Kredent Budget Analysis

28th February 2010

Budget Focus
Fiscal
Prudence

Inclusive
Agricultural
Simplifying Growth
Productivity
Tax
Reforms

Rural
Development &
Empowerment
Key Takeaways (1/2)
•Budget Fy10-11 was presented to the parliament on a note that it includes industry and
individuals alike and is formulated to promote inclusive growth

• The budget was a shift from earlier year where the entire focus was on “AAM AADMI”
and moved towards fiscal prudence

•The Budget also showed as expected that it was in a no hurry to roll-back the stimulus and
government is ready to give its support to the recovering economy

•The Finance Minister presented a roadmap on disinvestment and re iterated his stance that
the Government is looking at double digit GDP growth in the near future and will do the
necessary measures to achieve that
 
•The Minister also said that Implementation of GST and Direct Tax Code will take place in
FY11 to make the tax bracket more simpler for the common man and have a uniform tax
regime across the country
 
•Key takeaways from the speech were: Implementing measures to combat inflation &
improving food security in the nation, increasing spending on social and infrastructural
schemes, no change in the Service Tax rate, increasing expenditure on renewable energy
schemes & Fiscal Deficit seen at 5.5% in FY11and a clear roadmap for fiscal deficit
reduction in the coming years
Key Takeaways (2/2)

•The budget gave a positive as well as negative surprise to bond markets. The positive was
that the net government borrowing figures was less than market expectations and the
negative was the hike in excise on various goods and fuel would lead to a higher double
digit inflation in the near term and could lead to a hike in interest rates by the RBI

•One of the key takeaways form the budget was that the government is working towards
bridging the gap between BHARAT & INDIA and there were plenty of reforms announced
which could help the government in achieving this

•The markets stood by their strength during the speech and broke out once the tax structure
was announced where the Finance Minister announced the change in tax slabs

•On a final note the budget was one which had something for both the individual and the
industry and there was no surprise coming out of the budget
Budget at a Glance
  2007 -2008 2008-2009BE 2008-2009 RE 2009-2010BE
Particulars
Actuals
1  RevenueReceipts 540259 614497 577294 682212
2  TaxRevenue(net toCentre) 443319 474218 465103 534094

3 Non-taxRevenue 96940 140279 112191 148118

4 Capital Receipts (5+6+7)$  343697 406341 444253 426537
5 Recoveriesof    Loans 6139 4225 4254 5129
6 OtherReceipts 566 1120 25958 40000
7 BorrowingsandotherLiabilities * 336992 400996 414041 381408
8 Total Receipts   (1+4)$ 883956 1020838 1021547 1108749
9 Non -planExpenditure        608721 695689 706371 735657
10 OnRevenueAccount   of  which , 559024 618834 641944 643599
11 Interest   Payments 192204 225511 219500 248664
12 OnCapital Account 49697 76855 64427 92508
13PlanExpenditure 275235 325149 315176 373092
14 OnRevenueAccount 234774 278398 264411 315125
15 OnCapital Account 40461 46751 50765 57967
16 Total Expenditure(9+13) 883956 1020838 1021547 1108749
17 RevenueExpenditure(10+14) 90158 123606 115192 150025

18 Capital Expenditure(12+15) 90,158 123,606 115,192 150,475

253539 282735 329061 276512

19 RevenueDeficit (17-1)
(4.5) (4.8) (5.3) (4.0)
336992 400996 414041 381408
20 Fiscal Deficit {16-(1+5+6)}
(6.0) (6.8) (6.7) (5.5)
144788 175485 194541 132744
21 PrimaryDeficit (20-11)
(2.6) (3.0) (3.2) (1.9)

@ Actuals for 2008-09 are provisional

$ Does not include receipts in respect of Market Stabilization Scheme
•Includes draw down of cash balance
•Note: GDP for BE 2010-2011 has been projected at Rs 6934700 crore assuming 12.5% growth over the advance estimates of 2009-2010 (Rs 6164178 crore) released by CSO
Sources of Revenue

