Union Budget 2010-11 Retail Research

With indicators of economy showing a clear sign of recovery post the fiscal stimulus
measured taken by the UPA government during FY2008-09, budget 2010-11 has been a
balanced budget with focus on economic growth. The government has not only tried to
reduce its fiscal deficit but also provided tax relief to individual and corporate taxpayers.

Though government has partially rolled back the fiscal stimulus in the form of a 2% increase
in central excise duty to 10% on all non-petroleum products at the same time it has kept
service tax rate unchanged at 10 percent. Similarly ad volorem components of excise duty on
large cars, SUV’s has increased by 2 percentage points to 22 percent whereas the interest
subvention for export credit for small and medium enterprises is further extended by another
year till FY2011. The central excise duty on petrol and diesel stands enhanced by Re.1 per
liter

The surcharges for corporates have reduced from 10% to 7.5%. Similarly, individual tax
payers also have something to cheer about as the government has revised the tax slab which
would benefit individuals – typically, an individual with income of say 8 Lacs would be able
to save approximately Rs 50,000 annually.

However, the MAT (Minimum Alternative Tax) paying companies have been a little
disappointed with the rate hike from 15 to 18 percent which would be negative for IT, ITES,
HUL, Reliance, Rcom, Bharti Airtel and other MAT paying companies. The above budget
has turned out to be one of the most thoughtful ones with an intent to provide maximum
benefit at minimum cost without hurting the fiscal balance.

The key highlights of budget 2010-11 are as under.

A) Budget Estimates for 2010-11

™ The Gross Tax Receipts are estimated at Rs. 7,46,651 crore. The non-tax revenue
receipts are estimated at Rs148118 crore.
™ The total expenditure proposed in the budget estimates is Rs11,08,749 crore, which is
an increase of 8.6 per cent over last year. The plan and non-plan expenditures in
2010-11 are estimated at Rs3,73,092 crore and Rs7,35,657 crore respectively. While
there is 15 per cent increase in Plan expenditure, the increase in non-plan expenditure
is only 6 per cent over the previous year.
™ Fiscal deficit for 2010-11 is estimated at 5.5 per cent of GDP, which works out to
Rs3,81,408 crore. The actual net market borrowing of the Government in 2010-11
would be at Rs3,45,010 crore.
™ The future targets of fiscal deficit for 2011-12 and 2012-13 are pegged at 4.8 and 4.1
percent respectively against a fiscal deficit of 7.8 per cent in 2008-09, inclusive of oil
and fertilizer bonds, the comparable fiscal deficit is 6.9 per cent as per the Revised
Estimates for 2009-10.

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 Union Budget 2010-11 Retail Research

B) Tax Proposals

Direct Tax
™ The income tax proposal for individual taxpayers is as below

Slab Tax Rate

Up to Rs1.6 Lakh Nil
Between Rs1.6 and Rs5.0 Lakh 10%
Between Rs5.0 and Rs8.0 Lakh 20%
Above Rs8 Lakh 30%

™ Additional deduction of Rs20,000 over and above Rs1 lakh under Sec.80C for
investment in long-term infrastructure bonds.
™ MAT rate is up from 15 to 18 percent.
™ Weighted deduction on expenditure incurred on in-house R&D enhanced from 150
per cent to 200 per cent. Weighted

Indirect Tax

™ The standard rate on all non-petroleum products enhanced from 8 per cent to 10 per
cent ad valorem

™ The ad valorem component of excise duty on large cars, multi-utility vehicles and
sports-utility vehicles increased by 2 percentage points to 22 per cent.

™ Restore the basic duty of 5 per cent on crude petroleum; 7.5 per cent on diesel and
petrol and 10 per cent on other refined products. Central Excise duty on petrol and
diesel enhanced by Re.1 per litre each

™ Service tax rate unchanged at 10 percent.

c) Sectoral Budgetary Allocation

Fiscal Consolidation

™ The government is expected to implement the Direct Tax Code (DTC) and Goods and
Service Tax (GST) by 2011 as a part of its tax reform program
™ The government to continue its disinvestment program of PSU’s and expects to raise
Rs25,000 crore during 2010-11.
™ The nutrition based subsidy policy has been approved and will become effective from
April 2010.
™ The government to discuss the Kirit Parekh committee report on deregulation of
petroleum product prices in the due course.

