscal deficit amongst rising oil prices, 3. Absence of one-time revenues such as 3G, WiMax license fees, 4. Allocation & channelising investment in Infrastructure, 5. Domestic financial sector liquidity management with large government borrowing can potentially be a dampener for private investments, 6. Reducing current account deficit from current elevated levels, 7. Over and above, handling corruption issues. The upcoming elections in some of the major states may prompt the government to continue to take some populist measures.

Union Budget 2011-12 - Focus on Agriculture & Infrastructure sector

On backdrop of higher inflation (supply side constraints), lower industrial growth & infrastructure investments, Union Budget 2011-12 is likely to undertake measures to ease such constraints in the form of reforms in Agriculture & Infrastructure sector.

A) Agriculture sector
1. Larger Investments in Agriculture sector,
2. Improvement in the Agri logistics & cold storage chains,
3. Steps towards reduction in essential commodities hoarding,
4. Investment in R&D in agriculture.
5. Irrigation and water management
6. Related to agri inputs

B) The lower growth in the industrial production last year is also likely to be addressed; to sustain the growth momentum and expand manufacturing base of the economy over medium term, the government is likely to look at addressing the challenges of land acquisition, infrastructure bottlenecks and infrastructure financing, among others. Besides agriculture, & infrastructure sector, power, rural electrification, education, logistic and rural oriented sectors will be the main focus of the budget, as it would be the main participants in the acceleration of GDP growth of country. In addition, we are likely to see relaxation of FDI norms further in Retail, Insurance and FDI procedures.

C) Inclusive agenda: After years of substantial expansion in the social sector spending, the government is likely to go relatively slower on its inclusive growth agenda, given limited fiscal headroom. No major change in the prevailing tax regime is expected; due to fears of a slower GDP growth in 2011-12. Moreover, any major tinkering in the indirect tax rates is unlikely as the government is targeting rollout of the integrated goods and service tax (GST) in a year. Similarly, changes in direct tax regime may be limited to aligning it with the upcoming direct tax code (DTC).

One of the problems is funding revenue expenditure through capital receipts and, thus, bringing in greater inter-generational inequalities. In the process, we run the risk of prioritising the immediate problems at the cost of our longer-term policy objectives (reforms and infrastructure creation). Unfortunately, we are, once again, likely to get stuck in addressing only the near-term problems in the coming budget too!

Capital Goods & Infrastructure: Infrastructure spending is the backbone of any economy especially in a developing country like India. With end of XI five year plan and missing targets, focus would remain on infra sector. Currently, the sector faces issues like higher commodity prices, higher funding cost and over and above slow pace of award win. At operational level difficulties are faced in obtaining several clearances for land, environment etc causing further delay in project execution and cost over run.

Given the recent reshuffling in the cabinet, low pace of award win activities and dismal IIP data over last couple of months, the thrust would be to accelerate the infrastructure spending and promote private participation to achieve inclusive growth of the economy. Emphasis would be towards higher infrastructure spending both from public and private participants in order to achieve higher GDP growth rate of 8.5%+. We expect higher fund allocation to various infrastructure development schemes (like Bharat Nirman, JNNURM, APDRP, RGGVY etc.) & focus on higher social spending benefitting construction and water & rural infrastructure taking front seat while allocation. Formalization of Public Private Partnership for Infra projects is also likely.

Cement: Cement industry currently faces multiple challenges both internal and external. On one hand, demand is moderating especially in the North region and muted to negative growth in Southern region, industry is also facing higher input and fuel costs. The situation was also aggravated due to hike in diesel prices, making transport cost (freight) dearer. With low demand in over supply regime, industry is unable to pass on the higher costs to end user thereby keeping their margin under pressure or voluntarily opt to keep volume low. Given the backdrop of Government thrust to accelerate economic growth, industry expectations are high to reduce excise duty on cement which in our view is unlikely.

With country's GDP pegged to grow ~8%+ annually going forward, cement industry is likely to grow in double digit over long term and outlook for demand remains positive. With a view to have inclusive growth of all sectors, emphasis would be to create demand for real estate sector with focus on affordable housing, Govt. led higher infra spending in the form of higher fund allocation and incentive for public private partnership (PPP) to keep robust demand for cement. Sector specific, we do not expect material changes.

Metals / Mining: Metal prices have been in an uptrend on the back of rising input costs. Recent disruption in coking coal and iron ore supply due to floods in Australia have been responsible for the rising prices of steel. Spot prices of 63.5 Fe grade iron ore have risen sharply from ~USD 125 / MT in July 2010 to ~USD 196 / MT currently. China coking coal prices have increased from ~USD 265 / MT in July 2010 to ~USD 320 / MT currently. This steep rise in input costs have resulted in compression of margins for non integrated players such as JSW Steel and SAIL while it has helped the integrated players such as Tata Steel and Jindal Steel & Power and mining companies like NMDC and Sesa Goa to improve their profitability.