•Gross tax receipts budgeted at Rs. 7,46,651 crore in BE 2010-11 compared to Rs.
641079 crore in BE 2009-10
•Non Tax revenue Receipts estimated at Rs. 1,48,118 crore in BE 2010-11 compared to
Rs. 140279 crore in BE 2009-10
•Tax proposal on direct taxes to be estimated to result in a revenue loss of Rs. 26,000
crore
•On Indirect taxes ,estimated net revenue gain to be Rs. 46,500 crore for a full year
Heads of Expenditure

• The total allocation for defence increased to Rs !,47,344 crore including Rs 60000 crore for capital
expenditure
• The total allocation under Rajiv Awaas Yojana increased to Rs 1270 crore in FY2010-2011 from Rs
150 crore in FY2009-2010
• The allocation under Indira Awaas Yojana increased to Rs 10000 crore
• The allocation to Ministry of Health & Welfare increased to Rs 22,300 crore in FY 2010-2011
• The planned allocation for school education increased by 16% to Rs 31,036 crores in FY 2010-2011
• The allocation to the power sector excluding RGGVY doubled from Rs 2230 crore in 2009-2010 to Rs
5130 crore in 2010-2011
Understanding the Deficit
 The budget was one where much of the focus
was on fiscal prudence along with social
development

 The Government has pegged back the fiscal

deficit to 5.5% of the GDP but thought should
be given to the fact that the figures are on the
base of 2000-2001 prices where as last years
figures were on the base of 1993-1994 prices

 The factor which was also important to note

that the Finance Minister gave a clear roadmap
on the fiscal deficit for the next two years and
will undertake reforms to bring it down to even
lower levels

 There was also more clarity on the

disinvestment issue and it is to be seen that
disinvestment is here to stay

 The Ministry should be applauded for the fact

that even after widening the tax slab for
individuals it was able to manage expenditure
in such a way that it doesn’t becomes a burden
for the Government

 This was received by the markets with a

thumbs up with investors giving the budget a
thumbs up as was gauged by the initial
reaction of the markets
Financial sector reforms

 RBI to consider allotting some additional banking license to private

companies
 Banking licenses for private, NBFC players to be considered if they meet
RBI eligibility criteria
 Bank farm loan target is at Rs 3.75 lakh crore
 Government has decided to set up apex-level Financial Stability &
Development Council
 FY2010 capital for PSU banks stands at Rs 16500 crore
 Rs 12,000 crore to be allocated to PSU banks for capitalisation
 Banks to get Rs 6,000 crore to improve fundamental structure
 Banks for all villages with a population of more than 2000 to be set up
 Direct Tax Reforms
The gross tax to GDP ratio is estimated to improve from budgeted estimate of 10.8% in 2010-11 to 11.5% in 2011-
12 and 11.8% in 2012-13. This would be still lower than tax to GDP ratio of 12 per cent achieved during 2007-08.

Giving a relief to the middle class Finance Minister Pranab Mukherjee revised the tax slabs for the next financial
year. The government aims to implement Direct Tax Code by April 1, 2011. New direct tax proposals to result in
loss of Rs 26,000cr. The FM allowed an additional investment of Rs 20,000 for infrastructure bonds taking the total
of the limit under section 80C from the current Rs 1 lakh to Rs 1.2 lakh. New tax rates are expected to offer relief to
about 60 per cent of tax-payers.

