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com February 28, 2011

Union Budget 2011-12: Maths does not add up

Given the tough macro environment and political
compulsions, the finance minister has avoided proposing
any significant reformist policy decisions while announcing
the Union Budget for FY2011-12. At the same time,
contrary to expectations the finance minister has not
resorted to the unwinding of the fiscal stimulus announced
earlier and/or a hike in the indirect taxes to boost revenues
and the budget is growth oriented in that sense. The strong
emphasis on agriculture and infrastructure sectors is in
line with expectations and the finance minister has
touched upon some key issues without proposing any
concrete steps to tackle the same.
The equities market was pleased with the lower than
expected government borrowing figure of Rs3.4 trillion
(against an expectation of Rs3.8-4 trillion) and the
aggressive fiscal deficit target of 4.6% as against a target
of 4.8% under the revised Fiscal Responsibility and Budget
Management (FRBM) Act. However, the achievement of
the stiff fiscal deficit target is based on a fairly healthy
assumption of a 17.9% growth in the net tax revenues but
a muted increase of just 3.4% in the total expenditure.
The growth in the total expenditure has been managed
through depressed provisions for subsidy expenditure (lower
by Rs20,000 crore in the FY2011-12 budgeted figures despite
the spiraling crude oil prices) and lower allocation for social
services (lower by Rs31,000 crore in the FY2011-12 budgeted
figures). Consequently, the Street would take the fiscal
deficit target set in the budget with a pinch of salt and the
market’s focus would shift back to corporate earnings,
domestic macro issues and global cues.

Gainers of budget 2011-12

Sector Comments
 Automobiles Excise duty retained at 10%; no specific duty on diesel cars.
 FMCG (specially ITC) Status quo maintained in excise duty on cigarettes; focus on rural development.
 Banks and financial Capital infusion, increase in interest subvention, tax-free infrastructure bonds retained and hike
services in limit for housing loans under priority sector.

Losers of budget 2011-12

Sector Comments

 IT Non-extention of STPI benefits by one year; SEZ coming within the purview of MAT.
 Retail No announcements on the much expected FDI in retail; 10% excise duty imposed on branded
garments.
 Telecommunications Non-tax revenue break-up shows a spike in receipts from communication services, indicating built-
in assumption of one-time charges for additional spectrum (over 6.2Mhz) held by incumbents.
 Oil & Gas (RIL and OMCs) Lower provisioning for oil subsidy; RIL's new refinery in SEZ to come within the purview of MAT.

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 sharekhan budget special
Key proposals
Direct taxes
 The individual income tax slabs have been raised to
Rs180,000 from Rs160,000 in FY2011 to allow more
disposable income. Further, the budget has continued
the additional deduction of Rs20,000 for investment
in long-term infrastructure bonds over and above the
existing limit of Rs1 lakh on tax savings.
 The qualifying age for senior citizens has been
decreased from 65 years to 60 years. The minimum
exemption limit for senior citizens has also been
increased from Rs240,000 to Rs250,000.
 The Direct Tax Code (DTC) and the Goods and Services
Tax Act are likely to be implemented in FY2012.
 The changes in the tax structure are likely to result in
a revenue loss of Rs11,500 crore in FY2012.
Corporate sector
 The surcharge on domestic companies has been
lowered to 5% from 7.5%. This would reduce the
effective tax rate for companies to 32.45% from 33.22%.
 The minimum alternate tax (MAT) has been raised to
18.5% from the current rate of 18%, which will push
the effective tax rate to 20.01% from 19.93%.
 The dividend income of a company from its foreign
subsidiaries is treated as a normal income and is
charged full tax in the hands of the recipient. The tax
rate on such foreign dividend income received by a
holding company has now been reduced to 16.22% from
33.22%.
 The weighted deduction on payments made to national
laboratories, universities and institutes of technology
for scientific research has been raised from 175% to
200%.
Indirect taxes
 The minimum central excise duty has been increased
from 4% to 5%.
 The service tax rates have been retained at 10% levels
but exemption has been withdrawn from some services.
 A nominal central excise duty of 1% is being imposed
on the 130 items that are entering the tax net.
 The rate of export duty on all types of iron ore has
been increased to 20% from 15% (in case of lumps) and
5% (in case of fines). A full exemption from export
duty is being provided in case of iron ore pellets.
Sharekhan
Maths does not add up
 Optional excise duty on branded articles or made-ups
has been converted to a mandatory duty at 10%.
 The structure of calculation of excise on the cement
industry has been ad-valorem (which is charged on the
ex-factory rate, as compared to the present practice
of charging on the minimum retail price [MRP]).
 The import duty on pet-coke and gypsum has been
reduced from 5% to 2.5%.
 The excise duty on capital goods manufactured for the
expansion of the existing mega or ultra-mega power
projects has been reduced to 2.5%.
 The changes in the tax structure are likely to result in
a revenue gain of Rs11,300 crore in FY2012.
Infrastructure sector
 For 2011-12, an allocation of over Rs214,000 crore is
being made for this sector which is 23% higher than
that in 2010-11.
 The foreign institutional investor (FII) limit for
investment in corporate bonds, with residual maturity
of over five years, issued by companies in the
infrastructure sector, has been raised to $25 billion
from $5 billion. This will raise the total limit available
to the FIIs for investment in corporate bonds to $40
billion.
 In order to boost infrastructure development in
railways, ports, housing and highway development, tax-
free bonds of Rs30,000 crore to be issued by various
government undertakings in 2011-12.
 India Infrastructure Finance Company Ltd (IIFCL) to
achieve cumulative disbursement target of Rs20,000
crore by March 31, 2011 and that of Rs25,000 crore by
March 31, 2012.
 Under the take-out financing scheme, seven projects
have been sanctioned with debt of Rs1,500 crore.
Another Rs5,000 crore will be sanctioned under the
scheme during 2011-12.
Agriculture and rural sectors
 The remuneration of Anganwadi workers has been
increased from Rs1,500 per month to Rs3,000 per
month and that for Anganwadi helpers from Rs750 per
month to Rs1,500 per month.
 The credit flow target for farmers has been raised from
Rs375,000 crore to Rs475,000 crore.
2 February 28, 2011
 sharekhan budget special Maths does not add up

 Interest subvention proposed to be enhanced from 2%  The housing loan limit for loans to be classified as
to 3% for providing short-term crop loans to farmers priority sector lending enhanced to Rs25 lakh from Rs20
who repay their crop loan on time. lakh.

