A First-cut Look at Salient Features of Union Budget 2011
By Prageet Aeron
Union budget is always an event of interest for every section of society owing to its importance in both planning and developing expectations for the coming year. Union Budget 2011 presents several interesting issues before us. Some of them will be discussed here with the aim of trying to unravel their impact on various stakeholders.
a) Exemption of tax for senior citizens above the age of 80 years up to an income of 5 lakhs: A very positive step, at a stage of life where you tend to spend more on health related and other issues, this would give the senior citizens some relief. Also viewed from a more philosophical point of view, citizens of this age group need to be looked after as there is hardly any systemic arrangement in our country for looking after the elderly.
b) Senior citizen benefits to begin from age of 60 instead of 65, again a welcome effort to help the elderly.
c) Exemption raised to 1.8 lakhs for male taxpayers and 1.9 lakhs fro female taxpayers. This seems more like lip service rather than any concrete step. Raising the limit to 2 lakhs for both might have been better. With inflation at almost 20% for certain products, this increase of barely 12% will hardly bring any relief. On the other hand in the long run this discrepancy between male and female taxpayers is discriminative without much logic and should be eliminated.
d) Thankfully exemption of additional Rs 20,000 on infrastructure bonds remains (possibly for one last year!!!). Would have been great if this would have been enhanced to Rs 40,000. A missed opportunity in my opinion.
e) A big positive is the removal of indirect subsidy on LPG and kerosene (cash subsidy to given directly). Given that Government was bleeding the oil companies with a subsidy of around Rs 350 on gas cylinders and a subsidy of around Rs 20-22 on kerosene. This will reduce the burden on the oil companies. Increase in price to its actual value (possibly) will also lead to better utilization of LPG by the customers by curbing wasteful practices. However on the down side there is still no mechanism for the delivery of direct cash subsidy. In the past nations that tried these forms of subsidy have failed on the execution front.
f) With LPG, diesel, petrol, ATF all increasing in price, cascading effects on other sectors are a natural outcome. Will certainly add to increasing inflationary phenomenon. However, increase in service tax on aviation industry seems unjustified. India needs a strong aviation industry, with business and other forms of travel having undergone a sharp increase it can no longer be seen as a luxury and Indian Government should move out of this mindset. Besides aviation industry also employs a large number of people, and an in the near future, development of manufacturing related to aircrafts is sure to increase this further.
g) Fertilizer industry has been given an infrastructure tag and now urea too would be given a nutrient based subsidy. This will be good for reducing deficit and also have appositive impact on the environment especially curbing excessive use of urea.
h) There seems to be a little movement towards GST but will surely take a lot more time may be 2 years to be implemented.
i) With medical infrastructure in tatters bringing the private hospital under service tax net is sure to hurt the middle class. This is a completely unnecessary burden which could have been avoided in the interest of welfare.
j) Allowing FIIs to invest in MFs in India might backfire in the short term by making the market more volatile. It could have been restricted to only infrastructure related mutual funds for the time being. However, on the positive side it will bring more funds into India.
k) Rural India has been showered with several gifts including 500 crores for the regional rural banks; special corpus for women self help groups as well as SIDBI controlled microfinance fund. Another 18000 crore have been allocated to develop rural infrastructure but again delivery mechanisms need to be strengthened.
l) A subsidy of 1% on housing loans till 15 lakhs for houses worth 25 lakhs vis a vis market rate will be useful for the tier 2 cities but will have little impact on metros where most housing schemes are way beyond 25 lakh mark.
m) Agriculture has been given a boost especially the eastern region of the country has been chosen as target for increased productivity. Generous allocations have been made to poultry, livestock and fodder development initiatives. Also agricultural credit has been increased to 475,000 crores (almost 16% increase Year on year). Lack of production has been rightly identified as the cause for inflation among the food items however, without adequate supply chain infrastructure related to cold storages etc any increase in productivity is of little value. The amount of investment required for developing supply chain infrastructure cannot be provided by Government alone and seeking private sector participation should have been a priority in this sector. This is where an increase in FDI in the retail sector could have come in handy with certain riders such as minimum investment guidelines for setting up cold storages and agri-processing units in far way regions. This is surely a missed opportunity.
n) Increase of duties on laptops and desktops does not look like a very positive step. However decrease of duty on hybrid vehicles is a good sign. Hopefully, hybrid vehicles will become the vehicle of choice among the super rich rather than the fuel guzzling environmental menace like SUVs.
o) MAT to be imposed on SEZs and equipment for UMPP (Ultra Mega Power Projects) to be exempted from duty. Latter is a tad late, should have been put up a year ago (better late than never).
Finance Minister has not tinkered much with most sectors of the economy and so there is not much element of surprise in the budget. This should transform into no shocks in stock market in near term. With expected growth of 9% in the future, optimism seems to be the mantra. Overall a budget that possibly focuses on social welfare of the lowest segment of the society but does not offer much to the tax paying middle class. Government has also promised to curb the menace of black money through a five point programme but with the political leaders across the board themselves undergoing scam investigations any quick output does not seem likely.
(Views expressed by the author are personal)
