Roadmap on oil subsidy out of cards: Mehta Equities

Post-budget outlook 2011-12- Well managed but no significant move towards economic reforms by Mehta Equities.

Finance Minister Pranab Mukherjee sprung very few pleasant transformations on his Union Budget for 2011-12, but made no significant move towards giving a new impetus to economic reforms. With a neutral outlook on budgetary reforms which was mainly on the back of inflation fears and a dip in FDI, Finance Minister Pranab Mukherjee presented budget keeping eyes on forth coming elections with five states Assam, Tamil Nadu, Puducherry, Kerala and West Bengal-- heading for polls.

Indian stock markets certainly cheered the move, as it did his tax cut for Corporates and a number of measures to enable more FII dollars to be poured into the Indian markets. Primary among these is relaxing the limits for FII investments in mutual funds.

Moreover, the intention to disinvest Rs 40,000 worth of PSU holdings will also give a new fillip to the primary market. Keeping tax proposals revenue-neutral for the government, lightened the income-tax burden by a fraction for the taxpayers, while raising excise taxes selectively to compensate for the losses from lower income-tax.

Apart the taxes, Mr. Mukherjee also lowered surcharges on corporate tax from 7.5 % to 5%, which will lower the tax outgo-and improve net profits- for all companies who do not have to pay their taxes under MAT (Minimum Alternate Tax).

On the road map to bring down fiscal deficit to 3.6% over three years. The fiscal deficit for the year ending March 2012 is pegged at 4.6% and then to 4.1% in 2012-13. The fiscal deficit for the year ended March 2011 stood at 4.8% and the revenue deficit at 3.5%. In actual terms, the Budget for 2010-11 had estimated the level of fiscal deficit at Rs 3,81,408 crore and revenue deficit at 2,76,512 crore. As per advance estimates (AE) released by the Central Statistics Office (CSO) on 7 February 2011, the nominal GDP for 2010-11 was placed at Rs 78,77,947 crore. The effective control over the fiscal situation was aided by the revenue from auction of 3G licenses.

What was missing in budget 2011-12, No major announcement of allowing or increasing foreign direct investment (FDI) in retail and insurance space, which was widely expected in the markets. Of course, such announcements do not necessarily have to be made in a Budget speech, even though the platform has traditionally been utilized to state such major initiatives. Roadmap on oil subsidy was out of cards and finally guidance on long-term infrastructure borrowings was also a missing shot in the budget.

Key highlights are as follows

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