Union Budget 2010-2011

Symphony of Fiscal Consolidation and continued growth

The Union Budget presented by the Finance Minister, Mr. Pranab Mukherjee has all the
hallmarks of maintaining the scorching pace
of growth while improving the fiscal health. The all encompassing budget covering
everything from providing resources for
infrastructure and agriculture led growth, measures to reduce the fiscal deficit and tax
concessions to boost consumption, should
help the economy to rapidly scale to the targeted 9% growth rate. This in turn, will enable to
attract higher investments required to
cross the double digit levels of growth over the medium term.
Key Take Aways
Focus on reigning in the fiscal deficit - A big positive
In our opinion, the slew of measures announced by the Finance Minister to increase
revenues through roll back off excise duty, PSU
divestment, 3G roll out, curtailment of non - plan expenditure and reduction in the market
borrowings are very positive for reigning in
the fiscal deficit.

Fiscal Deficit (as a percentage of GDP)

Being one of the first countries to roll back the fiscal stimulus and also trim estimates on the
fiscal deficit front, this should send
strong positive signals to the international investors and result in increased flow of funds

Incidence of lower taxation to boost consumption

Reduction in the burden of taxation through relaxation of income tax slabs along with
increase in the exemption of tax saving
schemes will put more money in hands of the individual thereby encouraging consumption
and savings.
Focus on infrastructure, rural development and agriculture to spur growth
Infrastructure development is vital to the long term sustainable growth of India’s GDP.
Recognizing the need to spur growth of the
infrastructure, the allocation to this sector has been increased by 73% to Rs 173,552 crore
(accounting for 46% of the plan
expenditure) over the last year.
Rural Development and agriculture has always been at the centre of the UPA government’s
agenda. In accordance with this, it has
provided Rs 66,100 crore for Rural Development, besides providing Rs 40,100 crore to
NREGA, Rs 48,000 crore for the rural
infrastructure programmes of Bharat Nirman and Rs 10,000 crore to the Indira Awas Yoyjna.
For agricultural development, the government will follow a 4 pronged strategy of increasing
food product, reducing wastage,
extending credit support to farmers and promoting the food processing sector
All the above will not only spur growth but also provide increased employment at the grass
root level thereby fuelling consumption.
Corporate profitability to be negatively impacted due to hike in excise rates
and MAT
The incidence of higher excise duty rates will negatively impact the corporates, as in our
opinion, the corporate world will not be able
to pass on the excise hike in its entirety and this will dampen profitability. Also the increase
in the MAT (Minimum Alternative Tax) by
300 bps to 18% of book profits would further pressure the net margins. However we believe
that the negative impact would be offset
by the reduction in surcharge on corporation tax (from 10% to 7.5%) and the positive effect
of the other pro-growth budgetary
provisions.

Policies – Direct Tax

• Income Tax slabs have been relaxed further as under:
􀂾 10% of tax on income from *Rs 1.6 lacs to Rs 5 lacs.
􀂾 20% of tax on income from Rs 5 lacs to Rs 8 lacs.
􀂾 30% of tax on income from Rs 8 lacs and above
* (in case of female assessee stands raised to Rs 1.9 lacs and for senior citizens stands
raised to Rs 2.4 lacs)
• Additional deduction of Rs 20,000 under Section 80CCF in respect of subscription to long
term infrastructure bonds
• Reduction in surcharge from 10% to 7.5% on Corporate tax
• MAT increased to 18% of book profits from the present rate of 15%
• Tax audit limits for Business increased from Rs 40 lacs to Rs 60 lacs and for Professionals
from Rs 10 lacs to Rs 15 lacs
• Introduction of the Direct Tax Code (DTC) with effect from April 01, 2011
Policies – Indirect Tax
• Excise duty hike by 2%, signaling partial roll back of fiscal stimulus
• Introduction of the Goods & Service Tax (GST) with effect from April 01, 2011
• Indicative rate of GST to be @ 10%
• Excise duty hiked on certain categories of cigarettes
• Reduction in excise duties on water filters (except those made from RO technology),
corrugated boxes & cartons, latex rubber
thread, medicinal and toilet preparations etc.
• Customs duties lowered on certain medical equipment

