No negative surprise in Union Budget is positive for mkts

Sectoral Impact- Summary:

• No negative surprise in the Union Budget is positive. Contrary to expectations of an increase in excise duties, government has maintained status quo, thus allaying industry's concern on the growth.
• Targets set for fiscal deficit at 4.6% seems to be aggressive given the lower provision for subsidies and lower budgetary allocation to flagship schemes like NREGA.
• There was no major announcement on financial sector reforms. For taxation reforms, DTC is scheduled to be implemented from April© while on GST, the government is planning to bring Constitution Amendment bill in the current session.
• For Infrastructure funding, corporate bonds limit increased by USD20bn to USD25bn. This should deepen the corporate bond market and at the same time boost infrastructure creation in the country.

• Agriculture estimated to grow at 5.4% in FY11.
• Interest subvention on short term crop loan enhanced to 3%, effective rate to farmers @ 4%.
• To attract private investment in Agriculture.
• The total allocation to Rashtriya Krishi Vikas Yojana (RKVY) is being increased from Rs67.5bn in FY11 to Rs78.6bn in FY12.
• Target of bank credit to farmers increased to Rs4,750bn from Rs3,750bn.

• Amendments proposed to the Banking Regulation Act in the context of additional banking licenses to private sector players.
• Rs60bn provided for capitalisation of Public Sector Banks; Rs5bn provided for capitalisation of Regional Rural banks.
• SEBI registered mutual funds can accept subscription from foreign investors who meet KYC requirements for equity schemes.
• Financial Sector Legislative Reforms Commission set up to rewrite and streamline the financial sector aws, rules and regulations.
• Companies Bill to be introduced in the Lok Sabha during current session.
• Direct Taxes Code (DTC) to be finalised for enactment during FY12 (proposed to be effective from April 1, 2012).
• As a step towards roll out of Goods and Services Tax (GST), Constitution Amendment Bill proposed to be introduced in this session of Parliament.
• Amendment to Centre¡¯s FRBM Act, 2003 laying down the fiscal road map for the next five years to be introduced in the course of the year.

• The basic exemption limit of income tax raised to Rs180,000 from Rs160,000 which will result in total tax saving of Rs2,000.
• More relief for senior citizens.
• Deduction for investment of Rs20,000 in Long© erm infra bonds extended by one more year.

• Increase in MAT rates from 18.0% to 18.5%. However no material change in effective MAT rate on back of reduction in surcharge.
• Surcharge for domestic companies reduced to 5% from 7.5%. This would lead to reduction in normal corporate tax rate by 75bps.
• MAT and DDT would now be levied on SEZ developers as well as units operating in SEZ.
• Dividend from foreign subsidiary to be now taxed at 15% from earlier full tax rate.

• Central Excise Duty rate kept unchanged at 10%.
• Nominal Central Excise Duty of 1% imposed on 130 items entering in the tax net which were earlier exempt.
• Concessional rate of Central Excise Duty enhanced from 4% to 5%.

• Peak Customs Duty rate kept unchanged at 10%.
• Customs duty rates of 2%, 2.5% and 3% has been rationalized to a mean of 2.5%.

• Standard Service Tax rate kept unchanged at 10%.
• Service Tax on air travel both domestic and international raised.
• Hotel accommodation in excess of Rs1,000 per day, air conditioned restaurant with bar, air conditioned hospitals with 25 or more bed and certain legal services have been brought under the ambit of Service Tax.

• Allocation towards Infrastructure has been increased by 23.3% to Rs2,140bn for FY12, ~48.5% of the gross plan budgetary allocation.
• FII limit for investment in infrastructure corporate bonds has been raised from USD5bn to USD25bn with residual maturity of over five years.
• Allocation for Highways lowered by 20.6% to Rs133bn. However, NHDP allocation increased by 9.2% to Rs103bn.
• Government enterprises has been allowed to raise tax free bonds of Rs300bn.
• A new comprehensive policy on PPP is under the framework.
• Allocation for urban infrastructure increased by 52.5% to Rs80.5bn.
• Budget Allocation to major schemes: Bharat Nirman - From Rs480bn to Rs580bn, up 21% North Eastern Region -From Rs54bn to Rs80bn, up 48% NHDP- From Rs95bn to Rs103bn, up 9%

• Overall allocation for education increased by 24% to Rs521bn. Sarva Shiksha Abhiyan allocation up 40% to Rs210bn. Scholarship Scheme introduced for Scheduled Castes and Scheduled Tribes studying in
  classes ninth and tenth (4mn students to get benefit).
• NREGA scheme outlay maintained at Rs401bn. Wages has been linked to CPI index w.e.f. January.
• Mid day meal scheme allocation increased by 10% to Rs104bn.
• Health allocations increased by 20% to Rs267.6bn.