Its February again, time for the Union Budget! As per Article 112 of the Indian Constitution, the Union Budget of India, that is the annual budget of the country, is also known as the Annual Financial Statement. The budget is required to be approved and passed by the Parliament prior to its coming into existence on 1st of April, which happens to be the beginning of India’s financial year. Like every other year, the Union Finance Minister of India, Mr. Pranab Mukherjee will present the budget for the year 2011, on the last working day of the month of February
Although, the crucial budget document is prepared in complete privacy, yet each one of us is definitely interested to get an overview about the whole process and have an idea of the India Budget Expectations 2011. Some of you might also have started anticipating India’s Budget Results, 2011; isn’t it? Can Budget 2011 strike a balance between supply and demand? Let’s see!
There could be several reasons and thought processes that goes beyond our expectations from the Union Budget for 2011! Economic growth and development has been noticed in various sectors following the many proposals and initiatives mentioned in the Union Budget of India in the financial year of 2010-11, for the year 2010. This year the budget expectations are quite high unlike few years back, wherein the country’s economy was still reeling under the economic depression that was created by the economic meltdown, globally. Since the Indian Economy is slowly getting back to its track, it can be expected that the budget will bring something beneficial to us. It is being expected that this time, the budget would lay stress on controlling price hikes, controlling the inflation rate, cutting down on fiscal deficit etc.
Straightening up of the PDS and do away with the outflows!
In order to achieve and all-round development of the country and its people, the government should ensure that everyone has access to the essential and the very fundamentals of life such as health, food, education, infrastructure, and security. This calls for the growth and development of the skills in the country. The government has taken up several measures on this front such as the formation of the National Skill Development Co-ordination Board, Skill Development Mission, and NREGA (National Rural Employment Guarantee Act); now the need however is to ensure the effective and proper realization of the plans. Social welfare must count as the first priority for the Government, always.
Inflation – An intense and a burning reality!
Inflation is everywhere! So it’s quite possible that we gate to see its mention in several policy decisions in order to initiate some corrective measures. It could be anything from the usage of sophisticated techniques of farming, to monetary policy or even the budgetary policies that are framed to control the augmented pricing pressures.
As the Government commits towards the controlling of food inflation, the Finance Minister of India might be expected to unleash some of the major measures in the Budget 2011. This might include the opening of distribution and procurement centers for food grains, promote more investment in agri infrastructure, increase the expenditure on irrigation to enhance the overall productivity of the farm sector.
Simplification and Systematization of the Tax System!
Pranab Mukherjee has really done a good job by extending the tax slabs. This has helped people, specially the salaried persons immensely. The high limit of tax-exemption also has brought extra tax revenues for the exchequer since it doesn’t encourage the suppressing of the unaccounted money. There is still a possibility of improvement at the lower end income group, on the present no-tax limit for up to income of Rs.1.6 lakh.
The deadlock on GST (Goods and Service Tax) should not be extended any further by the Government of India. The Government should rather take initiatives to introduce the new tax system from 1st April, 2012. This would allow the current players to plan their ventures thereby including the cost of operation. It is highly recommended that the Government should cut down on CST that is the Central Sales Tax rate should be cut down to minimum 1% with effect from April 1, 2011.
Deregulation of the Fuel price!
Last year, the price of petrol was deregulated by the UPA government in order to shrink the fiscal deficit of the country, thereby helping the oil marketing companies to reduce their losses on the selling of fuel at subsidized rates.
Is the Government now thinking of deregulating the price of diesel now that constitutes a major share of fuel subsidy bills?
Retail FDI – Tighten Supply Chain!
The recent increase in the price of food has been the result of hoarding up of stock by the intermediaries or because of the supply shortage in the farm production. In order to manipulate the price, FDI can definitely support the government to de-bottleneck the chain of supply that is hindered by the not so effective distribution channel.
Focus on Infrastructure Growth!
A sustained infrastructural growth and development is essential in order to provide that momentum to India’s economic activities, thereby achieving optimum utilization of resources. In order to promote the joint ventures of the public and the private sector and the entry of FDI or Foreign Direct Investment into the infrastructural domain, an appropriate, genuine, organizational, and reliable model must be introduced. The Government should aim at increasing the Gross Domestic Product (GDP). It should take initiatives to plan and develop large amount of corpus for a long term towards the development of infrastructure by the use of debt funds.
Cut down on Excise and Service Tax!
