Excise duty unchanged a sensible move: Aditya Birla Money

Aditya Birla Money has given their reaction on budget 2011.

It was a tough decision for the FM who was faced with the challenging task of doing a balancing act of stimulating the economy to insure against any slowdown in growth, keep inflationary expectations under check and at the same time shoring up the public finances. Given the constrains in which the FM operated; the initial reaction has been that FM has managed to come out with a reasonably okay budget.

FM has done a commendable job by bringing down the deficit to 4.6% against a target set at 4.8% last year. The borrowing has been kept at Rs 3.43 tn against street expectation of over Rs 4 tn. Budget increased the exemption limit thereby supporting consumption, reduced the corporate surcharge from 7.5% to 5% and sensibly left the central excise duty untouched.  While the divestment target has been retained at Rs 400 bn, it seems to be realistic. Biggest positive is bringing of the foreign money through MF route and increase in the corporate bond limit for the FIIs.

On the negative side the budget was silent on the reform process. Food, Fertiliser and Fuel subsidy seems to be abysmally low in light of the fact that food and fuel inflation remains elevated. As such the fiscal deficit target at 4.6% seems to be ambitious and FM has relied on tax buoyancy to bridge the fiscal gap and therefore the compliance and execution.

The expectations from the budget were low. Thus while sectoral impact may be limited, the overall budget is positive from the markets view point and benefit the overall market. No wonder the market reacted positively.

KEY HIGHLIGHTS OF THE BUDGET

KEY BUDGET NUMBERS:

• Fiscal Deficit brought down from 5.5% in BE 2010-11 to 5.1% of GDP in RE 2010-11.
• Fiscal Deficit projected at 4.6% of GDP for 2011-12; and to be progressively reduced to 3.5% by 2013-14.
• Net market borrowing of the Government through dated securities in 2011-12 would be Rs 3.43 lakh crore.
• Gross Tax receipts are estimated at Rs 9,32,440 crore; Non-tax revenue receipts estimated at Rs 1,25,435 crore.
• Total expenditure proposed at Rs 12,57,729 crore.
• Increase of 18.3% in total Plan allocation; Increase of 10.9% in the Non-plan expenditure.
• Revenue deficit fixed at 2.3 per cent in revised estimates of 2010-11 and 1.8 per cent in 2011-12
• FY12 Divestment target at Rs 40,000 crore
• States to cut down fiscal deficit to 3% of Gross State GDP by 2014.

PLAN OUT-LAYS:

• Increase in Education allocation by 24% to Rs 52057 Cr
• Increase in Healthcare allocation by 20% to Rs 26760 Cr
• Increase in Infrastructure allocation by 23.3% to Rs 2,14,000 Cr

DIRECT AND INDIRECT TAX PROPOSALS:

• Corporate Surcharge reduced from 7.5% to 5%; MAT rate hiked to 18.5% from 18%