Budget intention of reducing deficits positive:P Lilladher

Apurva Shah, VP & Head Research (Institutional Equities), Prabhudas Lilladher`s reaction on Union Budget 2011-12.
 
Summary:

The Union Budget 2011-12 has kept a relatively sharper focus on achieving fiscal consolidation without hurting growth by way of higher taxes. This tighter fiscal policy, which supplements a tight monetary policy, is very positive for the outlook for both, inflation and interest rates. Clearly, strong underlying growth expectations of 9.0% Real GDP growth is helping the FM achieve his deficit targets due to strong tax collections and non-tax revenues. Tax collections are expected to grow by 24.9% YoY in FY12 despite no increase in Indirect Taxes and a marginal cut in Direct Taxes.

Overall expenditure growth has been budgeted at just 3.4% in nominal terms. This is the lowest we have seen in many years (for the last three years it has averaged at about 20% annual growth). This is partly being achieved by providing fairly low numbers for key subsidies such as Fuel, Fertilizer and Food. These numbers can only be achieved if we are blessed with low commodity prices in FY12, or product prices are increased or key reform measures are carried out. We believe it will be a mix of the latter two. Impressively the decline in expenditure is expected to be achieved without any cut in Capital Expenditure growth. Overall Capital Expenditure is budgeted to increase by 21.2% in FY12.

Overall we come away somewhat