What Experts Say of Pranab's Budget?
-Leena Chandan*
*Financial Journalist, myiris.com, e-mail: leena.chandan@irisindia.net
Finance Minister, Pranab Mukherjee announced the union budget 2011 on February 26, 2010. The second union budget delivered by Pranab Mukherjee was better than market expectations with the focus shifting towards fiscal consolidation while ensuring that the growth trajectory is maintained.
Following are the reactions by well known brokerage houses and companies:
Brokerage Houses
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They consider this budget as a positive balanced reform oriented budget with a renewed focus on Agriculture and Infrastructure with social sectors like Education, Healthcare and Rural Employment which all the pillars of economic growth given greater attention.
They believe that the Union Budget for 2010-11 has been on expected lines notwithstanding the fact that several big bang announcements related to FDI, Pension Reforms, Education Reforms, Insurance were eagerly awaited but failed to prominently come up in this budget. As mentioned earlier the primary focus of the government has been to accelerate growth in Infrastructure, ensure all inclusive growth by increasing social spending on several employment generation schemes and ensuring that export oriented sectors are given a helping hand by way of some fiscal concessions until the global economy picks up.
ICICI Securities:
They feel that the government, in Budget 2010-11, will be able to manage both that is, medium-term fiscal prudence and long-term growth agenda.
The above expectations have played out in Budget 2010-11 where, on the one hand, the government has taken steps for fiscal consolidation on dotted lines. We believe this is realistic given the process of economic recovery and implementation of GST (this will add about 0.9-1.7% to the GDP) while, on the other, it will restore the ongoing recovery process by keeping the consumption cycle rolling.
Revising the individual tax slabs will be a vital swing factor for the consumption boom to go on even though the government has, in a calibrated fashion, started rolling back/restoring the excise duties. What was pacifying was a reasonable borrowing figure of the government, which indicates that monetary tightening will not be aggressive (provided inflation dose not turn up worse and allaying fears of private sector crowding). Even the timeline announcement for roll out of GST and DTC has gone well with the business and investment community.
Management Corner
Nikhil Mansukhani, director, Man Infraprojects:
The Finance Minister Pranab Mukharjee has successfully managed to propose a consolidated budget for FY 2010-11 ensuring the sustainable growth with much required fiscal consolidation. However budget has very little room for real estate sector as only residential segment have seen some sort of benefits from it.
Commercial real estate segment is completely ignored in this budget. Reforms like promoting Real Estate Mutual Fund and relaxing FDI norms for the sector and service taxes on rental income from commercial properties are supposed to be addressed for fulfilling the financial requirements of the sector. However, the budget did not address these key issues. Also duties on raw materials like cement are increased by 2% which may lead to higher cost of production and this is definitely not good news for the real estate sector which is already in a stage of slow recovery post economic slowdown.
Milind Korde, managing director (MD), Godrej Properties:
According to him it is a budget that focuses on a more inclusive growth. The emphasis on infrastructure and on improving the investment environment will ensure an all round development. GDP numbers projected for the coming years indicate that we will revert to the earlier high growth path soon. Modifications in income tax slabs will benefit people by way of increasing their disposable income.
Saurabh Nanavati, chief executive officer (CEO), Religare Mutual Fund:
This is a growth budget. Strong anticipated GDP growth numbers of 14-15% in nominal terms is allowing the finance minister to continue with the stimulus package and increased expenditure.
The finance minister has done an excellent expectation management job, example being - a 2% excise rollback is being seen positively by the markets. There were positive surprises on the Personal Income Tax front, reduction in Corporate Surcharge, Infrastructure and Social sectors, Banking reforms side and not much tinkering on the Service Tax side. Fiscal discipline implementation will be the key and only time will tell, but the intent of the Finance Minister is heartening and welcome, he added.
Having said this, the market has rallied on very low expectations from the budget today and will fall in line with the real issues going forward which include Corporate earnings growth visibility, domestic consumption growth and global headwinds.
The extension of the interest subvention for home loans up to Rs 1 million (where the cost of house does not exceed Rs. 2 million) indicates the government`s focus on low cost housing. However, more needs to be done to encourage the real estate sector which, arguably, is one of the largest employment generator and supports over 200 ancillary industries.
Baba Kalyani, chairman and managing director (CMD), Bharat Forge:
This year’s Budget has come at a time when the economy had just begun to recover from the impact of an unprecedented global economic crisis. The Finance Minister’s challenge was to support the resurgent momentum of growth in the economy, create conditions to scale up growth to 9% plus levels that we had experienced between 2005 - 2008 and balance growth with equity to make it more inclusive. He had to do this without compromising on fiscal prudence and at the same time address the challenge of keeping inflation in control.
Mukherjee`s task was therefore clearly cut out and in the circumstances he appears to have responded by striking a fine balance between various imperatives.
The government`s commitment to continuing economic reform is clearly visible in this Budget. Some of the notable features include: announcement of a firm date for implementing the Direct Tax Code, intention to introduce GST in the same time frame, the Rs 250 billion disinvestment target for this year, increased allocations for agriculture, defence, infrastructure with emphasis on roads, power and solar energy, education, skill development etc. The other positives include rationalization of personal income tax slabs, the added impetus for savings and the increased incentive for research and development activities, he added further.