 The target of providing banking facilities to all 73,000
habitations having a population of over 2,000 to be
completed during 2011-2012.
 The allocation under Rashtriya Krishi Vikas Yojana
(RKVY) has been increased from Rs6,755 crore to
Rs7,860 crore.
Other important focus areas
 The nutrient based subsidy (NBS) has improved the
availability of fertilisers; the government is actively
considering the extension of the NBS regime to cover
urea.
 About Rs40,000 crore will be raised through
disinvestment in 2011-12 but the government will retain
a 51% stake in the public sector undertakings (PSUs).
 About Rs6,000 crore to be provided during 2011-12
to enable the public sector banks to maintain a
minimum of tier-I capital-to-risk weighted asset ratio
(CRAR) of 8%.
 About Rs500 crore to be provided to enable the regional
rural banks to maintain a CRAR of at least 9% as on
March 31, 2012.
 About Rs5,000 crore to be provided to Small Industries
Development Bank of India (SIDBI) for refinancing
incremental lending by banks to the micro, small and
medium enterprises (MSMEs).
Fiscal deficit: Slippages on the card
Revenues—healthy growth assumption aided by
aggressive divestment and some one-time charges
The economic growth outlook remains strong as indicated
by the recently released findings of the Economic Survey
2010-11 (approximately 9% in FY2012) which should lead
to a strong growth in the tax revenues. The Union Budget
2011-12 projects the gross tax revenues would grow by
about 18.5% year on year (YoY) to Rs932,440 crore in
FY2012 compared with a 26% year-on-year (Y-o-Y) growth
(on a low base) in FY2011. The uptick in the gross tax
revenues is estimated to be driven by the direct taxes (up
by 19.4% YoY) while the growth in the indirect taxes is
estimated to be around 17.3% YoY in FY2012.
Like it had done in the previous year, the government has
set an aggressive divestment target of Rs40,000 crore for
FY2012. The government has done lesser disinvestment
(worth Rs22,000 crore against a target of Rs40,000 crore)
in FY2011 due to an unexpected gain from the third
generation (3G) spectrum auctions. Moreover, the break-
up of the non-planned expenditure suggests that the
government is assuming some one-time income from the
additional charges levied on the incumbent
telecommunications (telecom) operators having spectrum
of over 6.2Mhz in certain circles.

Major outlays by centre Rs (cr)

Particulars FY2011BE FY2011RE % change FY2012BE % YoY change
Agriculure and allied activities 12,308 14,362 16.7 14,744 2.7
Rural development 55,190 55,438 0.4 55,288 -0.3
Irrigation and food control 526 413 -21.5 565 36.8
Energy 146,579 126,225 -13.9 155,495 23.2
Industry and minerals 39,019 38,852 -0.4 45,214 16.4
Transport 101,997 98,727 -3.2 116,861 18.4
Communication 18,529 12,169 -34.3 20,256 66.5
Science technology and environment 13,677 12,652 -7.5 16,186 27.9
General economic surveys 7,554 14,878 97.0 15,802 6.2
Social services 127,570 127,157 -0.3 144,816 13.9
General services 1,535 1,377 -10.3 7,230 425.1
Grand total 524,484 502,250 -4.2 592,457 18.0

Sharekhan 3 February 28, 2011

 sharekhan budget special Maths does not add up

Trend in tax revenues The total expenditure for FY2012 is budgeted at

10000 50% Rs1,257,729 crore, up by 3.4% YoY, much lower than the
9000
40% 18.7% Y-o-Y growth witnessed in the previous fiscal. This
8000
7000 30% is largely on account of a likely lower subsidy bill and
6000 20% lesser allocations to the other programmes. In the budget
5000
4000 10% the allocations to Mahatma Gandhi National Rural
3000 0% Employment Guarantee Act (NGREGA) has remained
2000
-10% unchanged at Rs40,000 crore while the subsidy has been
1000
0 -20% reduced to Rs143,570 crore from Rs164,153 crore.
FY05A FY06A FY07A FY08A FY09RE FY10A FY11RE FY12BE Importantly, the plan expenditure is budgeted to grow by
Corporation tax Income tax
Excise Import duty
a strong 15.2% YoY while the growth in the non-plan
Service tax
Gross tax revenue % yoy
Other tax revenues
Indirect tax revenue % yoy
expenditure would decline by 2.1% in FY2012. We believe
the expenditure especially on the subsidy side would go
Share of indirect revenues
up sharply if the crude oil prices continue to rise; hence,
Direct Tax Indirect Tax the subsidy may contribute to an increase in the spending.
6000 60%
Indirect tax as % of total

5000
Expenditure trend
55%
11000 16%
4000 Plan expenditure
10000 15%
50% Admin and social services
9000 Subsidies 14%
3000 Defense
8000
Interest 13%
45% 7000 subsidies as% of total
2000 12%
6000
11%
40% 5000
1000 10%
4000
9%
3000
0 35%
FY05A FY06A FY07A FY08A FY09RE FY10A FY11RE FY12BE 2000 8%

1000 7%
Proceeds from disinvestment 0 6%

FY11RE

FY12BE
FY04A

FY05A

FY06A

FY07A

FY08A

FY09A

FY10A
450

400

350
Trend and composition of subsidies
300
250 1800

200 1600

150 1400

100 1200

50 1000
0 800
FY2011RE

FY2012BE
FY2003A

FY2004A

FY2005A

FY2006A

FY2007A

FY2008A

FY2009A

FY2010A

600

400

200

Expenditure curtailed by depressed subsidy provi- 0

FY11RE

FY12BE
FY02A

FY03A

FY04A

FY05A

FY06A

FY07A

FY08A

FY09A

FY10A

sions and lower allocation for social services

Defying the market expectation of a high spending populist Food Fertilisers Petroleum Subsidy
budget in view of the forthcoming state elections, the
finance minister has instead tried to curtail expenditure.

Sharekhan 4 February 28, 2011

 sharekhan budget special Maths does not add up

Fiscal consolidation: a stiff target target. We anticipate slippages on the expenditure side.
In the Union Budget for FY2012 the government has However, a fiscal deficit below 5% for FY2012 would be
proposed to reduce the fiscal deficit to 4.6% of the gross taken as a positive by the market.
domestic product (GDP) against the market expectation Trend in fiscal deficit
of about 5%; the target is also better than the 5,000 7%
recommendation of the13th Finance Commission. The 6%
4,000
budget further projects to bring down the fiscal deficit to 5%

4.1% in FY2013 and to 3.5% in FY2014. According to the 3,000 4%

roadmap for the fiscal consolidation provided in the 2,000

3%

2%
budget, the reduction in the fiscal deficit will help in
1,000 1%
lowering the debt-to-GDP ratio to 41.5% in FY2012 from
0%
44.2% in FY2011. 0

FY2011RE

FY2012BE
-1%

FY2003A

FY2004A

FY2005A

FY2006A

FY2007A

FY2008A

FY2009A

FY2010A
-1,000 -2%
Given the non-availability of windfall gains unlike in
FY2011 (eg from the 3G auctions) and the possible increase Fiscal Deficit Revenue Deficit Primary Deficit
FD as % of GDP RD as % of GDP PD as % of GDP
in the spending due to higher subsidy bill, it would be
tough for the government to reach the 4.6% fiscal deficit
Government borrowings: lower than expectations
Fiscal consolidation targets
The net market borrowings are expected to be Rs343,000
4,500 7%
4,000
crore, broadly similar to that in FY2011. Since the
6%
3,500 borrowing target announced is lower than the market’s
5%
3,000 expectations, it would be taken as a positive by the
4%
2,500 market. This bodes well for the public sector banks as
2,000 3%
this would reduce the pressure on the bond yields. In terms
1,500
1,000
2% of timing the borrowing programme, FY2012 too is likely
500
1% to see the major portion of the borrowing concentrated
0 0% in H1FY2012 to ensure minimum distortion/pressure on
FY11RE

FY12BE
FY2003

FY2004

FY2005

FY2006

FY2007

FY2008

FY2009

FY10A

the bond yields.

