Institutional Research Economic Review

GDP Fiscal Deficit as % of GDP

• Real GDP estimated to grow at a robust 8.6% in FY2010-11 8000000 7.0%
and expected to grow ~9% in FY2011-12 7000000 6.0%
6000000 5.0%
• Exports rose 29.4% while imports rose 17.6% y-o-y during 5000000
4.0%
April to January FY2010-2011 4000000
3.0%
3000000
• Fiscal deficit brought down to 5.1% for FY10-FY11 from 2000000 2.0%

budgeted 5.5%
5 5% 1000000 1.0%
0 0.0%

FY2011E

FY2012E
FY2005

FY2006

FY2007

FY2008

FY2009

FY2010
• Fiscal deficit target for FY2011-12 at 4.6% and progressive
reduction to 3.5% by FY2013-14

20
IIP WPI

15 • Inflation remains the biggest challenge for the Indian economy

• Food inflation @ 9.3%

9 3% in January (20.2%
(20 2% in Feb 2010) still
10
remains a cause for concern

5 • Monetary measures to curb Inflation to ~5% in FY2011-12

0
1‐Oct‐07

1‐Oct‐08

1‐Oct‐09

1‐Oct‐10
1‐Apr‐07
1‐Jul‐07

1‐Jan‐08
1‐Apr‐08
1‐Jul‐08

1‐Jan‐09
1‐Apr‐09
1‐Jul‐09

1‐Jan‐10
1‐Apr‐10
1‐Jul‐10

1‐Jan‐11

‐5

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Key Budget Estimates for 2011-2012

• Gross tax receipts estimated at `9,32,440cr, up 24.9%

• Non-tax
N revenue receipts estimated
d at `1,25,435cr
` 2 43

• Total expenditure proposed at `12,57,729cr, up 13.4%

• Increase of 18.3% in total plan allocation

• Increase of 10.9%
10 9% in non plan expenditure

• Effective revenue deficit estimated at 2.3% of GDP in revised estimates for 2010-11 and 1.8% for 2011-2012

• Gross market borrowing in 2011-12 expected to be `4.17lakh cr (net market borrowing of `3.43lakh cr) which is down from
the expected gross market borrowing of `4.47lakh cr for 2010-11

• Central Government debt estimated at 44.2% of GDP for 2011-12 as against 52.5% recommended by the 13th Finance
Commission

• Higher than anticipated non-tax revenue has resulted in reschedulement of some divestment issues planned for current year

• `40,000cr to be raised through disinvestment in 2011

2011-12
12

Steps to increase FDI/FII inflows

• Discussions underway to liberalise FDI policy

• To allow FIIs to invest in Mutual Fund Schemes

• FII limit for investment in corporate bonds issued in infrastructure sector enhanced to $40 billion

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Impact on Sector
Budget Announcements ULJK Expectation
/Company
Positive: Maruti, Tata
No changes in excise duty on two wheelers, small cars and Motors, Ashok Leyland,
May increase by 2%
commercial vehicles M&M, Hero Honda, Bajaj
Auto, TVS Motors

Concessional excise duty on hybrid vehicles reduced to 5% - Postive: M&M

Full exemption of customs duty and special CVD on critical parts/

- Postive: M&M
sub-assemblies of Hybrid vehicles

4
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Impact on
Budget Announcement ULJK Expectation
Sector/Company
PPositive for
f PSU
`6,000cr to be provided during FY2012 Expected
Banks
• “India Microfinance Equity Fund” of `100 crore to be created with SIDBI Positive for SKS
•“Women’s SHG’s Development Fund” to be created with a corpus of `500 -
Microfinance
crore
May 11, 2010
`5,000 crore to be provided to SIDBI for refinancing incremental lending by
- Positive
banks to MSME
5
• Credit flow for farmers raised from `3,75,000cr to `4,75,000cr in FY2012
• Interest subvention proposed to be enhanced from 2% to 3% for providing - Positive for PSBs
short-term crop loans to farmers who repay their crop loan on time
Positive for STFC,
Amendments proposed to the Banking Regulation Act in the context of
Expected Reliance Capital, AB
additional banking licences to private sector players
Nuvo
• Existing
E i ti scheme
h off interest
i t t subvention
b ti off 1% on housing
h i loanl f th liberalised
further lib li d
• Existing housing loan limit enhanced to ` 25 lakh for dwelling units under Positive for Banks
-
priority sector lending and HFCs
• Provision under Rural Housing Fund enhanced to `3,000 crore
Positive for AB Nuvo,
SEBI registered mutual funds permitted to accept subscription from foreign
- Reliance Capital,
Capital
investors for equity schemes
Sundaram Finance

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Impact on
Budget Announcement ULJK Expectation
Sector/Company
• Allocation of `2,14,000 crore for infrastructure in FY2012
increase of 23.3%
23 3% yoy.
yoy Amounts to 48.5%
48 5% of total plan allocation
• IIFCL to achieve cumulative disbursement target of `20,000
crore by March 2011 and `25,000 crore by March 2012 Positive for Power
• Under take out financing scheme, seven projects sanctioned with - Lending NBFCs –
debt of `1,500 crore. Sanction of `5,000 crore will be sanctioned REC, PFC, IDFC
duringg 2011-12
• Tax free bonds of `30,000 crore proposed to be issued by
Government undertakings during FY2012
6

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Industry Wish List ULJK Expectation Impact on Company

Surcharges rate has been reduced to 5% from 7.5% - Positive

MAT rate has been increased from 18% to 18.5% - Negative

Government will launch new policy to encourage PPP Expected Positive

Rs 200cr has been allocated by National Clean Energy Fund - Positive

Central excise duty unchanged – 10% Expected Positive

7
Basic Custom Duty on Solar Lantern reduced from 10% to 5% Expected Positive

No Excise duty on UMPP - Positive. Positive for BHEL, L&T

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Budget Announcement ULJK Expectation Impact on Sector /Company