Income Tax Slabs(In Lakhs)

Male taxpayers Rate Female taxpayers Rate Senior citizens Rate
Upto Rs. 1.60 0 Upto Rs. 1.90 0 Upto Rs. 2.40 0
Rs.1.60 to Rs.5.00 10% Rs.1.90 to Rs. 5.00 10% Rs.2.40 to Rs. 5.00 10%
Rs.5.00 to Rs 8.00 20% Rs. 5.00 to Rs 8.00 20% Rs. 5.00 to Rs 8.00 20%
Rs. 8.00 and above 30% Rs. 8.00 and above 30% Rs. 8.00 and above 30%

MAT GST Corporate Tax

Minimum Allocation Tax (MAT) on book profits has Goods and Services Tax is to be implemented by Unchanged. The corporate tax thus continues to
been increased from 15 per cent to 18 per cent April 2011. He was firm on this even though stand at 30% but surcharge has been reduced from
enhancing the inter se equity in taxation of government faces problem with state 10% of the corporate tax to 7.5%. This is
companies and also raising the effective tax rate administration. part of the initiative to phase out surcharges.
which is currently around 22.0%. Education cess remains at 3% of corporate tax.
Thus, total tax liability for coporate is down to
33.2175% from 33.99% earlier.
Agricultural Reforms
 Draft of Food Security Bill ready, to be placed in public domain soon
 Deficit in food grains storage capacity to be met by private sector participation
 Agricultural credit flow target for FY11 increased to Rs 3.75 lakh cr from Rs 3.25 lakh cr last year
 Customs duty is being reduced from 7.5% to 5% on specified agricultural machinery such as paddy trans-
planter, laser land leveler, cotton picker, reaper-cum-binder, straw or fodder balers, sugarcane harvesters,
track used for manufacture of track-type combine harvester etc.
 Agriculture seeds exempt from service tax
 Setting up of cold storages exempted from service tax
 External Commercial Borrowings (ECBs) now made available for food processing sector
 To set up 5 more mega food parks
 Nutrient based subsidy policy for the fertilizer sector (resulting an increase in agricultural productivity and
better returns for farmers) will become effective from April 1, 2010
 Under the Debt Waiver and Debt Relief Scheme for farmers, the period for repayment of loan amount
extended by 6 months from December 31, 2009 to June 30, 2010
 Rs 400.0cr provided to extend the green revolution to the eastern region of the country
 Rs 200.0cr provided to sustain the gains already made in the green revolution areas through conservation
farming
 Indirect Taxes
New indirect taxes changes are likely to yield a gain of Rs. 45,000.0cr.
Central Excise Duty
 Excise duty increased from 8% to 10%
Duty on petrol and diesel increased by Re. l per litre
 Duty increased on cigarettes and other tobacco products
 Ad-valorem component of excise duty on large cars, Multi Utility Vehicles and Sports Utility Vehicles increased from 20% to 22%
 Duty on cement hiked from 8% to 10%
 Full or partial excise duty exemptions/concessions available to many items have been withdrawn and duty imposed on them @
4% or 10%.

Service Tax
•Service Tax remains at 10.0%
•Eight new services are being brought under the service tax net

