Budget 2011-12 Preview: Sunidhi Securities

Sunidhi Securities has come with a report on Budget 2011-12 Preview.

Budget 2011-12 Pre-View:

The facts that though India has recovered from the global economic slowdown, new challenges have emerged that pose a challenge to maintaining the current growth rates. New and formidable combination of various factors like slow recovery of the developed economies, rising inputs costs, tight liquidity conditions and rising interest rates do pose a threat to our present and prospective growth. There was an apparent need for the industry to make a demand for continuing stimulus package, which the Government is reported to have inclination to withdraw. The major thrust is for the Budget Proposals for 2011-12 should be according to industry leaders to maintain and even accelerate the pace of economic recovery and step up employment generation. 

Industry leaders/associations in their pre-budget meeting with the Finance Minister emphasized the need for incentivizing employment generation in industry and suggested abolition of surcharge and education cess, moderation of the corporate tax rate, removal of the cascading impact of dividend distribution tax, rationalize MAT as a specified percentage, retention of the peak customs duty rate of 10%, reduction in the CST rate from 2% to 1% with effect from 1st April, 2011.

Rollback of stimulus package:
In terms of key changes on the taxation front, there could be a further rollback of the fiscal stimulus given during the 2008 crisis in the form of excise duty cut from 14% to 8% for certain segments. It was partially rolled back to 10% and could be revised up again in this coming budget. Last year, government rolled back about USD 10 billion of a USD 40 billion stimulus package implemented during the 2008 global financial crisis. This year, the government is unlikely to make tough belt-tightening decisions. It is on the back foot over corruption scandals and faces elections in four major states. 

Since Honorable FM Mr. Pranab Mukherjee wants to reduce the fiscal deficit to 4.8 percent of gross domestic product in 2011/12 and 4.1 percent in 2012/13, he is expected to continue a gradual rollback of the fiscal stimulus package unveiled during 2008 global crisis. Meanwhile, an effort to overhaul India's tax system has been deferred until next year, meaning Mr. Mukherjee may hold off on raising tax rates across the board and instead lift rates only for goods such as cars and commercial vehicles, while bringing more services into the tax net.

Divestments:
The government could rise up to Rs 40,000 crore from the sale of stakes in companies, partially offsetting a swelling food subsidy bill estimated at Rs 70,000 crore. A downturn in the stock market, however, has curbed investor appetite for new issues for the time being. The Government may continue to divest stake in PSUs to raise funds to limit deficit.
 
Deficit may rise:
The combination of a modestly expansionary budget, the absence of 3G licence revenues, weaker economic growth and higher debt service costs is likely to see the central government

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