Increased capital flows in infrastructure sector at lower finance

Expected Positive
costs
t by
b extension
t i off theth tax
t exempted t d infra
i f bond
b d off `20,000
`20 000

Surcharge reduced from 7.5% to 5% - Positive

Increase in MAT from current 18% to 18.5% - Negative

Tax free bonds up to `30,000crs towards the infrastructure

development
p in railways,
y, p ports,, housing
g development.
p
- P siti
Positive
Currently the benefit is restricted to the developers or the
company that operates & maintain infrastructure facility

Increase in home loan size for priority sector to `25 lakh from
- Positive for HDIL,, DLF
`20 lakh

MAT introduced for SEZ developers - Negative for Mundra Port, DLF

Excise dutyy up
p byy ~`1 or `1.5 p
per bag
g - Negative
g

8
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Budget Announcement ULJK Expectation Impact on Sector/Company

Allocation of ` 52,057
, crore for education,, an increase of
E
Expected
t d P siti
Positive
24% over the current year
Allocation of ` 21,000 crore for Sarva Shiksha Abhiyan, an
Expected Positive – Educomp, Everonn
increase of 40% over the current year

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Budget Announcement ULJK Expectation Impact on Sector/Company

Increase in Minimum Alternate Tax from 18% to 18

18.5%
5% - Negative

Reduction in the surcharge to 5% from 7.5% - Positive

Reduction of excise duty on kits for conversion of fossil fuel Positive – KPIT Cummins
-
vehicles to hybrid vehicles from 10% to 5% Infosystems

10

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Budget Announcements ULJK Expectation Impact on Sector /Company

Negative: Sesa Goa, NMDC

Increased export duty on iron ore fines to 20% from
Expected Positive: JSW Steel,
Steel Monnet Ispat,
Ispat
5%
JSPL
Negative: Sesa Goa, NMDC
Increased export duty on iron ore lump to 20% from
- Positive: JSW Steel, Monnet Ispat,
15%
JSPL
Reduced export duty on iron ore Pellets to 0% from
- Positive: Godawari Power & Ispat
15%
Fully exempted stainless steel scrap from basic 11
- Positive: JSL Stainless
customs duty
PPositive:
ii All metall and
d mining
i i
Higher infrastructure spending Expected
companies

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Budget Proposal ULJK Expectation Impact on Sector/Company

MAT increased from 18% per cent to 18.5%

18 5% -
Neutral for Cairn, RIL
Surcharge to be reduced from 7.5% to 5 %. -

Direct transfer of cash subsidy to BPL families for

- Positive for IOC, HPCL, BPCL
kerosene, LPG.
Government to provide `20000 Cr cash subsidy
Expected Positive for IOC, HPCL, BPCL
to OMCs
12

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Budget Announcement ULJK Expectation Impact on Sector/Company

Increase in the rate of Minimum Alternate Tax from the

E
Expected
t d N
Negative
ti
current rate of 18 per cent to 18.5 per cent of book profits
Reduction in the current surcharge of 7.5 per cent on
Not Expected Positive
domestic companies to 5 per cent
Extension of the concession available to parts, components
andd accessories
i for
f manufacture
f off mobile
bil handsets
h d till
ill 31
31st N E
Not Expected
d P i i – Spice
Positive S i MMobility
bili
March, 2012
National Knowledge Network will link 1500 Institutes of 13 Not Expected Positive – Tata Communication,
Higher Learning & Research through optical fibre backbone Tulip Telecom
Plan to provide Rural Broadband Connectivity to all
Not Expected Positive
2,50,000 Panchayats in the country in three years

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Key Takeaways
Key Direct Tax proposals
• MAT raised to 18.5% from 18%.
• SEZs to come under MAT purview
• Surcharge on domestic cos cut to 5% from 7.5%.
• Foreign dividend tax rate cut to 15% for Indian companies
• Base IT exemption raised to Rs. 1.8 lakhs from 1.6 lakhs
• IT exemption for senior citizens raised to Rs. 2.5 lakhs
• Senior citizen tax limit now applicable for 60 year olds
• Tax sop of Rs. 20000 investment in infra bond extended by 1 year.
• Low withholding g tax of 5% for notified infra funds
• Gross tax receipts expected to be Rs. 9.32 trillion, up 24.9%

Key Indirect tax proposals

• Peak rate for customs duty unchanged in FY12.
• Base rate on excise duty raised to 5% from 4%.
• Ce
Central
a excise
e c se duty
du y rate
a e unchanged
u c a ged at
a 10% 0%
• Service tax standard rate unchanged at 10%.
• Service tax mop up expected to be Rs. 820 billion in FY12.
• Central excise duty expected to be Rs. 1.64 trillion in FY12
• Custom duty expected to be Rs. 1.51 trillion in FY12
• Corporation tax pegged at Rs. 3.6 trillion in FY12

Impact of tax proposals

• Proposals related to direct taxes estimated to result in a revenue loss of Rs. 11500 crores
• Proposals related to Indirect taxes estimated to result in a net revenue gain of Rs. 11300 crores
• Proposals related to Service tax estimated to result in a net revenue gain of Rs. 4000 crores

Tax reforms
Tax reforms
• Roll out of Direct Tax Code to be effective from April 1, 2012
• Preparation of GST rollout in final stages; expected to be introduced in current session
• Scheme proposed for quicker refund of service tax
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d in this
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l reflect
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his h personall views about
b the
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