Fiscal Deficit FD as % of GDP

Trends in tax revenues

(Rs '00 crore) FY2005A FY2006A FY2007A FY2008A FY2009A FY2010A FY2011RE FY2012BE
Gross tax revenues 3049.6 3661.5 4735.1 5931.5 6053.0 6245.3 7868.9 9324.4
Gross tax revenue % yoy 19.9 20.1 29.3 25.3 2.0 3.2 26.0 18.5
Direct Tax 1319.5 1572.6 2194.1 2955.6 3194.4 3770.4 4454.4 5320.2
% change yoy 25.7 19.2 39.5 34.7 8.1 18.0 18.1 19.4
Corporation tax 826.8 1012.8 1443.2 1929.1 2134.0 2447.3 2963.8 3599.9
% change yoy 30.1 22.5 42.5 33.7 10.6 14.7 21.1 21.5
Income tax 492.7 559.9 750.9 1026.4 1060.5 1323.2 1490.7 1720.3
% change yoy 19.0 13.6 34.1 36.7 3.3 24.8 12.7 15.4
Indirect tax 1730.1 2088.9 2541.0 2975.9 2858.6 2474.9 3414.5 4004.2
Indirect tax revenue % yoy 15.8 20.7 21.6 17.1 -3.9 -13.4 38.0 17.3
Indirect tax as % of total 56.7 57.1 53.7 50.2 47.2 39.6 43.4 42.9
Excise 991.3 1112.3 1176.1 1236.1 1086.1 1036.2 1377.8 1641.2
% change yoy 9.2 12.2 5.7 5.1 -12.1 -4.6 33.0 19.1
Import duty 576.1 650.7 863.3 1041.2 998.8 833.2 1318.0 1517.0
% change yoy 18.5 12.9 32.7 20.6 -4.1 -16.6 58.2 15.1
Service tax 142.0 230.6 376.0 513.0 609.4 584.2 694.0 820.0
% change yoy 80.0 62.4 63.1 36.4 18.8 -4.1 18.8 18.2
Other tax revenues 20.7 95.4 125.6 185.6 164.2 21.2 24.7 26.1
% change yoy -1.5 360.1 31.6 47.8 -11.5 -87.1 16.4 5.7

Sharekhan 5 February 28, 2011

 sharekhan budget special Maths does not add up

Government borrowings Earnings growth and global cues key to valuations

5,000
Gross debt market borrow ings
95% The achievement of the stiff fiscal deficit target is based
4,500 90%
4,000
Net debt market borrow ings on the fairly healthy assumption of a 17.9% growth in the
net as % of gross borrow ings 85%
3,500
80%
net tax revenues but a muted increase of just 3.4% in the
3,000
75%
total expenditure. Looking at the details, there is a
2,500
70% likelihood that the government may find it difficult to
2,000
1,500
65% achieve the self-imposed fiscal deficit target.
1,000 60%
Consequently, the Street would take the fiscal deficit
500 55%
target set in the budget with a pinch of salt and the
0 50%
market’s focus would shift back to global cues and the
FY2010RE

FY2011BE

FY2012BE
FY2003A

FY2004A

FY2005A

FY2006A

FY2007A

FY2008A

FY2009A

movement in crude oil prices.

Personal income tax Individual tax payers

In the Union Budget 2011-12, the finance minister has FY2010-11 FY2011-12
lowered the qualifying age of senior citizens to 60 years Tax slabs Tax rate Tax slabs Tax rate
from the erstwhile 65 years and has introduced a new (Rs) (%) (Rs) (%)
category of individuals being those above the age of Upto 160000 Nil Upto 180000 Nil
80 years. The budget has increased the basic exemption 160001 - 500000 10.3 180001 - 500000 10.3
limit for senior citizens and individual tax payers other 500001- 800000 20.6 500001- 800000 20.6
than women assesses and senior citizens. The budget above 800001 30.9 above 800001 30.9
has increased the basic exemption limit for individual Senior citizen upto 80 years
tax payers to Rs1,80,000 from the earlier Rs1,60,000 FY2010-11 FY2011-12
which would lead to a saving of Rs2,060 and for senior
Tax slabs Tax rate Tax slabs Tax rate
citizens to Rs2,50,000 from Rs2,40,000 leading to a
Upto 240000 Nil Upto 250000 Nil
saving of Rs1,030. The basic exemption for new
240001 - 500000 10.3 250001 - 500000 10.3
category of individuals of age above 80 years has been
500001- 800000 20.6 500001- 800000 20.6
kept at Rs5,00,000 which would lead to savings of
above 800001 30.9 above 800001 30.9
Rs26,780.
Senior citizen above 80 years
FY2010-11 FY2011-12
Tax slabs Tax rate Tax slabs Tax rate
Upto 240000 Nil Upto 500000 Nil
240001 - 500000 10.3
500001- 800000 20.6 500001- 800000 20.6
above 800001 30.9 above 800001 30.9

Sharekhan 6 February 28, 2011

 sharekhan budget special Maths does not add up

Government finances
(Rs '00 crore) FY2003A FY2004A FY2005A FY2006A FY2007A FY2008A FY2009A FY2010A FY2011RE FY2012BE
Gross tax revenue 2,162.7 2,543.5 3,049.6 3,661.5 4,735.1 5,931.5 6,053.0 6,245.3 7,868.9 9,324.4
Corporate tax 461.7 635.6 826.8 1,012.8 1,443.2 1,929.1 2,134.0 2,447.3 2,963.8 3,599.9
Income tax 368.7 413.9 492.7 559.9 750.9 1,026.4 1,060.5 1,323.2 1,490.7 1,720.3
Customs 448.5 486.3 576.1 650.7 863.3 1,041.2 998.8 833.2 1,318.0 1,517.0
Union excise duties 823.1 907.7 991.3 1,112.3 1,176.1 1,236.1 1,086.1 1,036.2 1,377.8 1,641.2
Service tax 41.2 78.9 142.0 230.6 376.0 513.0 609.4 584.2 694.0 820.0
Other taxes 19.4 21.1 20.7 95.4 125.6 185.6 164.2 21.2 24.7 26.1
Less: Dev to states & UTs 561.2 657.7 786.0 943.9 1,203.3 1,518.0 1,601.8 1,648.3 2,193.0 2,634.6
Less: NCCF expenditure 16.0 16.0 15.7 28.3 20.0 18.0 18.0 31.6 39.0 45.3