Going forward we expect steel prices to remain firm on account of strong demand lead by recovering global economies. However we believe iron ore prices would come under pressure going forward on account of high inventory levels. Iron ore inventory in China's ports has reached 82.8 MT, record high in three years. With the resumption of supplies from Australia, prices of coking coal would also normalize from their highs. We believe this scenario would be positive for steel companies.

Oil & Gas: The International Energy Agency (IEA) estimates global oil demand at 89.1 million barrels per day (mb/d) for CY11, an increase of 1.4mb/d over CY10. Asia and the Middle East would account for a major portion of the increase with an expected rise in demand by 1 mb/d. Per capita consumption of energy in India is still one of the lowest in the world (around 0.3 tonnes of oil equivalent compared to world average of l .8). The rise in oil demand can be attributed to a buoyant economic recovery globally. To cater to this demand, IEA estimates OPEC supply at 29.9 mb/d, non-OPEC supply at 53.4mb/d and OPEC NGLs to contribute 5.8 mb/d in 2011.

With demand expected to remain strong we expect crude prices to remain high going forward which is negative for the sector, especially the downstream players. Uncertainty regarding subsidy continues to bleed the oil marketing companies. The three OMCs will end the fiscal with around INR 800 bn of revenue losses on selling diesel, domestic LPG and kerosene below cost, compared to ~INR 440 bn last year. The focus on laying of natural gas and gas transmission pipelines continues with transmission and distribution companies like GSPL, IGL, GAIL and GGCL having performed very well over the last year. With issue of coal availability, ramp up of KG basin production and government's thrust on cleaner fuels, natural gas business is expected to grow very rapidly.

Power: Investments in power transmission & distribution (T&D) are currently lagging behind compared to investments in power generation and are expected to play catch up in the coming years. Given the heavy investment (INR 8370 bn for XIth Plan) requirement in this sector, we believe that the thrust on spending will be maintained. We expect the incentives to continue and in a best case scenario, there could be some more positive surprises as well. Incase of customs duty exemption, there would be reduction in the cost of power generation which will help our economy at large besides encouraging more industries to come forward to set up power plants. All initiatives from industries to set up Independent, Merchant and Captive Power Plants are expected to be encouraged by Government of India. Focus of the budget is expected to be on improving the T&D infrastructure in the country & promoting renewable energy.

Auto: The budget last year had partially rolled back the stimulus provided to the auto players by increasing the excise duty to 10%. We may see a complete withdrawal of the stimulus with excise duties on two wheelers and small cars back to 12%. The auto industry has begun showing signs of a slowdown, imminent on the back of a high base due to strong growth last year on account of pent up demand post the recession. Increasing input costs, rising vehicle & crude prices, general inflation and an upward spiral in interest rates have also resulted in moderating the auto demand. Most auto majors have expressed their concerns and we expect the industry to grow at 10-12% in CY11 compared to 31% in CY10.

Textiles: Indian Textile industry contributes 14% of the total industrial output and 15% of exports. The Industry ranked second in terms of employement generation employing more than 35 mn people. The industry is going through major technology upgradtion to increase the productivity during the last few year to counter global competiton. The Government expects the industry numbers to triple by the next decade to USD 220 bn from the current USD 70 bn considering the rising demand from the western countries. With the US economy showing good signs of recovery, textile demand would increase at a rapid pace going forward. The textile industry with help from TUFs scheme has already modernised with a lot of textile majors now having integrated business models right from raw materials to garments. To further support the growth story of the industry there are favourable expectation from the union budget.

Paper: The Indian paper industry is currently passing through a very difficult phase due to high input cost of raw materials. Since the industry is highly fragmented in nature, it has not been able to take advantages economies of scale as has been the case with its global counterparts. As a result, production in India is very low at 14% compared to 60% in developed countries with high cost of production. Paper industry in India depends on import of waste paper for manufacture of paper/paperboards, as there is a huge shortage of the raw material domestically. We think the government will provide relief to the paper industry by reducing the customs duty on waste paper and pulp which would be positive for the paper companies.

FMCG: FMCG companies witnessed growth in volumes across product categories. However, rise in raw material costs took a toll on the operating margins across companies, with margins contracting by ~ 200 bps to 500 bps. The increasing competition among players also resulted in greater Advertising & Promotion (A&P) expenses of majority FMCG companies barring a few. The companies in this space either, have already taken price hikes during the quarter or are planning to rise prices to protect margins from erosion.