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 Union Budget 2010-11 Retail Research

Improving Investment Environment

™ Complete liberalization of pricing and payment of technology transfer fee and

trademark, brand name and royalty payments
™ RBI to consider additional banking licenses to private banks and NBFC’s to expand
the overseas operations.
™ Rs16,500 crore to be provided to PSU banks to ensure minimum 8 per cent Tier-I
capital by March 31, 2011.

Agriculture Growth

™ The agriculture credit during 2010-11 is estimated at Rs3.75 Lakh crore.

™ The repayment of farm loan amount by farmers will be extended by 6 months till
June, 2010
™ Interest subvention of 1 percent for repayment of short-term crop loan as per
schedule.
™ Rs400 crore to extend the green revolution in eastern region of the country

Infrastructure

™ Rs1,73,552 crore for infrastructure development, which accounts for nearly 46

percent of plan outlay.
™ Allocation for road to be increased by 13 percent from Rs17,520 crore to Rs19,894
crore.
™ The expenditure for railways to be up by Rs950 crore to Rs19,894 crore
™ IIFCL’s disbursements are expected to touch Rs 9,000 crore by end March 2010 and
reach around Rs 20,000 crore by March 2011.

Energy

™ The plan allocation for power sector to be doubled to Rs5,130 crore excluding the
RGGVY program which part of the flagship Bharat Nirman.
™ To introduce completive bidding process to allot coal blocks and introducing Coal
Regularity Authority to ensure greater transparency and creating level playing field

Inclusive Development

™ Increase in social sector plan outlay by 37 percent to Rs1,37,674 crore fir 2010-11

Education

™ Plan allocation for school education increased by 16 per cent from Rs.26, 800 crore in
2009-10 to Rs.31,036 crore in 2010-11.
™ Additional Rs3,675 crore for elementary education under TFC in 2010-11

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 Union Budget 2010-11 Retail Research

Rural Development

™ Rs66,100 crore provided for Rural Development. The allocation for Mahatma Gandhi
National Rural Employment Guarantee Scheme stepped up to Rs.40,100 crore in
2010-11.
™ Rs48,000 crore would be provided under Bharat Nirman and Rs10,000 crore under
Indira Awas Yojna in 2010-11

Urban Development and Housing

™ Allocation for urban development increased by more than 75 per cent from Rs.3060
crore to Rs5400 crore in 2010-11

™ Allocation for Housing and Urban Poverty Alleviation raised from Rs.850 crore
toRs1000 crore in 2010-11.

™ Scheme of one per cent interest subvention on housing loan up to Rs.10 lakh, where
the cost of the house does not exceed Rs.20 lakh — announced in the last Budget —
extended up to March 31, 2011. Rs.700 crore provided for this scheme for the year
2010-11.

Defence

™ The defence allocation for 2010-11 is pegged at Rs147344 crore including Rs60000
crore for capital expenditure.

Sector-wise Budget Impact:

Information Technology – Negative Impact

The minimum alternative tax (MAT) is up from 15 to 18 percent for FY2010-11. This will
put a negative impact on the IT companies as IT generates over $50 billion from various
software technologies parks in India, which is tax free hence only MAT is applicable.

Pharmaceuticals – Positive Impact

The weighted deduction on in-house R&D enhanced from 150 per cent to 200 per cent.
Weighted deduction on payments made to National Laboratories, research associations,
colleges, universities and other institutions, for scientific research enhanced from 125 per
cent to 175 per cent. The above move will benefit the pharmaceutical companies as they
spent substantial amount on research and development (R&D) activities.

Positive for: Glenmark, Sun Pharma, Dr. Reddy’s etc.