Custom Duty
• Duty on non-agricultural items remain at 10.0%
• In the petroleum sector, customs duty has been increased on: crude petroleum from Nil to 5%; petrol and diesel from 2.5% to
7.5%; and other specified petroleum products from 5% to 10%
• Duty on silver raised to Rs 1500 per kg and on gold raised to Rs 750 per 10 gram
• Duty of one of the key component of microwave oven reduced
Sector Analysis (1/3)
Se cto r A nn ouncm ent Im p ac t S to c k s
N u trie n t b a s e d s u b s id y p o lic y fo r f e rtilis e r s e c to r a p p ro v e d b y G o v t. w e f . F ro m
Fertilisers A p ril 1 , 2 0 1 0 RCF
P o s itiv e
D e c is io n o n K irith p a rik h c o m m itte e re p o rt to b e ta k e n in d u e c oNuersu etra l O M C 's
R e s to re th e b a s ic d u ty o f 5 % o n c ru d e o il, 7 .5 % o n d ie s e l & p e tro l & 1 0 % o n
o th e r re f in e d p ro d u c ts . C e n tra l E x c is e d u ty o n p e tro l & d ie s e l e n h a n c e d b y R s 1 /
O il & G as litre P o s itiv e O M C 's
R e c a p ita lis e re g io n a l ru ra l b a n k s to p ro m o te le n d in g P o s itiv e
C o n s id e rin g g ra n tin g a d d itio n a l b a n k in g lic e n c e to p riv a te s e c to r p la y e rs , N B F C 's
B FS I a ls o to b e c o n s id e re d P o s itiv e R e lia n c e C a p ita l, IF C I
A s u m o f R s 1 6 5 0 0 c ro re to b e p ro v id e d to e n s u re P S B 's a re a b le to m a in ta in 8 %
T ie r 1 c a p ita l b y m a rc h 3 1 , 2 0 1 1 P o s itiv e
E x te n s io n o f e x is tin g in te re s t s u b v e n tio n o f 2 % f o r m o re th a n o n e y e a r f Ao rlo k in d u s trie s , B o m b a y
T extiles e x p o rts P o s itiv e d y e in g , R a y m o n d
C e n tra l e x c is e d u ty h ik e d f ro m 8 % to 1 0 % N e g a tiv e A ll a u to c o m p a n ie s
T a ta m o to rs , A s h o k le y la n d
A u to m ob iles E x c is e d u ty o n la rg e c a rs , M U V 's & S U V 's in c re a s e d b y 2 % p o Ninetsg a tiv e M&M
M e ta ls & M in in g C e n tra l e x c is e d u ty h ik e d f ro m 8 % to 1 0 % N e g a tiv e A ll M e ta l C o m p a n ie s
T h e s p e c if ic ra te s o f d u ty a p p lic a b le to p o rta b le c e m e n t a n d c e m e n t c lin k e r a ls o
C e m en t a d ju s te d u p w a rd s p ro p o rtio n a te ly A C C , U ltra te c h
T o d o u b le th e a m o u n t le n t b y IIF C L f ro m R s 3 0 0 0 c ro re in th e cPuorre n t ey e a r
s itiv ID F C

A s u m o f rs 1 ,7 3 ,5 5 2 c ro re to b e p ro v id e d to w a rd s in f ra s tru c tu raP lo ds eitiv

v eelo p m e n t ID F C
A llo c a tio n to w a rd s ro a d tra n s p o rt in c re a s e d b y o v e r 1 3 % to rs 1P9o8s9itiv 4 ec ro re
G M R In f ra , P u n j L lo y d
In fra stru ctu re M o n o ra il p ro je c ts to b e g ra n te d a c o n c e s s io n o f 5 % P o s itiv e L & T , R e lia n c e in f ra
Sector Analysis (2/3)
Sector Announcment Impact Stocks
Allocation for power sector excluding RGGVYdoubled fromRs 2230 crore in
09-10 to Rs 5130 crore in 10-11 Positive
Introduce competetive bidding process for captive coal mining blocks
Planned outlay for renewable energy increased by 61%to rs 1000 crore in FY
10-11 Positive Suzlon, Moser Baer
Solar & Hydro power projects worth rs 500 crore to be set up in Ladakh Positive NHPC, JP Power
Provide a concessional customs duty of 5%for equipment used in
Power &Energy
construction of photo voltaic cells & solar power generation and also exempt
themfromCentral excise Duty. Ground source heat pumps to be exempt from Moser baer, Webel SL
customs & additional duty Positive Energy
Exempt inputs required in manufacture of rotor blades for Wind Energy from
Central Excise Duty Positive Suzlon
Central Excise duty on LED lights reduced from8%to 4%to bring at par with
CFL Positive MIC Electronics
Plan Allocation for school education increased by 16%to Rs 31,036 crores in
Education FY10-11 Positive Educomp, Everonn, Edserv
States will have access to Rs 3675 crore for elementary education Positive
Planned allocation to Ministry of health & Welfare increased to rs 22,300 crore
in FY10-11 Positive
Weighted average deduction on expenditure incurred on in house R&D
Healthcare expenses enhanced from150-200%, on payments made to National
Laboratories from125-175% Positive All pharma companies
Uniformconcessional basic duty of 5%, CVD of 4%with full exemption from
special additional duty prescribed on all medical equipments Positive Siemens
Allocation under Indira awaas Yojana increased to rs 10000 crore
Allocation for urban development increased by 75%to rs 5400 crore in 2010-
11 Positive