Phased withdrawal of the stimulus was always on the cards. Therefore the increase in excise duty from 8% to 10% has not come as a surprise. The decision to leave the rates of customs duty and service tax unchanged is welcome particularly in view of the anticipated introduction of GST next year. Reduction of surcharge would result in a lower rate of corporate tax but this would to an extent be offset by the unexpected 3% increase in MAT. The increase in price of petroleum products however, is quite significant and would lead to higher inflation.
Taking all the positives and negatives into account, they still believe that this is a visionary Budget. A road map to progressively bring down the fiscal deficit from 6.9% this year to 4.1% by 2012-13 clearly indicates the government`s commitment to fiscal discipline. What perhaps has not been stated is the intent to achieve the Finance Commission`s recommendation for a zero fiscal deficit by 2014-15 but it is clear that the government is moving in that direction. Through this Budget the Finance Minister has squarely addressed the three challenges before the economy, which he stated upfront in his speech - to bring back 9% growth and set a challenge target of double digit growth, to make growth more inclusive and to strengthen the structures of governance by improving delivery mechanisms.
This year’s Budget has come at a time when the economy had just begun to recover from the impact of an unprecedented global economic crisis. The Finance Minister`s challenge was to support the resurgent momentum of growth in the economy, create conditions to scale up growth to 9% + levels that we had experienced between 2005 - 2008 and balance growth with equity to make it more inclusive. He had to do this without compromising on fiscal prudence and at the same time address the challenge of keeping inflation in control.
Mukherjee`s task was therefore clearly cut out and in the circumstances he appears to have responded by striking a fine balance between various imperatives.
The government`s committment to continuing economic reform is clearly visible in this Budget. Some of the notable features include announcement of a firm date for implementing the Direct Tax Code, intention to introduce GST in the same time frame, the Rs 250 billion disinvestment target for this year, increased allocations for agriculture, defence, infrastructure with emphasis on roads, power and solar energy, education, skill development etc. The other positives include rationalization of personal income tax slabs, the added impetus for savings and the increased incentive for research and development activities.
Phased withdrawal of the stimulus was always on the cards. Therefore the increase in excise duty from 8% to 10% has not come as a surprise. The decision to leave the rates of customs duty and service tax unchanged is welcome particularly in view of the anticipated introduction of GST next year. Reduction of surcharge would result in a lower rate of corporate tax but this would to an extent be offset by the unexpected 3% increase in MAT. The increase in price of petroleum products however, is quite significant and would lead to higher inflation.
M Bharuka, Managing Director, Kansai Nerolac Paints:
Budget is positive in terms of various offerings for housing sector. These include subsidy in interest rates for affordable housing, slum free cities project, increased allocation for Indira Awaas Yojana etc. FM also allowed housing projects to complete in 5 years instead of 4 years to avail tax break. This will help growth to continue in decorative segment. Overall demand should not be affected by increase in excise which is partial in both decorative and industrial sector as disposable income will be still high as a result of personnel tax relief and if interest rates remain in comfortable zone.
Surjeet Singh, Chief Financial Officer, Patni Computer Systems:
Increase in MAT from 15% to 18% on book profits would result in higher outgo of cash in the short term and would affect Indian Corporate adversely. However this impact has been cushioned to a large extent by lowering of corporate surcharge from 10% to 7.5%. We welcome a higher percentage of weighted deduction on in-house R&D which has been increased to 200% from 150% as it will incentivize IT companies' innovation focus. We appreciate the setting up of "Technology Advisory Group for Unique Projects" along with substantial outlay for UID project. This group will help in accelerated execution of large strategic Government IT projects thereby benefiting IT companies. Budget also proposes to ease the process of refund of service tax credit for exporters of services which will hopefully streamline the current cumbersome process. Tax reduction on account of changed tax slabs for individuals will also benefit the industry indirectly.
However Budget has not addressed IT Industry's demand for extension of Tax holiday under STPI scheme as per Section 10 (A) of Income Tax Act which is a significant negative for the Industry.
Pawan Goenka, President, Mahindra & Mahindra:
Finance minister and his team seem to have struck the right balance in pushing reforms, maintaining a high focus on social and physical infrastructure whilst returning to fiscal responsibility in a measured manner. He cited several positive proposals for the automobile industry - the correction in excise duty on electric vehicles which will enable the manufacturers take Cenvat credit and exemption of Customs duty on electric vehicles parts.
Goenka also welcomed the increase in weighted deduction for in-house R&D to 200% from 150% and outsourced R&D from 125% to 175%. This would spur industry focus on innovation, R&D and product development that would increase the competiveness of the industry longer term. He said that 2% hike in excise duty was expected and should not have adverse impact on the market. The result of the Budget proposals is that the basic excise duty rate and service tax rates have converged to 10%, indicating a move to enable GST implementation from April 2011. The industry was hoping for a reduction in the large gap in excise duties between smaller personal vehicles and CVs and the high excise levy on larger personal vehicles, but that did not happen.
The markets have already given thumbs up to the Budget as the Sensex soared by over 400 points before giving up some gains. What aided market sentiments is the fact that the expectations had been quite low in the weeks prior to the Budget.
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