Net tax revenues 1,585.4 1,869.8 2,248.0 2,689.4 3,511.8 4,395.5 4,433.2 4,565.4 5,636.9 6,644.6
Non-tax revenues 722.9 768.3 811.9 768.1 832.1 1,023.2 969.4 1,162.8 2,201.5 1,254.4
Net revenue receipts 2,308.3 2,638.1 3,059.9 3,457.5 4,343.9 5,418.6 5,402.6 5,728.1 7,838.3 7,898.9
Non-debt capital receipts 373.4 841.2 664.7 122.3 64.3 439.0 67.1 331.9 317.5 550.2
Recovery of loans 341.9 671.7 620.4 106.5 58.9 51.0 61.4 86.1 90.0 150.2
Privatisation/Divestments 31.5 169.5 44.2 15.8 5.3 388.0 5.7 245.8 227.4 400.0
Total revenues 2,681.8 3,479.3 3,724.6 3,579.8 4,408.1 5,857.6 5,469.6 6,060.1 8,155.8 8,449.1

Revenue expenditure 3,387.1 3,620.7 3,843.3 4,393.8 5,146.1 5,944.3 7,938.0 9,118.1 10,536.8 10,971.6
Interest 1,178.0 1,240.9 1,269.3 1,326.3 1,502.7 1,710.3 1,922.0 2,130.9 2,407.6 2,679.9
Defence 407.1 432.0 438.6 482.1 516.8 542.2 732.2 906.7 907.5 952.2
Defence reported 556.6 600.7 758.6 805.5 855.1 916.8 1,142.2 1,417.8 1,515.8 1,644.2
Less: capital exp portion 149.5 168.6 319.9 323.4 338.3 374.6 410.0 511.1 608.3 692.0
Subsidies 435.3 443.2 459.6 475.2 571.3 709.3 1,297.1 1,413.5 1,641.5 1,435.7
Pensions 145.0 159.1 183.0 202.6 221.0 242.6 329.4 561.5 532.6 545.2
Grants to States and UTs 133.1 137.2 147.8 304.8 357.3 357.7 381.6 459.5 526.1 663.1
Admin and social services 373.0 422.0 470.0 484.2 552.7 646.6 927.9 1,107.2 1,370.3 1,059.5
Plan expenditure 715.7 786.4 874.9 1,118.6 1,424.2 1,735.7 2,347.7 2,538.8 3,151.3 3,636.0

Capital expenditure 745.4 1,091.3 1,139.2 663.6 687.8 1,182.4 901.6 1,126.8 1,629.0 1,605.7
Defence 149.5 168.6 319.9 323.4 338.3 374.6 410.0 511.1 608.3 692.0
Loans 196.8 486.2 371.3 52.4 75.1 492.7 87.0 120.6 339.7 134.3
Plan expenditure 399.0 436.4 448.0 287.8 274.4 315.1 404.6 495.1 681.0 779.4

Total plan expenditure 1,114.7 1,222.8 1,322.9 1,406.4 1,698.6 2,050.8 2,752.4 3,033.9 3,832.2 4,415.5
Total non-plan expenditure3,017.8 3,489.2 3,659.6 3,651.0 4,135.3 5,075.9 6,087.2 7,211.0 8,333.6 8,161.8
Total expenditure 4,132.5 4,712.0 4,982.5 5,057.4 5,833.9 7,126.7 8,839.6 10,244.9 12,165.8 12,577.3

Fiscal deficit 1,450.7 1,232.7 1,257.9 1,464.4 1,425.7 1,269.1 3,369.9 4,184.8 4,010.0 4,128.2
FD as % of GDP 5.9 4.5 4.0 4.1 3.4 2.7 6.0 6.2 5.1 4.6
Revenue Deficit 1,078.8 982.6 783.4 936.2 802.2 525.7 2,535.4 3,390.0 2,698.4 3,072.7
RD as % of GDP 4.4 3.6 2.5 2.6 1.9 1.1 4.5 5.0 3.4 3.4
Primary Deficit 272.7 -8.2 -11.4 138.1 -77.0 -441.2 1,447.9 2,053.9 1,602.4 1,448.3
PD as % of GDP 1.1 0.0 0.0 0.4 -0.2 -0.9 2.6 3.0 2.0 1.6

Sharekhan 7 February 28, 2011

sharekhan budget special Maths does not add up

Sectoral analysis
Automobiles
Issue Current Status Expectation Announcement Impact
Excise duty 10% Partial rollback of excise Retained at 10% Sentimentally positive. FM
across duty; specific increase in stressed on sustaining
automobile diesel cars profitability for the sector
sector which is experiencing macro
headwinds.

Increase in Rs375,000 crore NA Increased to Rs475,000 Positive for Mahindra &

credit crore Mahindra (M&M), Escorts
allocation to (Tractors).
priority sector
(agriculture)

Higher interest 2% NA Increased to 3% Positive for M&M, Escorts.

subvention for
farmers paying
loans on-time

Reduction in 10% NA Refund of 20% of excise Positive for Tata

duties for taxis duty paid Motors(Winger), M&M (Bolero
with seating & Xylo), Maruti Suzuki
capacity upto (Eeco).
13

Excise duty on 10% NA Reduced to 5% Positive for Exide and Bharat

hybrid kits and Forge ('Revolo' hybrid kit
hybrid battery being developed with KPIT).
packs
Custom duty on 10% NA Full exempt from custom Positive for M&M (Scorpio
hybrid vehicle duty Hybrid).
parts imports

Individual Upto Rs1.6 lakh NA Exemption upto Rs1.8 lakh To support discretionary
income tax spending.
exemption
Custom duty on 5% NA 2.5% Marginally negative for
agriculture M&M, VST Tillers.
machinery

Service tax on Cenvat credit on 100% of NA Cenvat credit on 80% of Marginally negative for
life insurance service tax paid service tax paid Exide Industries (it holds 50%
companies stake in ING Vysya
Insurance).

Sharekhan 8 February 28, 2011

sharekhan budget special Maths does not add up

Agri-chemicals
Issue Current Status Expectation Announcement Impact
Incentives to No special incentives Waiver of excise duty/ Extension of benefit of Positive as the sector would
encourage sales tax/VAT for capital investment-linked see fresh investments and
expansion and goods used in fertiliser deduction to businesses greenfield expansions.
greenfield projects. engaged in the production
investments in Exemption of project of fertilisers.
the fertiliser imports for fertiliser New capital investments
sector sector from customs duty. in the fertiliser sector to
Tax holiday under the get infrastructure status.
Income Tax Act for at least
a period of ten years for
all new fertiliser projects.

Decontrol of Urea prices and Including urea under the Inclusion of urea under Negative. Fertiliser
urea and urea- movements fall under new NBS scheme. NBS still under review. manufacturing companies
based products the price control of the Government to fix a would still need to adhere to
government subsidy for each year for government controlled
urea and urea-based prices for urea and urea-
products. based products.