The recent correction in FMCG stocks has made them attractive, given the fact that underlying consumption story remains intact. Rural sector accounts for about 33% of sector’s total revenue. The rural FMCG market is growing on the back of rising demand driven by rising income levels, changing lifestyles and favorable demographics. The pace of rural consumption is growing much faster than urban areas. The acquisitions by FMCG companies in other emerging as well as developed markets would also be earnings accretive in the long run. The sector is expected to be a market performer. Overall, we remain positive about the sectors prospects given the acceleration in rural spend and urbanization.

Pharmaceuticals: The domestic pharma industry continues to grow at 11-12%, dwarfing the global average of five-six percent. Similarly, improved traction in productivity trends has prevented margin pressures, notwithstanding the intensifying competitive landscape domestically. The government's Vision 2015 statement indicates an 18% plus CAGR for the pharma sector, translating to a doubling of revenues to USD40 bn over the next five years. Growth will be driven by all verticals: domestic formulations, generics exports, and outsourcing (CRAMS). The government has recently announced the setting up of a venture fund that will target the infusion of INR 20 bn into the sector.

Fertilizers: Urea has taken centre stage in fertiliser sector in Budget 2011-12. Urea represents almost 50% of all fertiliser products consumed in the country with an annual consumption of 27mn tonnes (mt), of a total fertiliser consumption of 55 mt. The Committee of Secretaries is currently working out a viable model to determine how the subsidy component would be fixed, as urea production is based on different forms of feedstock such as gas, naphtha, fuel oil and coal. The government was also working at raising the urea prices by 2-5% in 2011-2012. De-canalisation of urea imports would also take place once urea comes under the NBS regime. At present, only authorised agencies can import urea. The industry is also eyeing upgradation of investment policy for urea by the government. The fertilizer industry expects Rs 50,000 crore in cash for FY12 by way of subsidies. It also expects further cushioning for FY11 subsidy. The sector has also sought removal of import and export restrictions.

Banking, Financial Services & Insurance: Banking sector being a backbone of the economy has shown a strong growth in the FY11; especially the robust results in the last few quarters have bestowed strength in the banking sector. In the first half of the financial year 2011 the credit growth has been subdue but later it improved on back of strong demand for capex, infrastructure and agriculture. Due to inflationary pressures in the economy RBI has raised repo & reverse repo rate six times in last financial year. Despite this bank's have improved their performance on all fronts like NII, NIMs, CASA etc. Going ahead, banks are likely to focus more on CASA growth by expanding there branch network (rural and unbanked areas), improvement in NIMs & reduction in NPA's. We believe the sector will continue to remain under pressure in the near term until a sharp uptick in credit and deposits growth alongside pressure on yields easing off. We have seen interest rates on the deposits side, money markets, etc. inching up at a much faster pace on account of continued liquidity shortfall which would affect banks NIMs. Banks with higher CASA will be able to ride the wave better and protect NIMs. However, the inherent strengths of the Indian banking industry is likely to offset this impact.

Information Technology: While earnings of the companies have been positive so far, revenue growth is a concern for IT companies. Volume growth has been slower than expected. The managements of IT companies are confident that future outlook would be better with increasing IT budgets. Also discretionary spending is witnessing a revival. While the big-players are not facing problems currently, the small and mid-sized ones are struggling to grow post the recession, and so a slew of measures such as the STPI extension and tax clarifications would provide an improvement in their bottom-lines that would fuel future growth.

Telecom: Indian mobile market has undergone revolutionary change during the past few years to become one of the leading mobile markets on the global map. The number of mobile subscribers stands at 752.19 mn in December 2010. With this the sector has become hyper competitive market with ~12-13 players as compared to ~3-4 in most other developed markets. Thus is expected to witness consolidation in near term. Mobile number portability could affect the subscription figures of some companies but established player may not feel the pinch. Companies are expected to roll out 3G services (Rcom , Bharti and Tata have already started) but the traction generated by it is still to be seen. Moreover, recent regulator recommendation has stimulated some uncertainty in the sector, especially with regards to recent 2G pricing and license renewal fees. However, increasing rural penetration and data services offers immense potential going forward.

Media: The Indian Media & Entertainment industry (television, film, radio, print, music, the internet, animation, gaming and outdoor media) offers attractive growth potential as compared to both developed and other emerging markets. The entertainment sector is expected to grow at 10 .7% in 2009-13. Rapid urbanisation and an increase in disposable income have accelerated the addition of new viewers driving the viewership number. The Media and Entertainment sector is witnessing continues increase in media spends by various industries. A rapid adoption of satellite based television services via DTH and digital cable augurs well for the Television industry. Regional print is expected, to continue to show strength backed by increasing regional demand however, rising newsprint prices could play a spoiler going forward. Phase-III licenses are expected to give a boost to the radio industry.

