Analysis of Union Budget 2011

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1 Economic Environment of Business Analysis of Union Budget 2011-12 (India) I. Key Facts of Union Budget 2011-2012 Agriculture and Related Sectors ã ã ã ã Scope of exemptions from Excise Duty enlarged to include equipments needed for storage and warehouse facilities on agricultural produce. Basic Custom Duty reduced for specified agricultural machinery from 5 per cent to 2.5 per cent. Basic Custom Duty reduced on micro-irrigation equipment from 7.5 per cent to 5 per cent. De-oiled rice bran c
    Group 1   1Economic Environment of Business Analysis of Union Budget 2011-12 (India)   I. Key Facts of Union Budget 2011-2012 Agriculture and Related Sectors ã   Scope of exemptions from Excise Duty enlarged to include equipments needed for storageand warehouse facilities on agricultural produce. ã   Basic Custom Duty reduced for specified agricultural machinery from 5 per cent to 2.5 percent. ã   Basic Custom Duty reduced on micro-irrigation equipment from 7.5 per cent to 5 per cent. ã   De-oiled rice bran cake to be fully exempted from basic Custom Duty. Export Duty of 10per cent to be levied on its export. Manufacturing Sector ã   Basic Custom Duty reduced for various items to encourage domestic value addition vis-à-vis imports, to remove duty inversion and anomalies and to provide a level playing field tothe domestic industry. ã   Rate of Export Duty for all types of iron ore enhanced and unified at 20 per cent advalorem. Full exemption from Export Duty to iron ore pellets. ã   Basic Custom Duty on two critical raw materials of cement industry viz. petcoke andgypsum is proposed to be reduced to 2.5 per cent. ã   Cash dispensers fully exempt from basic Customs Duty. Infrastructure ã   Parallel Excise Duty exemption for domestic suppliers producing capital goods needed forexpansion of existing mega or ultra mega power projects. ã   Full exemption from basic Customs Duty to bio-asphalt and specified machinery forapplication in the construction of national highways. Exports ã   Of 23 suggestions made by Task Force on Transaction Cost, constituted by theDepartment of Commerce, 21 suggestions already implemented. Action to be taken on theremaining two suggestions. Transaction Cost of ` 2,100 crore will thus be mitigated. ã   Self assessment to be introduced in Customs to modernize the Customs administration. ã   Proposal to introduce scheme for refund of taxes paid on services used for export of goods. ã   Mega Cluster Scheme to be extended for leather products. Seven mega leather clusters to beset up during 2011-12. ã    Jodhpur to be included for the development of a handicraft mega cluster.    Group 1   2Economic Environment of Business Investment EnvironmentForeign Direct Investment ã   Discussions underway to further liberalise the FDI policy. Foreign Institutional Investors ã   SEBI registered mutual funds permitted to accept subscription from foreign investors whomeet KYC requirements for equity schemes. ã   To enhance flow of funds to infrastructure sector, the FII limit for investment in corporatebonds issued in infrastructure sector being raised. Financial Sector Legislative Initiatives ã   To take the process of financial sector reforms further, various legislations proposed in2011-12. ã   Amendments proposed to the Banking Regulation Act in the context of additional bankinglicences to private sector players. Public Sector Bank Capitalisation ã   6,000 crore to be provided during 2011-12 to enable public sector banks to ã   maintain a minimum of Tier I CRAR of 8 per cent. Micro Finance Institutions ã   “India Microfinance Equity Fund” of ` 100 crore to be created with SIDBI.   ã   Government considering putting in place appropriate regulatory framework to protect theinterest of small borrowers. ã   “Women’s SHG’s Development Fund” to be created with a corpus of ` 500 crore.   Rural Infrastructure Development Fund ã   Corpus of RIDF XVII to be raised from ` 16,000 crore to ` 18,000 crore. Micro Small and Medium Enterprises ã   5,000 crore to be provided to SIDBI for refinancing incremental lending by banks to theseenterprises. ã   3,000 crore to be provided to NABARD to provide support to handloom weaver co-operative societies which have become financially unviable due to non-repayment of debtby handloom weavers facing economic stress.    Group 1   3Economic Environment of Business ã   Public sector banks to achieve a target of 15 per cent as outstanding loans to minoritycommunities under priority sector lending at the earliest. Agriculture Credit ã   Credit flow for farmers raised from ` 3,75,000 crore to ` 4,75,000 crore in 2011-12. ã   Interest subvention proposed to be enhanced from 2 per cent to 3 per cent for providingshort-term crop loans to farmers who repay their crop loan on time. ã   In view of enhanced target for flow of agriculture credit, capital base of NABARD to bestrengthened by ` 3,000 crore in phased manner.    Group 1   4Economic Environment of Business II. Short Falls Finance Minister Pranab Mukherjee’s sixth budget s ets for Fiscal Year 2011-2012 (Budget 2011-2012) seemed both balanced and growth oriented, although it falls short in some key areas asbelow: Managing fiscal deficit The fiscal deficit target for FY2011-12 was been ambitiously pegged at 4.6%, down from 5.1%this year through March, but the feasibility of achieving this target is less since various subsidieswere believed to be under-reported. Improving the fiscal deficit is critical from the point of view of stimulating private investment and controlling inflation. It would also aid debt markets, therebycreating engines to fuel growth. The reduction of the deficit previous FY2010-11 from 5.5% to5.1% was possible because of the allocation of 3G Spectrum which generated huge earnings for theeconomy. So was difficult to visualise that which revenue generating instrument the Governmentuse to achieve the target set for FY2011-12. Taming inflation Inflation is one of the m ajor issues plaguing India’s economy, but surprisingly the budget didn’t have a clear focus on curbing prices. The exemption limit on personal taxes had been raisedmarginally to give some relief to the common man, but there were no major budgetary measures tokeep inflation in check in the short term. Repatriating black money A five-fold strategy has been announced. The most prominent initiatives are the formation of aFinancial Action Task Force for anti-money laundering and a comprehensive national policy fortaking legal action on black money from drug-trafficking. The intent of the government seemedwas clear, but the seriousness of the proposals will depend on how well they are executed. Personal taxes On the personal income tax front, the finance minister announced a modest rise in the exemptionlimit from 160,000 rupees ($3,534) to 180,000 rupees ($3,976). In an environment of persistentinflation, this might be viewed as grossly insufficient. There is, however, a bonanza for seniorcitizens. Industry Impact On the indirect tax front, the finance minister has given industry a boost by maintaining peakexcise duty at 10%. He has also reduced customs duty on inputs used for selective industries,which will help moderate the effect of rising input prices. We believe this will trickle down toconsumers in the form of lower prices. Finance Minister planned to compensate for these sops bywidening the service tax net and marginally increasing the minimum alternate tax, among other
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