De-canalise urea imports

once the same come under
the NBS scheme.

Sharekhan 9 February 28, 2011

sharekhan budget special Maths does not add up

Banking
Issue Current Status Expectation Announcement Impact
Rupee Government is providing Several PSU banks having An additional Rs6,000 Positive for PSU banks with
capitalisation of capital of Rs20,157 crore tier I CRAR below 8% have crore to be provided low tier-I capital as this
public sector in FY2011 to PSU banks applied for capital from during 2011-12 to enable would aid their growth and
(PSU) banks to increase tier 1 CRAR. government PSU banks to maintain a expansion plans. Banks
minimum of tier I CAR of having low tier 1 ratios like
8%. Syndicate Bank, Dena Bank,
UCO Bank etc are likely to
benefit.

Priority sector Housing loans upto Rs20 Not expected Existing housing loan limit This is positive for all the
eligibility and lakh are eligible for enhanced to Rs25 lakh for banks as a higher proportion
subvention on priority sector lending. dwelling units under of banks’ advances would be
housing loans Interest subvention of 1% priority sector lending. eligible for priority sector
is available on housing The interest subvention of status. This would encourage
loans upto Rs10 lakh with 1% will continue in FY2012 lending in the mortgage
cost of house not for loans upto Rs15 lakh segment. Further the
exceeding Rs20 lakh. for cost of house upto continuation of 1%
Rs25 lakh. subvention will keep the
demand for mortgage loan
healthy.

Exemption on Additional deduction of Expected Continuation of extension This is positive for

tax free Rs20,000 for investment till FY2012 end. infrastructure finance
infrastructure in infrastructure bonds in companies (REC, PFC, IDFC
bonds FY2011. etc) as it would facilitate in
fund raising at competitive
rates.

Draft guidelines RBI has come out with a Expected more clarity on RBI will come out with This is a positive for non
for new bank discussion paper on new bank licenses guidelines on fresh banking financial
licenses and issuance of fresh licenses by the end d of corporations (NBFCs) like
amendment in banking licenses , but FY2011. Reliance Capital, Shriram
Banking guidelines are awaited. Transport, Mahindra Finance,
Regulation Act Religare etc while they
aspire to convert to banks.
However as indicated in the
economic survey, a dual
license method would
disappoint the players.

MFI regulations Malegam committee set Was expected in FY2012 Government is considering This is a positive for micro
up by the RBI has putting in place finance institutions (SKS
submitted appropriate framework to Micro finance, SE Investment
recommendations and protect the interests of etc) as uncertainty over the
the regulations are due small borrowers. regulations of the Andhra
for implementation. Pradesh government has
impacted their collections.
The new regulatory
framework will support
expansion of MFI lending.
Interestsubvention Subvention raised from Not expected - Positive for banks as
onshort-term 1%to 2% for one year thiswould encourage
croploans witheffective interest borrowersto repay loans on
rates tosuch farmers time,thereby reducing
being 5% perannum. concernsover the asset
quality.

Sharekhan 10 February 28, 2011

sharekhan budget special Maths does not add up

Capital Goods and Engineering

Issue Current Status Expectation Announcement Impact

Budget
Allocation
- Defence - - Defence expenditure Positive for companies
Rs164,415 crore, an manufacturing defence
increase of 11.6% YoY. equipment, such as BEL,
Capital outlay raised to BEML and L&T.
Rs69,199 crore.

-Renewable - - Allocation at Rs2,150 Positive for renewable

energy crore (up about 10% YoY). energy player like Suzlon,
Shriram EPC and Moser Baer.

Increase in 10% 2% hike Remains unchanged at Neutral for all the capital
excise duties 10%. goods companies.

Custom duty on Concessional basic Withdrawal of import Excise duty for the Positive for the domestic
power customs duty of 2.5% and incentives to create a domestic players have power equipment
equipment full exemption from CVD level playing field for been reduced to Zero manufacturer like BHEL,
imported for on imported equipment domestic players L&T, BGR and Thermax;
mega power however, an undervalued
projects Chinese currency could still
play the spoilsport.
Investment in Around 40%of the fruit - Capital investment in Positive for Voltas and
cold storage and vegetable thecreation of modern Bluestar.
projects production in India goes cold storage capacities
waste due to lack of will be eligible for
storage, cold chain and viability gap funding
transport infrastructure scheme. It is also
proposed to recognise cold
chains and post-harvest
storage as an
infrastructure sub-sector
Surcharge on 7.5% - Reduced to 5% Positive as the maximum
corporate tax of corporate tax rate has been
domestic reduced to 32.45% from
companies 33.22% applicable in the
previous year.

Hotel
Issue Current Status Expectation Announcement Impact
Service tax on Exempted from service - 1) Hotel accommodation Negative for hotel industry
hotels tax charge in excess of and restaurants that have
Rs1,000 per day with an licence to serve liquor (eg
abatement of 50%. hotel chains like Barbeque
Hence the effective Nation, Copper Chimney,
service tax rate stands Urban Tadka, Masala
at 5%. Manter).
2) Service provided by air-
conditioned restaurants
that have licence to
serve liquor with an
abatement of 70%,
resulting in effective tax
rate of 3%.

Sharekhan 11 February 28, 2011

sharekhan budget special Maths does not add up

Cement
Issue Current Status Expectation Announcement Impact
Excise duty on The excise duty is Rs290 A) The industry expects Negative: The move will
Replace excise duty with
cement (MRP < per tonne for bagged abatement of excise ad valorem (charged on result in increase in cost by
Rs190 per bag) cement. duty as it is charged on ex-factory rate as Rs2-3 per bag and we
MRP which implies believe passing the
compared to present duty
double taxation. charged on the MRP). incremental cost to the end
B) The industry expects a 10% ad valorem + Rs80 per user will be difficult and
uniform excise duty tonne. could adversely affect the
slab. volume offtake.

Excise duty on The excise duty is 10% 10% ad valorem + Rs160 Negative for all cement
cement (MRP > for bagged cement. per tonne. companies.
Rs190 per bag)

Excise duty on Rs375 per tonne. Maintain 10% ad valorem + Rs200 Neutral for all cement
clinker per tonne. companies.

VAT VAT on cement and Reduction in VAT to 4% to No change. Neutral for all cement
clinker is charged at bring the same in line with companies.
12.5%. the VAT on other
construction materials like
steel.
Import duty on Import duty on pet coke Reduction in import duty Reduced to 2.5%. Positive for companies like
pet coke/ and gypsum is 5%. on pet coke to 0%. Shree Cement, JK Cement,
gypsum JK Lakshmi Cement.

Increase in - - Coal India has increased Negative: The sharp hike in

price of coal by coal prices by 30%. domestic coal price will
Coal India increase the cost of
production by around Rs5-6
per bag and pressurise the
margins.
Excise duty on Nil - Introduce 1% excise duty Negative for all cement
fly ash/RMC without Cenvat credit companies but the impact
facility. will be marginal.