Last year, the excise duty was raised to 10% by the Government, on the non-oil products for withdrawing stimulus, thereby creating sources for the funds that would cut down on the extensity of the fiscal deficit condition. Owing to inflation and rising cost of commodities, India should try and cut down on the Service tax and the excise duty. Corporate tax rates should also be brought down.
Education – Learn as you grow!
Education and Growth can be said to be the two sides of the same coin! While Education results in higher employment, this is turn paves the way for growth and development of the country. In the past few years, the education sector has witnessed several reform measures both at higher as well as primary level of education.
The implementation of the PPP model that is the public-private partnership model can prove very beneficial for the education sector and help in bringing success and sustainable momentum in the long run. The Government needs to fund the projects and encourage and trust the private sector for the final delivery of the models.
Agriculture!
For ensuring the economic growth and development of the country, it is important that India’s agriculture sector grows at a fast pace. Many people in the country still suffer from food insecurity and malnutrition. The Indian Government of India already undertook the National Food Security Mission (NFSM) in the year 2008 but it was not properly supported. The Government should now take the responsibility to support the mission properly for eradicating the malnutrition from the nation. One of the best possible ways would be to combine the mission with other flagship projects such as NREGA etc for reliving the underprivileged people in India, especially those in villages, from nutrition problems.
Since agriculture contributes immensely to the GDP of India, the Government, this year is expected to focus on the problem of rising prices. Higher should be the aim of the government. Favorable policies in the agro input sector, etc would surely help in utilizing the business potentials, in the future.
Indian Railways!
Couple of years back, India’s Railway Department had managed to bring around a good financial turnaround without any hike in the passenger fares. But this year, estimates say that the Indian Railways might miss out on the target for the year 2010-11. In the year 2010, Railways incurred a huge loss of Rs. 4000 crore. This was mainly because of the negative impacts on freight earnings and the setback on passenger earnings owing to the Naxal activities in several states of India.
The question that crops up in this situation is that will India’s Railway Department suffer a setback this time?
Information Technology!
The IT industry in India has shown amazing resilience during the period of recession. The demand for the IT Services exports is being expected to go on with countries like Europe and US recovering and also due to the increase in discretionary that the consumers spend on IT infrastructure. As per the reports by NASSCOM, it is expected that the exports would dominate the IT industry in India that comes to about USD 59 billion out of USD 76 billion in the software industry.
However, there are certain concerns and fear as well for the IT sector such as slower recovery that the developed markets of US etc, high wage inflation and attrition, pricing pressure owing to competition in the domestic markets and protectionist stance on the part of the Government of US etc. With such a scenario in the backdrop the IT industry must be eagerly awaiting for the proposal in the budget, by the Government.
Construction!
Construction & Infrastructure contributes to about 8-10% in the GDP of India. For an overall development of the country, the importance and role of infrastructure is not unknown to us. However, a big gap has been created in the targets that have been set up for the infrastructure industry and the achievements. This has been due to the slow functioning of the several related sectors, shortfall in the awarding projects, funding potential shortfalls, time and cost overruns in the construction phase etc. Government should now start addressing these problems in the Construction and Infrastructure industry. This year, as per the signals from the Finance Minister, the infrastructure sector is expected to restrict itself from its expectations on tax relief and tax breaks, thereby focusing on how to raise capital and engage in project development.
FMCG!
The FMCG sector saw a series of new launches as well as acquisitions in the year 2010, which contributed phenomenally to the sector with a growth of about 15%. The GDP growth was estimated to be 8.75% in FY11. Hence the sector is expected to continue this way, although it will be faced with several challenges such as irregular monsoon and inflation. After the harvest of the Rabi crop, we can expect the situation to get reversed. With a shift in demand from need to want, it is being expected that the categories associated with home care and personal care would grow at a rate of 15% and 20% correspondingly, in CY11.
Telecom Services & Equipments!
At the moment, the telecom industry in India is characterized by high operating cost, stagnant revenue, huge debt, dwindling earnings, regulatory uncertainty etc. There has been a very slow revenue growth at about 0.4%. The launch of 3G and MNP might act as the immediate momentum. With key metrics declining at an abating rate, it is expected that the telecom sector would do better in FY12E in comparison to FY11E. Companies having foreign market exposure might experience higher growth. During FY12, while the telecom stocks may stay subdued, but at the end of FY12E we might witness the narrowing down of discounts in the broader markets.
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