Policies – Service Tax

• Rate of tax on services retained at 10% to pave the way forward for GST
• Accredited news agencies that provide news feed online exempted from service tax
• 4 new services added to service tax
• Proposals relating to service tax are estimated to result in a net revenue gain of Rs 3,000
crore for the year

Union Budget 2010-2011Sectoral Impact

Sector Budget Impact Key Highlights
Automobiles - Neutral- Hike in excise duties & increase in weighted deduction on in-house R&D

Healthcare Largely – Positive - Increase in weighted deduction on in-house R&D

Banking / Financial Services -Positive - Re-capitalisation of PSU banks & Release of licenses to
NBFC & private players

IT / ITES – Negative - Increase in MAT rate from 15% to 18%

Infrastructure -Positive - Increased plan allocation for infrastructure development

Power -Largely- Positive Increase outlay under RGGVY Scheme

Oil & Gas -Negative- Restoration of customs duty & levy of excise duty

FMCG -Neutral- Increase in peak rate of excise duty to be offset by higher disposable income

Real Estate - Positive -Increased focus on Affordable Housing segment

Hotels - Very Positive-Benefits of 100% investment-linked tax deduction on capex

for building & operating new hotel of 2 star category &above

Education- Positive- Increased fund allocation

Automobiles -Neutral
Item Budget Measures Budget Impact Companies Impacted

Excise Duty on small cars Increase in peak excise duty

from 8% to 10%
Negative for small car
manufacturers Maruti & Tata Motors
Excise Duty on large cars,
MUVs & SUVs
Increase in excise duty from 20%
to 22% Negative M&M & Tata Motors
In-house R&D Increase in weighted deduction
from 150% to 200% Lower Tax burden All auto companies
Banking / Financial Services- Positive
Item Budget Measures Budget Impact Companies Impacted

Govt Borrowing Programme Lower by 13% from Rs 3.98 Lac

crore to Rs 3.45 Lac crore
Positive – Benign Interest rates &
Increase in Bond prices All Banks
Re-capitalisation
Allocation of Rs 16,500 crore to
attain minimum 8% Tier-I capital
by FY2011
Positive for small PSU banks Syndicate Bank, Dena Bank,
UCO Bank, etc
Banking License Release to NBFC & Private
sector players Positive Reliance Capital, IFCI &
IDFC
Agriculture credit Allocation increased by 15% to
Rs 375,000 crore Positive All Banks
Farmer loan repayment tenure Extension by six months Easing of NPA classification All Banks

IT / ITES- Negative
Item Budget Measures Budget Impact Companies Impacted

MAT Rate Increase from 15% to 18% Higher tax liability - Negative All companies
STPI scheme Status quo, to expire in April
2011 Neutral All companies
UID Project Allocation of Rs 1,900 crore Positive TCS, CMC, Bartronics &
Vakrangee

Infrastructure -Positive
Item Budget Measures Budget Impact Companies Impacted

Plan for infrastructure

development
Provision of Rs 173,552 crore
(46% of total plan allocations) Positive All Companies
Bharat Nirman Allocation of Rs 48,000 crore Positive All Companies
Road Transportation Increased allocation by 13% to
Rs 19,894 crore Positive
IRB Infra, Gayatri Project,
Gammon, Jkumar Infra,
KNR Constructions, etc
IIFCL disbursements To touch Rs 20,000 crore from
Rs 9,000 crore Positive All Companies
Infrastructure Bonds
Additional Rs 20,000 deduction
available for investment u/s
80CCF
Positive All Companies
Rural Development Allocation of Rs 66,100 crore Positive All Companies