Surcharge 7.50% - 5% Positive as it will reduce the

overall effective tax rate
from 33.22% to 32.45%.
Allocation for Allocated Rs173,560 Higher allocation for Allocated Rs214,000 Positive as a whole, as it
infrastructure crore (in 2010-2011) infrastructure crore, which is 23.3% will boost volume growth for
development development was higher compared to that cement companies.
expected to boost cement in the previous year.
demand.

Education
Issue Current Status Expectation Announcement Impact
Allocation for Allocation of Rs42,036 Increase allocation 24% Y-o-Y increase in Positive for all education
education crore in Union Budget allocation to Rs52,057 institutes and companies
2010-11 crore. (including Navneet
Publications).

Allocation Allocation of Rs15,000 - 40% Y-o-Y increase in Positive for all education
towards Sarva crore in Union Budget allocation to Rs21,000 institutes and companies
Shiksha 2010-11 crore. (including Navneet
Abhiyaan Publications).

Sharekhan 12 February 28, 2011

sharekhan budget special Maths does not add up

FMCG
Issue Current Status Expectation Announcement Impact
In general
Increase in MAT MAT rate at 18% Increase in MAT rate to Increase in MAT rate to The 0.5% increase in MAT
rate 20% 18.5% rate has been neutralised by
a 2.5% cut in surcharge,
Decrease in Surcharge at 7.5% - Surcharge declined to 5% which is a positive for
surcharge companies such as Hindustan
Unilever (HUL), Marico,
Godrej Consumers Product
Ltd (GCPL) and Dabur.

Excise duty Stood at 10% No change No change Neutral for FMCG companies
as they have low single-digit
excise pay-out, as their
facilities are located in
excise-free zones.

Focus on rural Allocation under various - Allocation under various Positive for FMCG
development schemes: schemes: companies, whose 30-50% of
~ Rashtriya Krishi Vikas ~ Rashtriya Krishi Vikas total revenues come from
Yojna (RKVY) - Rs6,755 Yojna (RKVY) - rural India.
crore. Rs7,860crore
~ Bharat Nirman - ~ Bharat Nirman -
Rs48,000 crore. Rs58,000 crore.
~ Corpus for Rural ~ Corpus for Rural
Infrastructure Infrastructure
Development Fund - Development Fund -
Rs16,000 crore. Rs18,000 crore.
~ Credit flow for farmers ~ Credit flow for farmers
@ Rs3,75,000 crore. @ Rs4,75,000 crore.
~ Interest subvention
proposed to be
enhanced from 2% to 3%
Tax on dividend Currently taxed at - Reduced to 16.22% Positive for FMCG
received from 33.22% (including companies, which receive
foreign surcharge and education dividend from its foreign
subsidiaries cess subsidiaries

Excise duty on - - Extended to air- Positive for Nestle,

specified items conditioning equipments, Britannia, HUL, Heritage
used in cold panels and refrigeration Foods, Amul and other food
storage / panels for installation of processing companies
refrigerator- for cold chain infrastructure / (especially those engaged in
preservation of Conveyor belt systems for dairy and poultry products)
agricultural, use in cold storage - for
horticultural, preservation of
dairy, poultry, agricultural, horticultural,
apiaries, dairy, poultry, apiaries,
aquatic and aquatic and marine
marine produce produce

Contd...

Sharekhan 13 February 28, 2011

sharekhan budget special Maths does not add up

FMCG (contd...)
Issue Current Status Expectation Announcement Impact
Segment /
Category-wise

Excise duty on Specific excise duty Expected to increase by 6- No change Positive for ITC and other
cigarette (varying with the type 8% cigarette manufacturers
and the length of including VST industries
cigarette)

Excise duty on 10% currently Full exemption Reduced to 1% Positive for Procter &
sanitary Gamble Hygiene products
napkins, baby & and Johnson & Johnson etc;
adultery marginally positive for GCPL
napkins

Concessional 4% currently - Increased to 5% Marginally negative for

excise duty on Britannia, Monginis and
pastry and Birdy's by Taj
cakes
Custom duty on 25% currently - Fully exempted (only for Marginally positive for HUL
crude palm laundry soaps) and Procter & Gamble
sterin
Custom duty on 30% currently - Reduced to 10%
raw pistachios
Positive for food processing
Custom duty on 100% currently - Reduced to 30% companies
sun-dried dark
seedless raisins

Part of 130 Fully exempted from tax - Tariff rate of 5% / Marginally negative for
items that are concessional rate of 1% FMCG companies which have
removed from without Cenvat products under these
excise duty categories in their offerings
exemption
Margarine,
Coffee or tea
pre-mixes,
Sauces,
Ketchup, Soups
and broths,
Food mixes
(including
instant food
mixes), Ready
to eat packaged
foods, Milk
containing
edible nuts with
sugar, Fruit
juice and fruit
pulp, Flavoured
milk, Tender
coconut water,
Tooth powder,
Paper or
paperboard,
School &
college
stationery

Sharekhan 14 February 28, 2011

sharekhan budget special
Infrastructure
Issue Current Status
Infrastructure Rs1.7 lakh crore provided Higher allocation
spending by the for infrastructure
government development
Rural Rs48,000 crore allocated Higher allocation
infrastructure in 2010-2011 under
Bharat Nirman. Bharat
Nirman includes Pradhan
Mantri Gram Sadak Yojna
(PMGSY), Accelerated
Irrigation Benefit
Programme, Rajiv Gandhi
Grameen Vidyutikaran
Yojna, Indira Awas Yojna,
National Rural Drinking
Water Programme and
rural telephony
FII limit in The FII limit for - The FII limit has been
corporate bond investment in corporate
bonds, with residual
maturity of over five
years, issued by
companies in
infrastructure sector set
at $5 billion
IIFCL lending Rs20,000 crore of Higher disbursement
and take-out disbursement by IIFCL by
financing March 2011. Take-out
financing scheme
implemented with seven
projects getting
sanctioned with a debt
of Rs1,500 crore.
Infrastructure - -
tax-free bonds
Sharekhan
Expectation Announcement
Rs2.14 lakh crore provided
for infrastructure
development which
accounts for over 48.5% of
the total plan outlay.
Allocation for Bharat
Nirman programme
proposed to be increased
by Rs10,000 crore to Rs
58,000 crore
raised by an additional
limit of $20 billion to $25
billion. Since most of the
infrastructure companies
are organised in the form
of SPVs, the FIIs would
also be permitted to
invest in unlisted bonds
with a minimum lock-in
period of three years.
However, the FIIs will be
allowed to trade amongst
themselves during the
lock-in period.
IIFCL's disbursement
expected to touch
Rs25,000 crore by March
2012. About Rs5,000 crore
to be sanctioned in 2011-
12 under take-out
financing.
Tax-free bonds of
Rs30,000 crore to be
issued by various
government undertakings
in 2011-12. This includes
Indian Railway Finance
Corporation—Rs10,000
crore, National Highway
Authority of India—
Rs10,000 crore, HUDCO—
Rs5,000 crore and Ports—
Rs5,000 crore.
15 February 28, 2011
Maths does not add up
Impact
Positive: Will result in the
announcement of a larger
number of new orders. Order
book of the construction
companies will continue to
be robust.
Positive for Pratibha, Unity
Infra, Tantia Construction, J
Kumar, Subhash Projects etc
Positive: Will enhance the
flow of funds to the overall
infrastructure sector as well
as long gestation projects,
thereby easing the funding
constrant and speeding up
the execution. Infrastructure
developers like IRB Infra,
ITNL, GMR Infra, IVRCL Infra,
Gammon Infra and Ashoka
Buildcon set to benefit.
Positive: Funds to provide
push to projects stalled/
slowed down due to lack of
funds.
Positive: Will boost
infrastructure development
in railways, ports, housing
and highways development.
Contd...
sharekhan budget special Maths does not add up