Hotels: An improvement in the macro environment and the consequential improvement in foreign tourist arrivals and domestic corporate travel have aided a rebound in the hotel Industry. Occupancies have shown a remarkable improvement and this is likely to be followed by an improvement in average room rates (ARRs). The tourism industry is expected to grow at a CAGR of 7.6% for the next 10 years. With increase in disposable incomes and favorable demography domestic leisure travel is set to grow at a healthy pace. Growth in demand is seen across business as well as leisure destinations and we maintain our positive stance on the hotel industry, on the back of the improving dynamics despite huge inventory lined up and foreign players also queuing up to be a part of domestic hospitality growth saga. There might be some rate corrections across hotel categories owing to competition from leading international and domestic brands entering the market as well as the availability of quality options in the mid-market and budget category.

Shipping / Ports / Logistics: India suffers from an inefficient modal mix in its transport landscape, because its share of roads over more operationally as well as cost effective modes like rail or coastal shipping is large. The Indian transportation & logistics sector is increasingly attractive to foreign and domestic operators as well as strategic and financial investors. To build a strong platform for driving long-term economic growth, an increase in the government’s thrust on this sector is vital. The domestic shipping industry is burdened by severe competition on the one hand and taxes on the other vis-a-vis global players operating from tax neutral jurisdictions. The ports sector is anticipating rapid growth and considerable investor interest. This would entail major investment in initiatives to expand capacity of major ports and make improvements to their facilities. There is an urgent need for measures to facilitate growth in ground logistics (warehousing, rail freight and cold chain logistics) and we expect some solid reforms to be announced in the budget.

Retail: With the improving economic scenario, purchasing power of consumers is on the rise. However the recent inflation shock is denting this purchasing power. While retail companies have so far produced good results, the future outlook would be under pressure if inflation continues unchecked. While little can be done on the global commodity front, improved FDI in retail could help bring down prices of consumer goods, thus fueling growth.

In the short-term, given the inflationary scenario, we don't expect Retail to outperform, as people's daily necessities will take over a large part of their spending budget. However over the long term, since the economy is growing, we expect the Retail Sector to perform well.
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Old February 19th, 2011, 11:45 AM   #5
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Corporate America sends budget wish list to Mukherjee

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WASHINGTON: Corporate America wants Indian Finance Minister Pranab Mukherjee to give positive indications on raising the FDI cap in insurance sector and opening multi-brand retailing during presentation of budget.

In their wish list to Mukherjee, as he prepares to present his annual budget in less than 10 days, the US business houses have sought increasing FDI cap in insurance sector to 49 percent, besides reducing tariff in a whole range of items.

The American corporates also urged opening up of multi- brand retailing; liberalisation of FDI norms for food and agricultural products and streamlining the foreign investment process.

"We believe adoption of these proposed changes would be of tremendous benefit to the Indian economy by stimulating long term stable investment and significant job creation," said Ron Somers, president of US India Business Council, in a memorandum.

The council represents the top American companies, including PepsiCo, Boeing, General Electrics, and Lockheed Martin that does business with India.

Despite global economic recovery, many conditions persist that stand as challenges to India maintaining its rapid growth, Somers said.

He said USIBC is committed to supporting implementation of policies and regulations that further strengthen markets in India, while facilitating inclusive growth across all economic sectors and tackling challenges such as the price rise which threatens India's food security goals.

The memorandum send February 9, was twitted by USIBC on Friday with a link to its copy.

It notes that India remains an attractive destination for foreign investors particularly because it strives to create a predictable and transparent regulatory environment that encourages investment.

"Raising the Foreign Direct Investment (FDI) cap in insurance to 49 percent will be an important tool in the creation of a world-class infrastructure that will propel India to a higher level of economic growth," said the memorandum spread over 11 pages
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Old February 21st, 2011, 10:35 AM   #6
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i see nobody is interested in the budget, reckon it's too much to digest...never mind here goes...

Car companies split over import duty
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NEW DELHI: The proposed India-EU trade agreement has divided car makers with Pawan Goenka, the president of industry body Society of Indian Automobile Manufacturers (SIAM), opposing any move to cut duty on imported cars while several members, including foreign luxury car makers such as Audi, Mercedes and BMW, batting for lower tariffs.

SIAM has struck a protectionist note, opposing any move to remove car imports from the negative list, that will see a gradual lowering of duty from the current level of 60%, which finally bulges to around 110% after the addition of counter-vailing duty (CVD), VAT and other local levies.

The industry lobby has made a strong pitch to the commerce department against the lowering of duty (something sought by the EU), saying it could see a flight of manufacturing investments from India and will negatively affect the domestic players and hurt employment.

"We are not being protectionist. Every country should ensure that opening up of trade does not hurt its local industry," Goenka told TOI. Goenka said Indian companies did not have the scale to protect them from an onslaught of imported products if they came in cheaply.

But the split within SIAM comes out in the open when you speak to companies such as Audi, BMW and Mercedes. Even Japanese player Honda feels that the stiff import duty should be lowered, at least for green technology vehicles like hybrid cars.

