Thursday, March 10, 2011

Highlights of Economic Survey & Union Budget 2011-2012

Overview of the Economy
  • GDP is estimated to have grown at 8.6% in 2010-11, with agricultural growth showing strong momentum and growing 5.4% compared with 0.4% last year, while manufacturing growth remained at the previous year’s level at 8.8%. Demand –side GDP measured in constant prices is estimated to grow at 9.7% in 2010-11. Compositionally positive shifts in demand are indicated with private final consumption expenditure picking up, government expenditure decelerating and a pick-up in gross fixed capital formation and net exports.
  • Exports in April-December 2010 up 29.5 per cent; imports up 19 per cent. Trade gap narrowed to $82.01 billion in April-December 2010.
  • Data on IIP exhibited sharp volatility in the current fiscal with growth varying from 1.6% to 16.6%. IIP growth during Apr-Dec is at 8.6%.
  • Services (excluding construction) growth slowed to 9.6% in 2010-11 from 10.1% in 2009-10.
  • Production of foodgrains in 2010-11 is likely to be 232.07 million tonnes as compared to 218.11 million tonnes last year.
  • Food inflation declined from a peak of 20.2% in February, 2010, to 8.6% in December, 2010.
  • In the current financial year (2010-11), overall average inflation from April-December 2010 at 9.4 per cent, is the highest recorded in the last ten years. WPI inflation which peaked at 11% in April 2010 has come down to 8.4% by December. Build-up in FY 2010-11 (April-Dec) at 6.11% is lower than the corresponding period of the previous year at 7.9%.
  • Gross Fiscal Deficit stands at 4.8 per cent of GDP, down from 6.3 per cent last year.
  • Saving has gone up to 33.7 per cent, while the investment rate is up at 36.5 per cent of GDP.
  • Net bank credit has grown by 59 per cent. Deposit growth was slow as real interest rates were depressed.
  • India’s external debt stood at US$295 bn. at end-September, increasing by 12.8% over end-March 2010.
Economic Outlook
  • Economy expected to grow at 9% in 2011-12 with a margin of +/-0.25%.
  • Inflation is expected to be lower in 2011-12 with the measures taken by both the Government and the RBI showing further lagged effect.
  • Current account deficit seen lower in 2011-12 with improvements in foreign trade and investment.
Budget Estimates for 2011-12
  • Gross Tax receipts are estimated at Rs. 9,32,440 crore an increase of 24.9% over the Budget Estimates (BE) for 2010-11. Non-tax revenue receipts estimated at Rs. 1,25,435 crore.
  • Total expenditure proposed at Rs. 12,57,729 crore, an increase of 13.4% over BE for 2010-11, with an increase of 18.3% in total Plan allocation and 10.9% in the Non-plan expenditure.
  • Effective Revenue Deficit estimated at 2.3 per cent of GDP in the Revised Estimates (RE) for 2010-11 and 1.8 per cent for 2011-12. Fiscal Deficit brought down from 5.5 per cent in BE 2010-11 to 5.1 per cent of GDP in RE 2010-11. Fiscal deficit seen at 5.1 percent of GDP in 2010-11; 4.6 percent of GDP in 2011-12 and 3.5 percent of GDP in 2013-14. All subsidy related liabilities to be brought into fiscal accounting.
  • Net market borrowing of the Government through dated securities in 2011-12 to be Rs. 3.43 lakh crore and an additional Rs.15,000 crore to be financed through Treasury Bills. Central Government debt estimated at 44.2 per cent of GDP for 2011-12 as against 52.5 per cent recommended by the 13th Finance Commission.
Tax Proposals

