india union budget 2010

8/14/2019 India Union Budget 2010

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India Union Budget FY2010-11

Impact Analysis

By: iFAST Research Team


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Key Highlights

Focus on fiscal consolidation by reducing the fiscal deficit from 6.9% in FY10 to5.5% in FY11. Aim to reduce fiscal deficit to 4.1% by FY13

The actual net market borrowing of the Government in FY2010-11 would be aroundRs.3,45,010 crore, 13% lower than the previous fiscal

Plans to raise about Rs. 40,000 crores in FY11 through disinvestment of stake ingovernment owned companies, after planning Rs. 25,000 crores in FY10

3G spectrum auctions to raise about Rs. 35,000 crores

Reduction in personal taxes by widening the tax slabs

CENVAT increased by 2%, from 8% to 10%

Increase in MAT from 15% to 18%

Corporate surcharge to be reduced from 10% to 7.5%


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Key Highlights Contd..

Direct Tax Code and GST to be implemented from 1 April 2011

Deduction of Rs. 20,000 allowed for investment in long-term infrastructure bonds ,over and above the existing limit of Rs.1 lakh under Section 80C

Restore the basic duty of 5% on crude petroleum; and 7.5% on diesel and petrol.Central Excise duty on petrol and diesel enhanced by Re.1 per litre each. Price ofdiesel and petrol to rise by Rs 2.58 and Rs. 2.67 respectively

Service tax to be retained at 10% and to pave the way forward for Goods andServices Tax (GST)

Government to set up a Coal Regulatory Authority for pricing and competitivebidding process for allocation of coal plus a cess on coal of Rs. 50 / tonne

Emphasis on Renewable Energy and Green Initiatives for this budget


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Fiscal Consolidation The Key Priority

As a % of GDP FY09 FY10BE FY10RE FY11BE

Revenue Deficit 4.4% 4.6% 4.0% 4.6%

Fiscal Deficit 5.9% 6.5% 6.7% 5.5%

Primary Deficit 2.5% 2.8% 1.8% 2.8%

BE = Budgeted Estimate, RE = Revised Estimate

Tax Projections

Particulars

FY10 (Y-o-Y

growth)

FY11 (Y-o-Y

growth)

Corporate Tax 19.5% 18.1%

Income Tax 17.9% -3.6%

Customs -15.4% 36.1%

Excise -6.1% 29.4%Service Tax -4.8% 17.2%

Other Taxes (STTetc.) -48.1% 14.5%

Fiscal deficit to be reduced to 5.5% in FY11, 4.8% in FY12 and 4.1% in FY13

Tax Revenue to rise by 14.8% in FY11 and non tax revenue to rise by 32% during the fiscal

Income tax collections projected to fall by 3.6% in FY11, due to relief given by way of wideningthe tax slabs

Revenue loss of Rs. 26,000 Crores from Direct Taxes due to personal tax relief, and revenuegain of Rs. 46,500 Crores from Indirect Taxes due to increase in excise and customs duty


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Thrust on Infrastructure

46% of the total planned allocation for infrastructure

Allocation to road transport increased by over 13% from Rs.17,520 crores toRs.19,894 crores in this fiscal

Increase in allocation to power projects by 34%

Deduction of Rs. 20,000 allowed for investment in long-term infrastructure bonds ,over and above the existing limit of Rs.1 lakh under Section 80C

Project import status to 'Monorail projects for urban transport' at a concessional

basic duty of 5%

Rs 16,752 crores provided for Railways, which is about Rs.950 crores more thanlast year

Full exemption from import duty applicable to specified machinery for road

construction projects on the condition that the machinery shall not be sold for aminimum period of five years


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Infrastructure Growth Picks Up

Growth for six core infrastructure industries picks up to 9.4% in the month of January 2009compared to a 6.4% growth in the previous month

Six key sectorscrude, petroleum refinery products, coal, electricity, cement and finishedsteel have a combined weightage of about 27% in the Index of Industrial Production (IIP)

Finished steel and cement sectors expanded at the fastest pace during the month, registering

a growth of 16.2% and 12.4% respectively


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Widening of Tax Slabs to BoostConsumption and Savings

The widening of personal tax slabs will help reduce the tax burden and especially benefit themiddle class

There will be more personal disposable income in the hands of individuals, which will helpboost consumption and savings

Consumption sectors like FMCG, Auto etc. will benefit from this move

For women and senior citizens the initial exemption limit is upto Rs. 1.9 lakh and Rs. 2.4 lakhsrespectively.

