---------- Forwarded message ----------
From: Parthiv Mehta <parthivtmehta@gmail.com>
The Union Budget 2011-12 will revolve around fiscal consolidation,
inflation control,administrative checks and inclusive growth. We do
not anticipate any major roll-back of stimulus (indirect taxes) since
some concerns lurk about pace of economic growth in 2011.
Further, given the upcoming elections in key states, the Government
will, in all likelihood,follow certain populist measures.
Notwithstanding fiscal pressures, we believe the Budget presents a
golden opportunity to the incumbent Government to send a strong signal
on the policy front. All-in-all, the Budget is expected to be a mixed
one with a marginal positive bias.
Direct tax: Raising of personal income tax slab for lower income group
Inflation pressure is resulting in low income groups spending a bigger
share of their wallet on food and other basic necessities. The
Government will look to appease this class of people, especially with
key states going into elections soon. We expect an increase in
personal income tax exemption limit, for the lower income bracket from
Rs160,000 to Rs175,000-180,000. The Government can afford this
largesse given last year's buoyancy in direct tax collection.
Corporate taxes, on the other hand, are likely to compensate for the
rise in slab in personal income tax. This would mean that the industry
demand for lowering the tax rate, removing the surcharge or reducing
MAT rate will not be met and rates will be left unchanged.
Indirect tax: No major change; tweaks in some components The
Government had partially rolled back excise duty last year (it had cut
duties as a stimulus a couple of years ago), but is unlikely to do so
in the upcoming Budget, especially when concerns loom about a possible
percentage point drop in GDP growth and when industry is in investment
mode. Roll-backs in excise would be selective in our opinion. We see
excise duty hike specific to diesel cars and SUVs, on grounds that it
provides subsidy to an audience not needing it. Similarly, excise duty
may be hiked for tobacco.
To tackle rising inflation, we expect excise duties on petroleum
products or customs duty on crude and petrochemicals to be cut.
Certain countervailing duties may also be cut to lower value of
imported items. There is a view that service tax rate may be hiked to
eventually converge with GST in future. However, in our view, a better
approach would be to widen the scope of the tax to include all
services (with some exemptions) while keeping rates unchanged this
year. The Budget may not be able to give a detailed roadmap on GST,
given opposition from states.
Non-tax revenue: Amnesty scheme for black money holders
The Budget will possibly see announcement of an amnesty scheme to
bring back to India some of the black money residing in foreign banks.
While such schemes raise a moral issue since they disadvantage honest
tax payers, but they will certainly help the fiscal position greatly.
Even if the minister gives it a miss, there is a strong possibility
that the scheme is introduced during the course of the year and add to
revenues in 2012.
Social sector spending to witness healthy rise in allocations
We believe the Government will focus on strengthening existing schemes
rather than introducing new ones. Flagship projects like Bharat
Nirman, Rajiv Awas Yojana, Midday Meal scheme and Right to Education
will see good increase in allocation. Healthcare is another area where
expenditure will likely rise. On the NREGA front, the focus would be
on preventing inefficiencies and leaks in the system rather than big
rise in allocation.
Subsidy burden to remain elevated
It can be expected that the subsidy on food and fertilisers will
continue to mount. On the oil subsidy front, we see the Government
tackling this issue by lowering duties rather than hiking subsidies
substantially. The two percent subvention scheme on export credit is
scheduled to expire on March 31, 2011. The subvention will either not
be extended or will see a lower rate.
Strong agriculture focus
Ineffective public distribution is a major reason for food inflation.
The Budget is likely to allocate funds for effective warehousing and
distribution of agricultural products. Administrative controls are
also expected to be put in place to check on hoarding of any produce.
Common market for agricultural products and reduction in Mandi tax are
areas which could be addressed. We also expect allocation for
irrigation to rise meaningfully.
Infrastructure issues to be addressed partly
The Government will partly attempt to resolve funding constraints in
infrastructure. Funding problems have resulted in a major slowdown in
order flow in the last 6-8 quarters. Capex uptick is a must to sustain
the growth rates in GDP. One way to channelize money flow into the
power segment, which accounts for a chunk of the infra capex, is to
remove withholding tax on overseas investment. There is a case to
allow NBFCs and banks to raise tax free infrastructure bonds to ease
funding to this sector.
Fiscal deficit: Will amnesty replace the 3G windfall?
The revised estimates for 2011 would reveal a lower fiscal deficit
when compared to Budget estimates on account of higher tax revenues
last year and windfall 3G auction gains. For 2012, the fiscal deficit
could be around 4.7-5% in case the amnesty scheme is Budgeted for and
closer to 5.5%, in case of non inclusion of the voluntary disclosure
scheme to bring back black money.
We see amnesty scheme, agriculture focus and easing of infra funding
issues as the key addressable areas, which could enthuse the equity
market. A complete excise duty roll-back by 2% and higher fiscal
deficit target of 5.5% would be major negative surprises, in case
announced. Jain irrigation, L&T, BGR Energy, Everonn Education, Jindal
Saw, SBI, GSK Consumer are our top Budget picks. ITC and Tata Motors
could be the top misses from the budget.