Infrastructure (contd...)
Issue Current Status Expectation Announcement Impact
Tax benefit on An additional deduction Extention of benefit The benefit has been Positive: Will keep the
infrastructure of Rs20,000 to an extended for one more demand for infrastructure
bond to an individual for investment year. bonds high.
individual in long-term
infrastructure bonds

Infrastructure Not there earlier Clarity on debt funds To create special vehicles Positive: Will attract foreign
debt fund in the form of funds for infrastructure
infrastructure debt funds. financing.
Further interest payment
on the borrowings of these
funds will be subject to a
reduced withholding tax
rate of 5% instead of the
current rate of 20%. Also
the income of the fund
will be exempt from tax.

Environmental - - A Group of Ministers has Positives: Will probably

issues been set up to consider all reduce the delay in project
issues relating to execution by speeding up
reconciliation of the environmental
environmental concerns. clearances.
This group will also
suggest changes in the
existing statutes, rules,
regulations and guidelines
and make its
recommendations in a
time bound manner.
MAT and MAT rate 18%, surcharge - MAT rate increased to Neutral for infrastructure
surcharge rate 7.5%, thus effective MAT 18.5%, surcharge reduced developers like GMR, GVK,
rate 19.93% to 5%, thus effective MAT IRB and all road BOT
rate 20.01%. developers.

Bio-based - - Full exemption from basic Positive for road developers.

asphalt & its customs duty to bio-
machinery along asphalt and specified
with tunnel- machinery for their
boring machines application in the
used in highway construction of national
construction highways. Tunnel-boring
machines required for the
construction of highways
are also being included in
this exemption.

Sharekhan 16 February 28, 2011

sharekhan budget special Maths does not add up

Information Technology
Issue Current Status Expectation Announcement Impact
Extension of tax Tax exemption for STPI Extend for next one year No extension. Neutral for all IT service
holiday granted registered units to expire providers, as the market has
under Software on March 31, 2011 factored in the same.
Technology However, the same is
Parks of India sentimentally negative.
(STPI; sections
10A and 10B)
Surcharge on 7.5% of corporate tax - Reduced to 5%. Positive for companies as
corporate tax the effective tax rate would
on domestic come down.
companies

Minimum MAT rate at 18%, - Increased to 18.5%, hence Neutral impact as the
alternate tax including surcharge, and the effective MAT rate increase in MAT rate is
(MAT) rate education cess at 19.93% would increase to 20.01%. nullified by a reduction in
the surcharge.

Applicability of MAT not applicable - MAT applicable w.e.f. Negative: The applicability
MAT on units in April 1, 2011 at 18.5%, of MAT on profits out of SEZ
SEZs including surcharge and units would lead to a higher
cess at 20.01%. tax outgo. It was expected
that tax rates would come
down as companies move to
SEZs where they would have
to pay nil tax.

Tax on dividend Taxed at corporate tax - Tax rate reduced to 15% Positive as IT companies
from foreign rate of 33.22% plus surcharge and cess, have foreign subsidiaries
subsidiaries ie 16.22% w.e.f. April 1, who pay dividend to the
2011. domestic parent companies.

Applicability of MAT not applicable - MAT applicable w.e.f. Negative as it might lead to
MAT on SEZ April 1, 2011. an increase in lease rentals
developers for SEZ units with most IT
companies moving to SEZ
facilities.
Implementation - - UID to issue 10 lakh Positive for IT companies
of unique numbers a day from like TCS, CMC and MindTree,
identification October 1, 2011. Funds which are active in the
(UID) and other released for 31 projects of eGovernance projects.
mission mode state and union territories
projects to align with GST roll-out.

Service tax on Rs100 for domestic and - Rs150 for domestic travel Marginally negative impact
air travel Rs500 for international and Rs750 for as IT companies record
travel international travel and higher overseas travelling for
10% for other than rendering onshore services.
economy class for
domestic travel.

Sharekhan 17 February 28, 2011

sharekhan budget special Maths does not add up

Media
Issue Current Status Expectation Announcement Impact
Basic exemption Rs160,000 - Increased to Rs180,000. Slightly positive as the
limit for disposable income would
individual tax increase.
payers

Surcharge on 7.5% of corporate tax - Reduced to 5%. Positive for companies as

corporate tax the effective tax rate would
on domestic come down.
companies

MAT rate MAT rate at 18%, - Increased to 18.5%, hence Neutral as the increase in
including surcharge, and including surcharge and the MAT rate is nullified by a
education cess at 19.93% education cess would reduction in the surcharge.
increase MAT to 20.01%.

Customs duty Customs duty on set-top Abolish or impose No change. Neutral for media
on set-top boxes at 5% moratorium companies, mainly DTH and
boxes and other cable operators.
equipment

FDI in cable, Currently the FDI limit in Increase FDI limit on DTH No change. Neutral
DTH and radio DTH and cable is 49% and and cable to 74% and that
that on FM radio is 20% on FM radio to 49%

Entertainment Entertainment tax levied Include entertainment tax No change. Neutral

tax by various states at in GST
different rates of 40-50%

Jumbo rolls of Excise duty of 16% - Exemption from excise Positive for film producers
400 feet and duty
1,000 feet for
cinematographic
film

Oil & Gas

Issue Current Status Expectation Announcement Impact
Cut in import 5% Reduction in duty No change. It was seen as a way to
duty reduce the burden of the oil
marketing companies.

Oil subsidy 60% was likely to be Nil Provision of only Rs20,000 Lower provisioning could
sharing shared by the crore. mean higher burden for the
government oil marketing companies
since the government would
like to limit the burden on
ONGC before the latter’s
follow-on public offering.

Applicability of MAT not applicable Nil MAT payable from FY2012 It will affect Reliance
MAT on SEZ onwards. Industries as the company’s
units new Jamnagar refinery will
come under MAT and can
potentially result in an EPS
impact of 2-3%. Though
lower deferred taxes could
offset some of the losses.