"It is a misconception that the Indian industry will suffer if duty is lowered. While we support the argument that duty should remain high where competitive volume products are there, there is no argument to support talk of maintaining higher duty for the luxury-end," said Debashish Mitra , director, sales and marketing at Mercedes-Benz India.

"There are no competitive products from India in the luxury end, and thus nobody will be hit. In fact, lower duty will help companies like ours to bring in the latest technology products at cheaper prices, something that will spur their demand and push us to gradually manufacture them here," Mitra added.

Michael Perschke, MD of Audi India, also sought lower duty, especially for cars above 2000cc. "This way there is no fear of the domestic industry being cannibalised as about 80-90% of Indian car market is below 2000cc."
source


Excise hike of 2% likely in FMCG, auto; says SMC Global Securities
Quote:
NEW DELHI: The government is likely to increase excise duty by 2 per cent in sectors like FMCG and automobiles, as well as raise service tax, in the forthcoming Budget to reduce the fiscal deficit, a report said.

SMC Global Securities Ltd, in its forecast for the 2010-11 Budget, said that service tax is expected to be hiked to 12 per cent from the current level of 10 per cent.

In bad news for exporters, it said the Finance Minister is unlikely to extend the interest subsidy of 2 per cent, as the country's exports are likely to cross the $200 billion target for the current fiscal.

In the last Budget, the government had extended the concessional export finance regime till March 31.

"In order to contain fiscal deficit, Pranab Mukherjee will stress on revenue generation by expanding the excise tax base by another 2 per cent in sector such as automobile, cement, FMCG, power and telecom, besides increasing service tax," SMC Group Managing Director Subhash Aggarwal said.

India's fiscal deficit had ballooned to 6.8 per cent of the GDP in 2009-10 and is pegged quite high at 5.5 per cent for the current fiscal.

Aggarwal said the minister may widen the service tax basket and include education and healthcare in the Budget.

"... India is likely to resort to pre-crisis fiscal and monetary policies from April, 2011, onward, focusing on revenue mobilisation," it said.

The report also said the government may increase spending in agriculture, infrastructure and education.

In a bid to support agriculture growth, the finance minister could raise credit target for banks to Rs 450,000 crore. In the last Budget, the target was raised to Rs 37,500 crore.

The minister may allocate Rs 40,000 crore to the Mahatma Gandhi NREGA, it said.

Furthermore, the pre-Budget analysis said that Mukherjee is likely to cap the combined debt of the Centre and states close to 65 per cent of national GDP.

On disinvestment, the report states that the government is likely to fall short of capital proceeds from its disinvestment target of Rs 40,000 crore in current fiscal.

In 2011-12, it is expected that the government would be able to generate between Rs 35,000 to Rs 40,000 crore through divestment in companies like IOCL, BHEL and MMTC Ltd , it said.

The report says that deregulation in diesel will take place only after inflation cools off to level of 5 to 6 per cent, as a diesel price hike always has major ramifications on the economy.
source

SMEs wants government to continue with stimulus package

Quote:
NEW DELHI: Small and medium enterprises want the government to continue with the stimulus measures previously announced for the sector in the next fiscal as well so that growth of SMEs is not affected, as per a survey.

"Considering the current high rate of inflation and increase in input costs, almost 90 per cent of SMEs who participated in the survey urged the government to continue with the stimulus package for the next fiscal so that growth of the sector remains robust," tradeindia.com, a B2B portal, said in a statement.

The survey findings were based on the responses to an online questionnaire sent by Tradeindia to its 5 lakh users representing the SME sector across five 5 metros -- Delhi, Mumbai, Bangalore, Chennai and Kolkata -- and other 18 cities of the country.

SMEs also said the government should announce tax breaks for employment-intensive units rather than capital-intensive ones.
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Old February 21st, 2011, 04:59 PM   #7
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what do you think about stimulus package?
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Old February 21st, 2011, 05:39 PM   #8
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what do you think about stimulus package?
It's not so stimulating.....I think they might need to boost the broadband connectivity across India as soon as possible, believe me bandwidth metering and speed limitation is killing some of the critical business plans and is hurting the corporate sector very badly, it's the same as power shortage issues which is killing all the potential fdi inflows.

Most corporate networks run VoIP, video conferencing, vpn and backup systems, poor connectivity is a limitation.

For home users, high-end media streaming services like netflix, hulu and amazon etc might want to invest here as there is a great demand for it. Still, thats not possible yet, in Bangalore I have a 16 mbps connection compared to 60 mbps in US , the Indian government must simply meet the growing demands.
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Old February 22nd, 2011, 06:37 AM   #9
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and what steps are they taking?
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Old February 22nd, 2011, 07:01 AM   #10
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Originally Posted by SSCaddict View Post
and what steps are they taking?
This
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Old February 22nd, 2011, 07:13 AM   #11
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hmm... and what about the excise cut/import duty in petrol because NYMEX crude is $94-93 today
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Old February 22nd, 2011, 07:24 AM   #12
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Quote:
Originally Posted by SSCaddict View Post
hmm... and what about the excise cut/import duty in petrol because NYMEX crude is $94-93 today
Not a good idea, crude oil cuts always affects the on going inflation.