Allocation for housing and Urban poverty Alleviation raised to Rs 1000 crore Positive HDIL, Unitech
Housing
Scheme of 1%interest subvention on housing loan upto Rs 10 lakh extended
upto 31 March 2011. Asumof rs 700 crore earmarked for this project Positive HDFC, LIC Housing Finance
Allocation under Rajiv Awaas Yojana increased to Rs 1270 crore fromRs 150
crore Positive
Pending projects to be completed within a period of 5 years instead of 4 years
for claiming a deduction on profits Positive HDIL, Unitech, DLF
Sector Analysis (3/3)
Sector A nn oun cm ent Im pact Stoc ks
S e rvice ta x re ta in e d a t 1 0 % P o sitive
Information Technology M A T in cre a se d fro m 1 5 % to 1 8 % N e g a tive A ll IT co m p a n ie s
N o e xte n sio n o f ta x b e n e fits u n d e r S T P I A ct N e g a tive
A llo ca tio n fo r d e fe n se in cre a se d to rs 1 ,4 7 ,3 4 4 cro re in clu d in g rs 6 0 0 0 0 cro re fo r
Defense ca p e x P o sitive BEL, BEML, LT
M A T in cre a se d fro m 1 5 % to 1 8 % N e g a tive A ll T e le co m C o m p a n ie s
E xe m p tio n to m a n u fa ctu re rs fro m b a sic, C V D a n d sp e cia l d u tie s e xte n d e d to
Telecom o th e r p a rts a n d a lso e xte n d e d till M a rch 3 1 , 2 0 1 1 P o sitive S p ice m o b ile s
Tobacco H ike in e xcise d u ty o n to b a cco a n d n o n to b a cco sm o kin g p ro d u cts N e g a tive IT C , G o d fre y P h ilip s
B e n e fits o f in ve stm e n t lin ke d d e d u ctio n u n d e r th e A ct e xte n d e d to n e w h o te ls o f
Hotels Tw o -S ta r ca te g o rie s a n d a b o ve o n a p a n In d ia b a sis P o sitive H o te l le e la , E IH
B a sic cu sto m s d u ty o n o n e o f ke y co m p o n e n ts in p ro d u ctio n o f m icro w a ve
Consumer Durables o ve n s, n a m e ly m a g n e tro n s, re d u ce d fro m 1 0 % to 5 % P o sitive
R e la xa tio n in p e rso n a l in co m e ta x P o sitive
E xte n sio n o f e xistin g in te re st su b ve n tio n o f 2 % fo r m o re th a n o n e ye a r fo r G ita n ja li, T ita n , R a je sh
e xp o rts P o sitive E xp o rts
R a te s o f p re cio u s m e ta ls in d e xe d a s fo llo w s : G o ld & p la tin u m a t R s 3 0 0 /1 0 g
Gems & jewelery fro m R s 2 0 0 /g a n d S ilve r a t R s 1 5 0 0 /kg fro m R s 1 0 0 0 /kg G ita n ja li, T ita n
N e g a tive

B a sic cu sto m s d u ty o n R h o d iu m w h ich is u se d to p o lish je w e le ry re d u ce P odsitive

to 2 % G ita n ja li, T ita n
R e la xa tio n in p e rso n a l in co m e ta x sla b a n d co n tin u e d fo cu s o n so cia l w e lfa re
FM CG sch e m e s w ill h e lp in im p ro vin g d e m a n d fo r th e se g o o d s P o sitive B rita n n ia , N e stle , D a b u r
S e rvice ta x re m a in s u n ch a n g e d a t 1 0 % P o sitive B rita n n ia , N e stle , D a b u r

• The Government has retained the service tax at 10%

• MAT has been increased from 15% to 18%
• Surcharge levied for the companies has been decreased to 7.5% from 10%
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