Sharekhan 18 February 28, 2011

sharekhan budget special
Pharmaceuticals
Issue Current Status
Spending on Expenditure allocation Increase in thrust on
healthcare towards healthcare healthcare sector
sector sector stands at Rs22,300
crore
Research and Weighted deduction of Increase in weighted
development 175% for outsourced R&D deduction from 175% to
(R&D) work 200%
Excise duty Formulations have an
excise duty of 4% while
that on active
pharmaceutical
ingredients (APIs) is 10%
Income tax Under section 10B, 100%
export-oriented units
(EOUs) are exempt from
paying tax on their
profits till FY2011
MAT stands at 18%
Surcharge stands at 7.5% -
Service tax - -
Infrastructure The hospitals that start
status for functioning in specified
healthcare tier-II and tier-III cities
industry before March 31, 2013
are currently bestowed
with a tax holiday on
profits earned by them in
the initial five years
Expectation
Excise duty structure to be
made at par, ie excise
duty on APIs should be
reduced from 10% to 4%.
Extension of tax
exemption beyond
FY2011, possibly for the
next three years
Maintain status quo
Grant of “Infrastructure”
status to the healthcare
industry in view of the
burgeoning demand and
the rising cost of
healthcare. Also, the
extension of grant of
related tax holidays and
exemptions.
Sharekhan 19 February 28, 2011
Maths does not add up
Announcement Impact
The planned allocation for Positive, as increased focus
healthcare sector on the sector would lead to
increased to Rs26,760 increased investment in the
crore for FY2011-12. sector.
Weighted average R&D Not much impact as only a
deduction for outsourced minor portion of R&D is
work increased from 175% outsourced to national
to 200% (but only to laboratories, universities and
national level labs and institutes of technology.
universities).
Excise duty on formulation Neutral as companies are
drugs and medical likely to pass the price hike
equipment has been hiked to the end users.
to 5% from 4%.
No change Negative, as companies
would now have to pay tax
on profits from such EOUs.
Cipla, Torrent, Dishman,
Divi, Ipca and Unichem have
operations in EOUs.
MAT has been increased to Increase in 0.5% of MAT and
18.5% of book profits and inclusion of SEZs under MAT
SEZ have been brought would be netted off by
under MAT. reduction in surcharge of
2.5%. Companies like Ipca,
Aurobindo, Divi’s Labs,
Cipla, Torrent, Dishman, Dr
Reddy’s, Cadila, Ranbaxy
and Lupin have SEZs.
Surcharge has been Positive for all
reduced to 5%. pharmaceutical companies.
Hospitals and health Likely hike in medical bills
check-ups under the ambit by 5% as the effective
of service tax. service tax of 10% has been
given a 50% rebate.
Companies are likely to pass
this to end users.
No change. Negative for companies like
Apollo Hospitals, Fortis
Healthcare, Max Healthcare
and Wockhardt Hospitals.
sharekhan budget special Maths does not add up

Retail
Issue Current Status Expectation Announcement Impact
Excise duty on Optional scheme to pay Status quo Mandatory excise duty of Negative for all retailers—
branded duty and claim CENVAT 10% is levied, with they will have to incur
garments & availing of credit of duty additional tax liability which
made-ups paid on inputs, input will increase the price of the
services and capital final product. This will
goods. Value for charging happen in a situation where
duty on readymade raw material prices are
garments and textile already sky-rocketting. Thus
made-ups to be @ 60% of it would affect the demand
retail sales price. for branded apparels and
made-ups.
Foreign Direct Foreign investment in Allowing FDI in multi- Status quo maintained, Negative for the sector.
Investment single brand retail up to brand retailing with passing reference to
(FDI) 51% is allowed while the fact that talks of FDI
100% investment is liberalisation are on.
allowed in the wholesale
and cash-and-carry
sectors

Goods & Currently multiple taxes Tentative/Final roll-out As a steps towards GST Sentimentally positive for
Services tax are paid at various levels plan for GST roll-out, proposal to the sector, as GST, when
(GST) in the form of VAT, introduce the constitution implemented, would lead to
central excise duty etc ammendement bill in the the rationalisation of taxes
parliament. and streamlining of the
Work underway for supply chain process.
drafting of the model
legislation for the central
and state GST.
By June 2011, NSDL will
set up a pilot portal in
collaboration with 11
states prior to the roll-out
across the country.

Excise duty on Excise duty exempt Status quo Concessional excise duty Negative for players like
branded of 1% without CENVAT Titan Industries (65% of the
jewellery credit facility is being revenue comes from branded
imposed. jewellery segment) and for
Gitanjali Gems.

Custom duty on 7.5% Status quo Reduced to 5%. Positive.

gems &
jewellery
machine

Sharekhan 20 February 28, 2011

 sharekhan budget special Maths does not add up

Real Estate
Issue Current Status Expectation Announcement Impact
Interest Interest subvention of 1% - Interest subvention Positive: Will push demand
subvention of on housing loan up to liberalised by extending in low-cost housing projects
1% liberalised Rs10 lakh where the cost the housing loan limit to
of house does not exceed Rs15 lakh and the cost of
Rs20 lakh. house to Rs25 lakh.

Priority sector Housing loan up to Rs20 - Limit raised to Rs25 lakh. Positive: For those
lending lakh came under priority companies who offer low-
sector lending. cost housing.
MAT purview Not there earlier - SEZs come under MAT Negative: Diminishes the
purview. benefits that SEZs offer for
developers over other
commercial real estate asset
classes.

Telecom
Issue Current Status Expectation Announcement Impact
One time - - The non tax revenue Negative for the incumbents
spectrum (communication) segment (Bharti Airtel, Idea Cellular,
charges on shows a big spike from Vodafone) as the budgeting
excess 2G Rs15,890 crore in FY2010 revenue on the non tax front
spectrum to Rs29,648 crore thus implies that the government
beyond building likely revenue is very serious on levying
contracted 6.2 flows likely to emanate charges for the excess
mhz for GSM from one time spectrum spectrum and the likelihood
and 4.4mhz for fees of the same to happen in
CDMA operators FY2012 is very high.

Duties Domestic accessories and None The exemption of duties Marginally positive for the
mobile part has been extended till growth of mobile telephony
manufacturers enjoy March 31,2012. Further in the country as the prices
exemption of basic, duty exemption has been are likely to remain low.
countervailing and extended to batteries and
special additional duties hands-free headphones

Minimum MAT rate at 18% Increase in MAT rate to Increase in MAT rate from Neutral. Though MAT rate
alternate tax 18.5% 18% to 18.5% has been increased, the
(MAT) rate overall tax rate remains
intact in view of reduction in
surcharge rate from 7.5% to
5%

Service tax Service tax at 10% Likely to be increased to Status quo maintained Positive for the sector.
12%

The author doesn’t hold any investment in any of the companies mentioned in the article.

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