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 Union Budget 2010-11 Retail Research

Infrastructure – Positive Impact

• Rs1,73,552 crore for infrastructure development, which accounts for nearly 46

percent of plan outlay.
• Allocation for road to be increased by 13 percent from Rs17, 520 crore to Rs19, 894
crore.
• The expenditure for railways to be up by Rs950 crore to Rs19, 894 crore
• IIFCL’s disbursements are expected to touch Rs 9,000 crore by end March 2010 and
reach around Rs 20,000 crore by March 2011.

Positive for: HCC, IVRCL, IRB Infrastructure, Gammon India, Punj Lloyd etc.

Real Estate – Neutral impact

Scheme of one per cent interest subvention on housing loan up to Rs.10 lakh, where the cost
of the house does not exceed Rs.20 lakh — announced in the last Budget — extended up to
March 31, 2011. Rs.700 crore provided for this scheme for the year 2010-11.

Positive for: HDIL, Parsvnath Developers, OMAXE etc.

Fast Moving Consumer Goods – Positive impact

Rs66,100 crore provided for Rural Development. The allocation for Mahatma Gandhi
National Rural Employment Guarantee Scheme stepped up to Rs.40,100 crore in 2010-11.
Rs48,000 crore would be provided under Bharat Nirman and Rs10,000 crore under Indira
Awas Yojna in 2010-11.

Positive for: HUL, P&G, Colgate Palmolive, Britannia, Godrej etc.

Agriculture – Positive Impact

The agriculture credit during 2010-11 is estimated at Rs3.75 Lakh crore. The repayment of
farm loan amount by farmer will be extended by 6 months till June, 2010 Interest subvention
of 1 percent for repayment of short-term crop loan as per schedule. Rs400 crore to extend the
green revolution in eastern region of country.

Positive for: Jain Irrigation,

Banking – Positive Impact

Rs16,500 crore to be provided to PSU banks to ensure minimum 8 per cent Tier-I capital by
March 31, 2011. Positive for banks who do not meet the Tier – I capital norms.

Positive for: Dena Bank, Central Bank of India, UCO Bank etc.

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 Union Budget 2010-11 Retail Research

Education – Positive impact

Plan allocation for school education increased by 16 per cent from Rs.26, 800 crore in 2009-
10 to Rs.31,036 crore in 2010-11. Additional Rs3,675 crore for elementary education under
TFC in 2010-11.

Positive for: Educomp Solutions, Core Projects, Everonn Education etc.

Telecommunication – Negative

There is no specific announcement for the telecommunication sector, accept the minimum
alternative tax (MAT) which has now been increased from 15 percent to 18 percent.

Negative for: Bharti Airtel, Reliance Communications etc.

Metal & Mining – Negative impact

There was no announcement of change in the custom duty structure in the union budget
2010-11 whereas the excise duty structure has been increased from 8 percent to 10 percent.
The minimum alternative tax (MAT), which has now been increased from 15 percent to 18
percent, will have its own share of overburden.

Capital goods – Negative to Neutral

There was no announcement of change in the custom duty structure in the union budget
2010-11 whereas the Minimum Alternative Tax (MAT), which has now been increased from
15 percent to 18 percent, will have its own negative effect. The union budget kept on with its
Bharat Nirman agenda and announced a sustained capital expenditure of Rs. 480 billion.

The excise duty structure has been increased from 8 percent to 10 percent, which will
increase the cost to the company. The fund called National Clean Energy Fund to be created
for research and development on clean energy and for this Rs. 50 per tonne has been levied
on both imported as well as domestic coal.

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 Union Budget 2010-11 Retail Research

Name      Designation

Alpesh Porwal     Head (Retail) 
Anand Oke     Deputy Head‐Retail Research 
Rajesh Gupta    Retail Research Analyst 
Abbas Mirza    Retail Research Analyst 
Alankar Ranade   Trainee Analyst‐ Retail 

 
 
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 Union Budget 2010-11 Retail Research

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