Posts Tagged ‘trajectory growth’

BUDGET PREVIEW 2011 – Final Part :)

Continuing The Final Part Of The Budget Preview 馃檪

.

We believe that this year Finance Minister will take a gradual move towards fiscal consolidation by聽increase in Excise duty. Excise duty forms around 40% of Indirect Tax collections. Excise duty collections were聽down by 13% in April to December period to close to Rs. 70,000 crore comprising around 66% of Budgeted聽Estimates of Rs. 1,06,477 crore. The factors that contribute to our belief are; 馃榾

路Though the growth in corporate sales is not astonishing but profitability has improved to due to various聽cost control efforts which is quite evident by the corporate tax collection that have shown a growth of聽44% in December 2009. Cumulatively Net direct tax collections increased by 8.5 per cent during April-聽December 2009.

.

.

路India being a consumption story has shown healthy growth in sales of consumer durables. For instance Automobile industry’s sales聽went up by 32 per cent in December over the same month in 2009. It is believed that a gradual hike in duty will get absorbed聽without affecting medium term prospects of the industry.

.

.

路Partial rollback would also help the finance ministry effect a calibrated integration of excise duty with the services tax by the end聽of the next financial year, when the proposal for a Goods and Services Tax is likely to be implemented.

.

路Finance Minister had indicated that he would like the fiscal deficit for 2010-11 to be around 5.5 per cent of GDP. The proposal to聽raise excise duty by two hundred basis points is being endorsed also to help the finance ministry raise more revenue and stick to聽the projected fiscal deficit target.

.

.

Disinvestment would be the key focal point in the Budget. We believe that the Finance Minister would place high targets from the PSU sale proceeds. The factors that contribute to our belief are:

.

.

路In order to bring Fiscal deficit under control that would subsequently ease upward pressure on interest rates.

.

.

路This will help Investment in social sector projects which promote education, health care and employment & will also help in聽Capital investment.

.

.

On the Corporate Tax front, we believe that the Finance Minster is unlikely to lower tax to 25% from the current 30% as per Industry demands. The rationale behind our belief is:

.

.

路The direct tax code that proposes corporate tax to be 25% will be implemented in fiscal 2011 鈥 2012 & Industry have to wait till its聽implementation as it will replace the existing Income Tax act.

.

.

路Already, government is trying to make up more tax revenue & is unlikely to take step in this direction as it may come as an聽obstacle in order to control fiscal deficit.

.

.

On deregulation of Petroleum sector, we believe that in order to cut down on subsidies government could provide the road map for partial deregulation of the petroleum sector. The road map may provide OMC’s to review the prices of petrol and diesel on a聽regular basis however, LPG and kerosene could continue to be administered by the government. Factors that complement to our belief:

.

.

路In view of the commitment of the UPA regime to flagship social security programmes聽that require huge allocations, Mr. Mukherjee has told Mr. Deora that it would not be聽possible to provide huge subsidies to the OMCs in future.

.

.

On the External Economy side, we expect that the Finance Minister may continue to聽provide certain concessions like interest subsidy and extension of other export oriented聽schemes. The rationale to our belief:

馃檪


路In the recent two months i.e. November & December, merchandise exports registered a聽positive growth of 18.2% & 9.3% respectively. But in the period of April to December聽2009, the exports were still negative to the tune of 20% as compared to the聽corresponding period.

.

路The world economic recovery especially in US & Europe is still questionable & the regions constitute approximately 15% & 21%聽respectively of our merchandise exports, thus directly affecting the trade.

.

路Sectors such as engineering goods, jute, carpets, handicrafts and leather goods are continue to be in bad shape, others such as聽gems & jewelry drugs, plastics and petroleum products are showing improvement.

.

路Concluding, the main point is that it may not be a good time to take back the stimulus so soon that may derail the recovery.

.

Note : For More Latest Industry, Stock Market and Economy News and Updates, please聽click here

BUDGET PREVIEW 2011 – Part 1 :)

At last the much talked topic 鈥淏UDGET鈥 among AAM ADMI, CORPORATES or聽INVESTORS that comes to INDIA 鈥 is approaching. 鈥淭he million dollar question is that will 2010 budget be another year to cheer the聽economy by giving some relief in indirect taxes, personal income tax and by聽implementing various schemes to induce social & infrastructure sector in聽order to maintain high trajectory growth鈥.

Generally, it is seen that the聽incentives which are given in the period of recession or slow down and moreover,聽when the government in power is about to complete its tenure, are above from聽expectations. It is seen that budget in two years usually comes good when the聽Govt. is in the last year of power & in the first year of the rule as a vote of thanks.The mid three years out of the five year term usually remains tight on the聽policies.

.

.

For the common man, we expect that Finance Minister may raise the exemption limit in personal income tax & investment聽limit Under Sec.80C. The reason to our belief:

馃檪

1. The rocketing prices of food articles like sugar, pulses and vegetables have been cutting the pockets of a middle class.

.

2. By coming out with these measures (above mentioned) the government will lower the tax incidence on the common man & will聽also help it to put the opposition on backfoot.

.

By & large everyone is aware of the level of fiscal deficits globally and many of us know that it is essential to minimize deficits &聽returning to fiscal consolidation is necessary. The main question is why it is so important. Let’s look at the consequences of high聽fiscal deficit:

.

A risk to high government borrowings leads to more debt servicing that cuts expenditure on various social welfare schemes, if TAX聽revenues do not matchup. In the current financial year, out of the 4 lakh crore borrowing, more than 50% has gone towards interest聽payments.

.

Secondly, the higher government borrowing from market means less availability of funds to private borrowers. In the current Fiscal year, due to dismal credit growth, we haven’t seen pressure on Interest rates. But going forward we foresee normal聽credit growth in the next financial year. However as the government borrowing is expected to remain at same level in the next聽fiscal, pressure on interest rate is expected.

.

So, this year the theme of Budget would any way be to maintain economic recovery through investment for building infrastructure聽rather than funding the expenses/consumption. But at the same time focus will be to bring down the fiscal deficit.

.

The catch here is聽bringing down deficit by cutting expenditure means risk to growth & the other alternative is to increase revenues. While the direct聽tax collections are encouraging, on the indirect taxes front the government is still struggling to get desired revenues. This is聽because after September 2008, when the global financial system collapsed, the government came out with stimulus packages to聽keep up the desired growth pace.

.

Excise rates since December 2008 had been progressively cut from 16, 12 and 8 per cent to 10, 8聽and 4 per cent respectively depending on the product in question. Service tax was also reduced from 12 to 10 per cent.