More here: http://www.investopedia.com/ask/answ...sinflation.asp
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Old February 22nd, 2011, 09:20 AM   #13
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Budget 2011: PMEAC asks government to withdraw some stimulus

source: http://economictimes.indiatimes.com/...ow/7540864.cms

Ahead of the general Budget , the Prime Minister's Economic Advisory Council today asked the government to withdraw some tax incentives provided to the industry to combat impact of the global financial meltdown .

"We have to get back to the fiscal consolidation ... this means withdrawal of some of the stimulus," PMEAC Chairman C Rangarajan said while releasing the 'Review of the Economy 2010-11' report here.

Pointing out that significant portion of fiscal adjustment will have to come from additional tax revenues, the Review called for "continued attempts to reform tax administration, review the double taxation avoidance agreements and other measures to prevent flight of incomes to tax havens."

Finance Minister Pranab Mukherjee had started the process of rolling back stimulus measures last year and it is expected that in the forthcoming budget too some of the tax incentives would be withdrawn.

Mukherjee is scheduled to unveil the Budget for 2011-12 in the Lok Sabha on February 28.

Pointing out that the withdrawal should be in stages, Rangarajan said, "I believe it is the time to move towards the process of fiscal consolidation. We clearly need to move in that direction."

Following the stimulus, which included tax incentives and raising public expenditure, the fiscal deficit shot up to 6.3 per cent in 2009-10.

In view of the economic growth picking up, Mukherjee in 2010-11 Budget had raised the excise duty by 2 per cent to 10 per cent and increased Minimum Alternate Tax (MAT) from 15 per cent to 18 per cent.

As the economic growth rate is expected to pick up to 8.6 per cent in the current fiscal from 8 per cent a year ago, there is likelihood of government raising duties to contain fiscal deficit.

The fiscal deficit in the current year, according to PMEAC projections, is likely to decline to 5.2 per cent of the GDP against 5.5 per cent estimated earlier.

As per the target set by the Finance Commission, government will be required to bring down fiscal deficit to 3 per cent of the GDP by 2014-15.

"With the current year's fiscal adjustment may not be a problem, the government faces formidable challenge of conforming to the Finance Commission's targets in the medium term", the Review added.
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Old February 22nd, 2011, 09:24 AM   #14
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Budget 2011: STPI should be extended to increase India's competitiveness; says Vineet Nayar, HCL Technologies

source: http://economictimes.indiatimes.com/...ow/7522442.cms

IT industry is hiring almost 2.5 lakh engineers every year. That still constitutes a very low percentage of total number of engineers coming out of colleges in India said Vineet Nayar , Vice Chairman and CEO, HCL Technologies in an interview with ET Now.

If there was an unemployment rate of engineers coming out of India, you would be surprised, it is quite high. Therefore, the robustness of the IT industry is critical for creating employment he opined.

"The Indian IT industry is also hiring a lot of graduates, and therefore, contributed to employment of the graduates, which also was a challenge in our country. So, it is critical for the government to keep the employment meter going and, therefore, the health of the Indian IT industry" , he said.

Now, when you look at the health of the Indian IT industry, it is very important that you invest in infrastructure, education, water and security, and in absence of all of that in most part of the country, the Indian IT industry itself is spending on all these issues.

HCL's argument and request to the government is to look at the STPI norm, at least for one year till the new tax norms come into place and extend the STPI, so that the country’s competitiveness increases. When the new tax regulation comes in, there are incentive-based investments, and hopefully, with those investment-based incentives, we would be able to continue to be competitive in the industry.

That’s very important because it is linked to employment, it is linked to the success of small and medium enterprises, and it is linked to innovation which is being created in the IT industry.
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Old February 22nd, 2011, 09:27 AM   #15
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IT industry seeks extension of tax exemption under STPI

The Indian IT industry has sought extension of tax benefits under STPI and simplification of the tax structure to encourage investments in the sector, among others as part of its budget wish-list.

The USD 76 billion software industry has requested the government to extend the Software Technology Parks of India (STPI) scheme till the Direct Tax Code (DTC), which is under consideration, is implemented.

"We have requested for the STPI scheme to be extended till the DTC comes in with the right incentives because we need one incentive or the other to encourage people to come in and invest, especially in small and medium companies," Nasscom President Som Mittal said.

STPI, which offers tax exemption to export oriented units on profits under Section 10A and Section 10B of the Income Tax Act, was extended by one year till March 2011 in the Budget last year.