Power -Largely Positive

Item Budget Measures Budget Impact Companies Impacted

RGGVY Allocation increased from Rs

2,230 crore to Rs 5,130 crore Positive
T&D companies like
Voltamp, BBL, Kalpataru,
Jyoti Structures, Crompton
Greaves
National Clean Energy Fund Clean energy cess on domestic &
imported coal Negative Power generation
companies
Wind power Exemption from excise duty on
inputs required for rotor blades Positive Suzlon
Photovoltaic & solar thermal
power units
Concessional customs duty of 5%
on equipments required Positive Moser Baer & Webel SL
Energy

Oil & Gas- Negative

Item Budget Measures Budget Impact Companies Impacted

Restoration of Customs Duty

5% on crude, 7.5% on diesel &
petrol & 10% on other refined
products
Negative All OMCs
petrol & diesel Levy of Re 1 excise duty Negative All OMCs
Petrol & Diesel Price hike by Rs 2.67/litre in petrol
& Rs 2.58/litre in diesel Positive All OMCs
MAT Rate Increase from 15% to 18% Higher tax liability - Negative RIL

FMCG- Negative
Item Budget Measures Budget Impact Companies Impacted

Excise Duty Increase in peak excise duty from

8% to 10% Negative All FMCG companies
Food park projects To set up five additional parks Positive Food processing
companies
Food storage Industry ECB will be available Positive Heritage Foods & Agro
Tech Foods
Rural Development schemes Allocation of Rs 66,100 crore Positive All FMCG Companies
Tobacco products Excise duty increased Negative ITC

Real Estate- Positive

Item Budget Measures Budget Impact Companies Impacted

Interest subvention loan for

houses costing upto Rs 2
million
1% interest rate subvention on
housing loan upto Rs 2 million
Positive for affordable housing
companies Unitech, DLF & HDIL
Rajiv Awas Yojana for slum
dwellers
Allocation increased from Rs 150
crore to Rs 1,270 crore Positive for SRA players HDIL & Akruti
Allocation for urban
development
Increased by 75% from Rs 3,060
crore to Rs 5,400 crore Positive All companies
Service Tax
Treatment before grant of
completion certificate deemed as
service
Increase in transaction cost –
Negative All companies

Hotels / Tourism- Very Positive

Item Budget Measures Budget Impact Companies Impacted

Investment-linked tax
deduction
Benefits of 100% investment-linked
tax deduction on capex (excluding
land, goodwill & financial
instrument) for building & operating
new hotel of 2 star category &
above extended from select
locations to across the country
Very Positive – Promote incremental
investments so as to reduce the
demand supply mismatch
Indian Hotels, EIH, Hotel
Leela & ITC
Govt Thrust on Infrastructure /
Roads
Allocation increased across the
schemes Positive Thomas Cook & Cox and
Kings
Education- Positive
Item Budget Measures Budget Impact Companies Impacted

School Education Plan allocation increased from Rs

26,800 crore to Rs 31,036 crore Positive Educomp, Everonn &
Aptech
Elementary Education Grant to states of Rs 3,675 crore Positive Educomp, Everonn &
Aptech

Miscellaneous
Item / Sector Budget Measures Budget Impact Sectors & Companies
Impacted

Cement Excise duty hiked proportionately Negative All cement companies

Media Project Import Status granted Positive for Multi Service Operators Hathway & Adlabs
Gems & Jewellery Customs duty of 10% on rhodium
reduced to 2% Positive Gitanjali Gems & Titan
Hotels
Investment linked weighted
deduction for new hotels (2 star &
above)
Positive ITC, Indian Hotels, &
Hotel Leela
Textiles
interest subvention of 2% for
exports of handlooms, handicrafts
and SMEs for 1 year
Positive All textile companies
Fertilizer To provide govt subsidy in cash
instead of bonds Positive All fertilizer companies