Revised (General) Earlier (General)

Income upto Rs.1.6 lakh Nil Income upto Rs.1.6 lakh Nil

From Rs. 1,60,000 5,00,000 10% From Rs. 1,60,000 300,000 10%

From Rs. 5,00,000 8,00,000 20% From Rs. 3,00,000 5,00,000 20%

Income above Rs.8,00,000 30% Income above Rs.5,00,000 30%


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Focus on Clean, Green Initiatives

Planned outlay for Ministry of New & Renewable Energy increased by 61%

National Clean Energy Fund to be set up, which will be financed by cess on coal of Rs.50 / tonne

Excise duty on LED lights reduced to 4% from 8%

Ambitious target of 20,000 MW electricity generation by solar power projects by the year2022

To provide a concessional customs duty of 5% to machinery, instruments, equipmentand appliances, etc., required for the initial setting up of photovoltaic and solar thermal

power generating units and also propose to exempt them from Central Excise duty

Goa ( a popular tourist destination) will get a special package of Rs. 200 crore topreserve its natural resources

The annual funding for the National Ganga River Basin Authority doubled to Rs. 500crores, to help clean the Ganges river


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Key Economic Indicators


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Sectoral Impact of Budget


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Information Technology (Impact: Neutral)

Increase in MAT from 15% to 18% a dampener

No extension of tax holiday under section 10A/B, which will expire in FY11

Cement (Impact: Negative)

Increase in the cost of coal due to a cess of Rs. 50 / tonne on coal. Coal is amajor input

Increase in excise duty and rise in freight costs due to higher fuel prices

However, increased outlay for infrastructure to benefit the cement sector


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FMCG (Impact: Neutral)

Sharp increase in excise duty for Tobacco

Boost to consumption due to tax relief, as a result of widening the tax slabs

Oil & Gas (Impact: Negative)

Restore the basic duty of 5% on crude petroleum; 7.5% on diesel and petroland 10% on other refined products

Central Excise duty on petrol and diesel enhanced by Re.1 per litre each

Price of diesel and petrol to rise by Rs 2.58 and Rs. 2.67 respectively

Further clarity awaited on recommendations of Kirit Parikh Committee for

deregulating the sector


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Banking & Financials (Impact: Positive)

Rs. 16,500 Crores to be provided to PSBs to attain minimum 8% Tier OneCapital by March 2011

Additional banking licenses to be issued to private players, includingNBFCs

Extension of 6 months for repayment on farm loans from 31 Dec 09 to 30June 2010

Government borrowing lower than expected

Extension of interest subvention of 1% by 1 year to 31 March 11 for homeloans upto Rs. 10 lakhs is positive for housing finance companies



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Pharma (Impact: Positive)

Increase in weighted deduction on inhouse R&D from 150% to 200%

Infrastructure & Capital Goods (Impact: Positive)

46% of the total planned outlay for infrastructure

34% increased spending on power projects

Deduction of Rs. 20,000 allowed for investment in long-term infrastructurebonds

Increase in MAT to affect some infrastructure companies

Non extension of section 80IA benefits, which allows tax exemption onprofits

Cess on coal of Rs. 50 / tonne a negative


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Metals & Mining (Impact: Neutral)

Cess on coal to raise input costs.

Freight costs to go up.

Formation of Coal Regulatory Authority to handle pricing.

Real Estate (Impact: Negative)

Construction of a new property intended for sale and the service of renting ofimmovable property to attract service tax.

Service tax on pre-sale of immovable property.


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Equity Market Outlook and Strategy

We maintain overweight on Equities compared to Debt

GDP growth is expected at 7.2% for FY10 and projected to accelerate further toabout 8.2% in the next fiscal. However , the GDP growth for Q3 FY10 came in atlower than expected 6.0%; primarily due to the poor agriculture growth

Industrial activity picks up strongly, surging to a 20 year high of 16.8% in themonth of December 2009

Hike in fuel prices and excise duties may have inflationary implications, and morehikes can be expected along the way

Infrastructure and Banking & Financial Services were the biggest beneficiaries ofthis budget. Thus we recommend an increase in allocation to Infrastructure andBanking funds

Markets have potential to rise, but upside for 2010 would be limited to highs seen

in the end of 2007


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Disclaimer

iFAST and/or its content and research teams licensed representatives may

own or have positions in the mutual funds of any of the Asset ManagementCompany mentioned or referred to in the article, and may from time to timeadd or dispose of, or be materially interested in any such. This article is notto be construed as an offer or solicitation for the subscription, purchase or

sale of any mutual fund. No investment decision should be taken withoutfirst viewing a mutual fund's offer document/scheme additionalinformation/scheme information document. Any advice herein is made on ageneral basis and does not take into account the specific investmentobjectives of the specific person or group of persons. Investors should seekfor professional investment, tax, and legal advice before making aninvestment or any other decision. Past performance and any forecast is not

necessarily indicative of the future or likely performance of the mutual fund.The value of mutual funds and the income from them may fall as well asrise. Opinions expressed herein are subject to change without notice.

india union budget 2010

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