"These things start impacting in the long run. When they said they won't extend STPI was at a time when DTC was supposed to come in 2011. For many larger companies, STPI benefits have got over and they have moved into SEZs. But not all companies can get into SEZs," Mittal said.

The government had introduced the SEZ policy, under which the first five years offer a 100 per cent tax exemption and 50 per cent for the subsequent five years.

If the scheme is not extended, tax rates for Indian IT companies could go up to 25-30 per cent from about 20 per cent currently.

Other demands include reduction of MAT (minimum alternate tax), introducing new incentive schemes based on employment and location, simplification of service tax refunds and clearer interpretation of tax laws.

Agrees AMD MD and Corporate VP (Sales and Marketing) Ravi Swaminathan. "Instead of tweaking one per cent here and there every year, the government needs to adopt a long-term view and adopt a zero-tax regime. This will bring in PC penetration and promote manufacturing." he said.

MAIT, a body representing hardware manufacturers said, the tax structure needs to focus on reducing the dependence on imports to feed domestic manufacturing.

"Less than 20 per cent components required for local equipment manufacturing are available from domestic sources. The tax regime needs to ensure that companies look at local equipment rather than importing them at cheaper rates from the neighbouring countries," Manufacturers' Association for Information Technology (MAIT) Executive Director Ashwini Aggarwal said.


Source: http://economictimes.indiatimes.com/...ow/7445850.cms
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Old February 22nd, 2011, 09:40 AM   #16
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Budget 2011: Tax benefits under STPI, EOU unlikely to get extension

Source: http://economictimes.indiatimes.com/...ow/7545747.cms

Tax benefits under the Software Technology Parks of India (STPI) and export-oriented unit schemes are not likely to be extended beyond March this year, the Commerce Ministry indicated today.

"... there is a sunset clause, the Finance Minister announced in his last Budget that this would be the final year (of STPI and EOU scheme). However, we are using all our good offices to try and pursued the case on your (industry) behalf. Lets hope for the best," Minister of State for Commerce and Industry Minister Jyotiraditya Scindia said here.

The $76 billion software industry has requested the government to extend the Software Technology Parks of India (STPI) scheme till the Direct Tax Code (DTC), which is under consideration, is implemented.

Similarly, exporters are also demanding from the government to extend the export oriented unit (EOU) scheme.

Under STPI and EOU schemes, companies enjoy tax exemptions on profits under Section 10A and Section 10B of the Income Tax Act. These benefits, which were set to lapse in 2009, were extended by one year till March 2011 in the Budget last year.

Scindia was speaking at AIMA award function. Earlier in the day, speaking on the occasion, Commerce and Industry Minister Anand Sharma said that, "clean and green technology is the need of the hour and India is ready to play a defining role".

Sharma also said that the government is working to build India as a manufacturing capital of the world so that more and more jobs can be created to use the global opportunities.
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Old February 22nd, 2011, 09:42 AM   #17
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Budget 2011: Govt plans booster dose for electronics

Source: http://economictimes.indiatimes.com/...ow/7546083.cms

The government is considering a new special incentive package for the electronics industry that it hopes will make India less dependent on imports of electronic components, systems and products.

Ajay Kumar, joint secretary in the information technology department, said on Monday that a committee under HCL Infosystems CEO Ajai Chowdhry had submitted recommendations. The new package is an attempt to improve on the incentive package the government introduced under its semiconductor policy of 2007, which is seen to have largely failed in its broader objectives. The 2007 package had offered 20-25% subsidies to large investments of Rs 1,000 crore to Rs 2,500 crore in semiconductor fab units and eco-system units.

But the only investments it attracted were from the solar photovoltaic segment. Some 11 such projects achieved financial closure in the three-year window that was provided under the scheme, and these are currently being appraised by the government for provision of the subsidy.

Kumar, who was speaking at the India Semiconductor Association (ISA)s Vision Summit, admitted that the response to the scheme was lukewarm. He said he could not disclose the recommendations of the Chowdhry committee, but said that the focus would no longer be on large projects, rather, it would be on all segments along the value chain of electronic systems. Chips, chip components, accessories, assembly, testing would all be sought to be stimulated. The idea is to provide financial incentives to all units in the value chain, he said.

The ISA and the electronics industry has long been pointing out that the gap between India's demand for electronic products and its domestic production could become dangerously wide in the years to come, given the sharp rise in demand that is expected. According to the government's own estimate, India's demand for electronic hardware that was $45 billion in 2009 would rise to $400 billion by 2020.
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Old February 22nd, 2011, 09:44 AM   #18
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Budget 2011: ECSEPC for zero customs duty for blade fuse body

Source: http://economictimes.indiatimes.com/...ow/7475086.cms

ECSEPC (Electronics and Computer Software Export Promotion Council) in its pre-budget recommendation to the finance minister has demanded zero customs duty for blade fuse body for manufacture of blade fuses.

