• Finance Mister, Mr. Pranab Mukherjee presented the Budget for 2010 – 2011 today with an eye towards growth, yet targeted to enforce fiscal discipline. With the reduction in income tax rates (providing much relief to the already stretched wallet of the Indian tax payer!) as well as the hike in rates of petro products, the FM has shown that it is serious in terms of achieving its objective of implementing reforms in the areas of direct tax and reduction in subsidies. An unexpected announcement was that of the grant of new banking licenses to private players including NBFCs.
• The fiscal deficit target for FY11 has been set at 5.5% of GDP, with further improvement to 4.8% in FY12 & 4.1% in FY13. The reduced government borrowing of 3.45 lakh crores for FY11 is a positive.
• Divestments for the current year are targeted at Rs. 25,000 crores which seems achievable. Key areas requiring attention have been addressed with increased spending on infrastructure, agriculture, rural development, health and education.
• The much awaited reforms in taxation, Direct Tax Code (DTC) and GST have not been discussed in detail but confidence was restored with rollout been fixed as 1st April, 2011. Nevertheless, with the reduction in tax rates, the FM has clearly displayed his seriousness in ensuring the smooth rollout of the DTC.
• The Budget has partially rolled backed stimulus measures by hiking excise duty by 2% on all non-petroleum goods like cement, auto, etc. The hike in excise duty levied on petroleum products will have an inflationary impact.
• On the corporate side, surcharge on corporate tax has been reduced to 7.5% from 10%, with the effective corporate tax now lower at 33.22% versus 33.99%. MAT has been increased to 18% from 15% which can impact some large corporates.
• The Government has taken steps to simplify the FDI policy by consolidating all prior regulations and guidelines into one comprehensive document. This we believe is a good step in order for a developing country like India to continuously attract long term funds. The issue of FDI in sectors like Retail and Insurance have not been discussed in the Budget, but it could be brought up in the FDI policy document.

The FM has re-emphasized his commitment to the reform process and positive steps have been taken in this regard. However, the final verdict will depend on the conversion of this positive intent into actual execution.

Source : Edelweiss.in