Direct taxes
  • Exemption limit for the general category of individual taxpayers enhanced from Rs. 1,60,000 to Rs. 1,80,000 giving uniform tax relief of Rs. 2,000. Exemption limit enhanced to Rs. 2,50,000 and qualifying age reduced to 60 years for senior citizens. Exemption limit for citizens, who are 80 years or above raised to Rs. 5,00,000.
  • Surcharge for domestic companies reduced from 7.5% to 5% and for foreign companies from 2.5% to 2%.
  • Minimum Alternate Tax (MAT) rate increased from 18% to 18.5% of book profits. MAT to be levied on developers of Special Economic zones (SEZs) and units in SEZ.
  • Concessional tax rate of 15% proposed on dividends received by the Indian companies from their foreign subsidiaries during financial year 2011-12.
  • Investment linked deduction extended to housing projects under a scheme for affordable housing and production of fertilizer.
  • DTC proposed to be effective from April 1, 2012.
Indirect taxes
  • The Budget has proposed to stay on course for transition to GST. Significant progress in establishing IT infrastructure for introduction of GST.
  • Central Excise Duty maintained at standard rate of 10 per cent.
  • Nominal Central Excise Duty of 1 per cent has been imposed on 130 items entering in the tax net.
  • Lower rate of Central Excise Duty enhanced from 4 per cent to 5 per cent.
  • Parallel Excise Duty exemption granted for domestic suppliers producing capital goods needed for expansion of existing mega or ultra mega power projects.
  • Peak rate of Custom Duty held at its current level.
  • Standard rate of Service Tax retained at 10 per cent, with proposals of expansion in the tax base.
Some Proposals Related to Infrastructure, Agricultural and Social sector Development
  • Allocation to infrastructure in 2011-12 increased by 23.2% over the previous year.
  • To boost infrastructure development in railways, ports, housing and highways, tax free bonds of Rs. 30,000 crore proposed to be issued by Government undertakings during 2011-12.
  • Allocation for social sector in 2011-12, proposed at Rs.1,60,887 crore amounting to 36.4% of total plan allocation and increased by 17% over the current year. Allocation for education increased by 24% over current year. Plan allocations for health stepped-up by 20%. Allocation for Bharat Nirman programme proposed to be increased by Rs.10,000 crore from the current year to Rs.58,000 crore in 2011-12. Plan to provide Rural Broadband Connectivity to all 2,50,000 Panchayats in the country in three years.
  • Credit flow for farmers raised from Rs.3,75,000 crore to Rs.4,75,000 crore in 2011-12.
  • Interest subvention enhanced from 2% to 3% for providing short-term crop loans to farmers who repay their crop loan on time.
  • NABARD's capital base to be strengthened by infusing Rs.3000 crore, as Government equity in a phased manner.
  • To attract investment in the cold storage sector, capital investment in the creation of modern storage capacity to be eligible for viability gap funding scheme of the Finance Ministry. Cold chains and post-harvest storage to be recognized as an infrastructure sub-sector. Full exemption from excise duty extended to certain machinery required for this sector.
  • To ensure greater efficiency, cost effectiveness and better delivery for of kerosene, LPG and fertilisers, Government to move towards direct transfer of cash subsidy to people living below poverty line in a phased manner.
  • Mortgage Risk Guarantee Fund proposed under Rajiv Awas Yojana to guarantee housing loans taken by Economically Weaker Sections and LIG households and enhance their credit worthiness.
  • For removal of production and distribution bottlenecks for items (constituting 70% of WPI basket of primary food articles) contributing to the recent inflationary pressure, allocations under the ongoing Rashtriya Krishi Vikas Yojana increased from Rs.6,755 crore in 2010-11 to Rs.7,860 crore in 2011-12.
  • Allocation of Rs.400 crore to improve rice based cropping system in Eastern India. Allocation of Rs.300 crore each to promote: 60,000 pulses villages in rainfed areas; 60,000 hectares under oil palm plantations; implementation of vegetable initiative; higher production of nutritious millets like Bajra, Jowar, Ragi and others; animal based protein production through livestock development, dairy farming, fisheries etc; and fodder development in 25,000 villages.
  • State Governments to review and enforce a reformed Agriculture Produce Marketing Act.
Some Proposals Related to the Investment Environment
  • Notified infrastructure debt funds to attract foreign funds for financing of infrastructure proposed; a reduced withholding tax rate of 5% (instead of the current rate of 20%) to apply to interest payment on the borrowings of these funds; and income of the funds to be exempt from tax.
  • FII limit for investment in corporate bonds issued in infrastructure sector raised.
  • Additional deduction of Rs.20,000 for investment in notified long-term infrastructure bonds extended
  • Disinvestment receipts for 2011-12 estimated at Rs. 40,000 crore.
  • SEBI registered MFs permitted to accept subscription from foreign investors who meet KYC requirements for equity schemes.
  • Discussions underway to further liberalise the FDI policy.
  • Amendments proposed to the Banking Regulation Act in the context of additional banking licences to private sector players to be considered.
  • Legislative changes to be introduced in Insurance and Pension funds sectors. Changes are also proposed to Acts related to bank debt recovery.
  • Self assessment to be introduced in Customs to modernize the Customs administration.
  • Proposal to introduce simplified scheme for refund of taxes paid on services used for export of goods.
  • Mega Cluster Scheme to be extended for leather products and handicrafts.
  • Recapitalisation for PSBs and RRBs include Rs.6,000 crore allocated to enable PSBs to maintain a minimum of Tier I CRAR of 8% and Rs.500 crore for RRBs to maintain a CRAR of at least 9% as on March 31, 2012.
  • Keeping in mind the recent problems related to Micro Finance Institutions, India Microfinance Equity Fund of Rs.100 crore is proposed to be created with SIDBI and Women’s SHG’s Development Fund to be created with a corpus of Rs.500 crore.
  • Rs.5,000 crore to be provided to SIDBI for refinancing incremental lending by banks to Micro Small and Medium Enterprises. Rs.3,000 crore to be provided to NABARD to provide support to handloom weaver co-operative societies.
  • Provision under Rural Housing Fund enhanced to Rs.3,000 crore.
  • Existing housing loan limit for dwelling units under priority sector lending enhanced to Rs.25 lakh.