Import Duties on Raw Materials are making manufacturing of Blade Fuse in India unfeasible. Currently India is 100% dependent on Imports for Blade Fuse Body and the country loses valuable foreign exchange as a result.

ECSEPC has thus is recommended that the present duty on import of blade fuses body may be reduced from 7.5% to nil.
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Old February 22nd, 2011, 09:45 AM   #19
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Budget 2011: ELCINA demands implementation of GST wef April 2011

Source: http://economictimes.indiatimes.com/...ow/7467332.cms

ELCINA (Electronic Industries Association of India) has called for the implementation of GST wef April 2011; 12% GST (8% Excise + 4% VAT) on electronics value chain, specially components, parts and assemblies.

Apart from this it has also recommended the following key points:

10% Excise Duty be retained, considering the fragile global economic recovery. 4% SAD be abolished.

Streamlining excise procedures on import of inputs/raw materials for electronic components at 0% to equate with import of finished components without any procedural hassles.

4% Vat on all electronic components and assemblies.

In case of any delay in implementing GST, Zero CST on electronics value chain till such time as GST is implemented

Finished electronic equipment import be subject to atleast 10% Customs Duty to encourage local manufacturing

Mandate local content in key sectors such as telecom, rural IT infrastructure, e-governance projects (similar to 30% under DOFA in defence sector) and in special giveaway schemes such as the Tamil Nadu Government scheme of donating TVs.

Do not implement ITA -II and do not include electronic components and parts in any future FTA’s

Zero duty on all inputs for manufacture of electronic components and parts, including dual use inputs for all ITA-1 items and correct inverted duty on others

Promote Domestic Manufacturing & Value Addition

Policy for encouraging local manufacture of champion products such as CFLs, Solar Lighting, Mobile accessories (Chargers) etc. Simple products required in large quantity with high employment potential.

For Electronic Components and Parts have high value addition – Allow manufacturers to retain Excise Duty paid through PLA as interest free loan for 5 years and Income Tax benefit related to value addition.

Promote hardware manufacturing zones – clusters

Implement recommendations of Report by Task Force set up by DIT’s released in December 2009
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Old February 22nd, 2011, 09:50 AM   #20
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Budget 2011: Common man's expectations from the FM

source: http://economictimes.indiatimes.com/...ow/7546436.cms

Here we take a look at the common man's expectations from the Budget 2011:

Further dilution of tax slabs

The revised tax slabs announced by the finance minister ('FM') for the financial year 2010-11 in the previous budget was a welcome relief. However, that benefit seems to have been lost to the inflation that we have seen. Therefore, the expectation to further liberalize the tax slabs is only fair. With the implementation of the Direct Tax Code in the pipeline, the FM may consider bringing tax slabs in line with the slabs proposed under DTC and raise the basic exemption limit to Rs 200,000. The exemption limit may be raised to Rs 250,000 for women and Rs 300,000 for senior citizens.

Exemption limit for various allowances

In 1997, the then finance minister, Mr P.Chidambram, had revised the exemption limits for various allowances like transport allowance (exemption allowed at Rs 800 per month), children education allowance (Rs 100 per month), and hostel expenditure allowance (Rs 300 per month). However, over the period 1997 to 2011, the economic conditions have undergone vast changes. This may be a right time for the government to consider revising these existing exemption limits to bring them in line with the market reality. The new limit of conveyance allowance should be Rs 4,000 per month. Children education may be Rs 500 per month and hostel Rs 2,000 in line with the current increase in educational costs.

Reimbursement of medical expenses

An exemption for reimbursement of medical expenses on the treatment of employee or his family members is available up to Rs 15,000 per annum. Over the last years, the expected cost of basic medical facilities has increased considerably. Keeping this in view, the government can consider revising the exemption limit from the existing Rs 15,000 to a more realistic level of Rs 50,000. This will also be in line with the limits prescribed in the Direct Taxes Code.

Raising the Rs 1 lakh deduction limit

As per Section 80C of the Income Tax Act, 1961, an individual can claim deduction for specified investments in mutual funds, provident fund, fixed deposits, etc and for specified expenses such as children's education. This provides a dual benefit - on one hand the individual becomes eligible to claim tax deduction on these investments, while on the other hand he enjoys steady returns from such investments. Thus, common man's expectation of an increase in the deduction limit from the current Rs 1,00,000 to Rs 2,00,000 will not be an overstatement. Also, a deduction up to Rs 20,000 under 80CCE for investment in infrastructure bonds is allowed which can be increased to Rs 30,000. Increasing this deduction limit will not only impact the common man with a lesser tax burden, but will also help the government to channelize funds into the Indian infrastructure sector.
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