Source:IndiaInfoline
--
Regards,
Parthiv Mehta
From: Parthiv Mehta <parthivtmehta@gmail.com>
The Union Budget 2011-12 will revolve around fiscal consolidation,
inflation control,administrative checks and inclusive growth. We do
not anticipate any major roll-back of stimulus (indirect taxes) since
some concerns lurk about pace of economic growth in 2011.
Further, given the upcoming elections in key states, the Government
will, in all likelihood,follow certain populist measures.
Notwithstanding fiscal pressures, we believe the Budget presents a
golden opportunity to the incumbent Government to send a strong signal
on the policy front. All-in-all, the Budget is expected to be a mixed
one with a marginal positive bias.
Direct tax: Raising of personal income tax slab for lower income group
Inflation pressure is resulting in low income groups spending a bigger
share of their wallet on food and other basic necessities. The
Government will look to appease this class of people, especially with
key states going into elections soon. We expect an increase in
personal income tax exemption limit, for the lower income bracket from
Rs160,000 to Rs175,000-180,000. The Government can afford this
largesse given last year's buoyancy in direct tax collection.
Corporate taxes, on the other hand, are likely to compensate for the
rise in slab in personal income tax. This would mean that the industry
demand for lowering the tax rate, removing the surcharge or reducing
MAT rate will not be met and rates will be left unchanged.
Indirect tax: No major change; tweaks in some components The
Government had partially rolled back excise duty last year (it had cut
duties as a stimulus a couple of years ago), but is unlikely to do so
in the upcoming Budget, especially when concerns loom about a possible
percentage point drop in GDP growth and when industry is in investment
mode. Roll-backs in excise would be selective in our opinion. We see
excise duty hike specific to diesel cars and SUVs, on grounds that it
provides subsidy to an audience not needing it. Similarly, excise duty
may be hiked for tobacco.
To tackle rising inflation, we expect excise duties on petroleum
products or customs duty on crude and petrochemicals to be cut.
Certain countervailing duties may also be cut to lower value of
imported items. There is a view that service tax rate may be hiked to
eventually converge with GST in future. However, in our view, a better
approach would be to widen the scope of the tax to include all
services (with some exemptions) while keeping rates unchanged this
year. The Budget may not be able to give a detailed roadmap on GST,
given opposition from states.
Non-tax revenue: Amnesty scheme for black money holders
The Budget will possibly see announcement of an amnesty scheme to
bring back to India some of the black money residing in foreign banks.
While such schemes raise a moral issue since they disadvantage honest
tax payers, but they will certainly help the fiscal position greatly.
Even if the minister gives it a miss, there is a strong possibility
that the scheme is introduced during the course of the year and add to
revenues in 2012.
Social sector spending to witness healthy rise in allocations
We believe the Government will focus on strengthening existing schemes
rather than introducing new ones. Flagship projects like Bharat
Nirman, Rajiv Awas Yojana, Midday Meal scheme and Right to Education
will see good increase in allocation. Healthcare is another area where
expenditure will likely rise. On the NREGA front, the focus would be
on preventing inefficiencies and leaks in the system rather than big
rise in allocation.
Subsidy burden to remain elevated
It can be expected that the subsidy on food and fertilisers will
continue to mount. On the oil subsidy front, we see the Government
tackling this issue by lowering duties rather than hiking subsidies
substantially. The two percent subvention scheme on export credit is
scheduled to expire on March 31, 2011. The subvention will either not
be extended or will see a lower rate.
Strong agriculture focus
Ineffective public distribution is a major reason for food inflation.
The Budget is likely to allocate funds for effective warehousing and
distribution of agricultural products. Administrative controls are
also expected to be put in place to check on hoarding of any produce.
Common market for agricultural products and reduction in Mandi tax are
areas which could be addressed. We also expect allocation for
irrigation to rise meaningfully.
Infrastructure issues to be addressed partly
The Government will partly attempt to resolve funding constraints in
infrastructure. Funding problems have resulted in a major slowdown in
order flow in the last 6-8 quarters. Capex uptick is a must to sustain
the growth rates in GDP. One way to channelize money flow into the
power segment, which accounts for a chunk of the infra capex, is to
remove withholding tax on overseas investment. There is a case to
allow NBFCs and banks to raise tax free infrastructure bonds to ease
funding to this sector.
Fiscal deficit: Will amnesty replace the 3G windfall?
The revised estimates for 2011 would reveal a lower fiscal deficit
when compared to Budget estimates on account of higher tax revenues
last year and windfall 3G auction gains. For 2012, the fiscal deficit
could be around 4.7-5% in case the amnesty scheme is Budgeted for and
closer to 5.5%, in case of non inclusion of the voluntary disclosure
scheme to bring back black money.
We see amnesty scheme, agriculture focus and easing of infra funding
issues as the key addressable areas, which could enthuse the equity
market. A complete excise duty roll-back by 2% and higher fiscal
deficit target of 5.5% would be major negative surprises, in case
announced. Jain irrigation, L&T, BGR Energy, Everonn Education, Jindal
Saw, SBI, GSK Consumer are our top Budget picks. ITC and Tata Motors
could be the top misses from the budget.
Source:IndiaInfoline
--
Regards,
Parthiv Mehta
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