• Budget 2011

OPPORTUNITIES
* Swift and broad-based growth in 2010-11 has put the economy back to its pre-crisis growth trajectory. Fiscal consolidation has been impressive.

* Significant progress in critical institutional reforms that would set the pace for double-digit growth in the near future.

* Dynamism in the rural economy due to scaled up flow of resources to the rural areas.

CHALLENGES
* Structural concerns on inflation management to be addressed by improving supply response of agriculture to the expanding domestic demand and through stronger fiscal consolidation.

* Implementation gaps, leakages from public programs and the quality of outcomes pose a serious challenge.

* Impression of drift in governance and gap in public accountability is misplaced. Corruption as a problem to be fought collectively. Government to improve the regulatory standards and administrative practices.

* Inputs from colleagues on both sides of House are important in the wider national interest.

* Budget 2011-12 to serve as a transition towards a more transparent and result-oriented economic management system in India.

OVERVIEW OF THE ECONOMY
* Gross Domestic Product (GDP) estimated to have grown at 8.6 percent in 2010-11 in real terms. Economy has shown remarkable resilience.

* Continued high food prices have been a principal concern this year.

* Consumers denied the benefit of seasonal fall in prices despite improved availability of food items, revealing shortcomings in distribution and marketing systems.

* Monetary policy measures taken expected to further moderate inflation in coming months.

* Exports have grown by 29.4 percent, while imports have recorded a growth of 17.6 percent during April to January 2010-11 over the corresponding period last year.

* Indian economy expected to grow at 9 percent with an outside band of +/- 0.25 percent in 2011-12.

* Average inflation expected lower next year and current account deficit smaller.

SUSTAINING GROWTH
Fiscal consolidation

* Fiscal consolidation targets at Centre and States have shown positive effect on macro economic management of the economy.

* Amendment to Centre’s FRBM Act, 2003, laying down the fiscal road map for the next five years to be introduced in the course of the year.

* Proposal to introduce the Public Debt Management Agency of India Bill in the next financial year.

Tax Reforms
* Direct Taxes Code (DTC) to be finalized for enactment during 2011-12. DTC proposed to be effective from April 1, 2012.

* Areas of divergence with States on proposed Goods and Services Tax (GST) have been narrowed. As a step towards the roll out of GST, Constitution Amendment Bill proposed to be introduced in this session of Parliament.

* Significant progress in establishing GST Network (GSTN), which will serve as IT infrastructure for introduction of GST.

INVESTMENT ENVIRONMENT
Foreign Direct Investment
* Discussions underway to further liberalize the FDI policy.

Foreign Institutional Investors
* EBI registered mutual funds permitted to accept subscription from foreign investors who meet KYC requirements for equity schemes.

* To enhance the flow of funds to the infrastructure sector, the FII limit for investment in corporate bonds issued in the infrastructure sector is being raised.

Financial Sector Legislative Initiatives
* To take the process of financial sector reforms further, various legislations proposed in 2011-12.

* Amendments proposed to the Banking Regulation Act in the context of additional banking licenses to private sector players.

Public Sector Bank Capitalization
* Rs.6,000 crore to be provided during 2011-12 in order to enable public sector banks to maintain a minimum of Tier I CRAR of 8 percent.

Recapitalization of Regional Rural Banks
* Rs.500 crore to be provided to enable Regional Rural Banks to maintain a CRAR of at least 9 percent as on March 31, 2012.

Micro Finance Institutions
* “India Microfinance Equity Fund” of Rs.100 crore to be
created with SIDBI. Government considering putting in place appropriate regulatory framework to protect the interest of small borrowers.

* “Women’s SHG’s Development Fund” to be created with a corpus of Rs.500 crore.

Rural Infrastructure Development Fund
* Corpus of RIDF XVII to be raised from Rs.16,000 crore to Rs.18,000 crore.

Micro Small and Medium Enterprises
* Rs.5,000 crore to be provided to SIDBI for refinancing incremental lending by banks to these enterprises.

* Rs.3,000 crore to be provided to NABARD to provide support to handloom weaver co-operative societies, which have become financially unviable due to non-repayment of debt by handloom weavers facing economic stress.

* Public sector banks to achieve a target of 15 percent as outstanding loans to minority communities under priority sector lending at the earliest.

Housing Sector Finance
* Existing scheme of interest subvention of 1 percent on housing loan further liberalized.

* Existing housing loan limit enhanced to Rs.25 lakh for dwelling units under priority sector lending.

* Provision under the Rural Housing Fund enhanced to Rs.3,000 crore.

* To enhance credit worthiness of economically weaker sections and LIG households, a Mortgage Risk Guarantee Fund to be created under Rajiv Awas Yojana.

* Central Electronic Registry to prevent frauds involving multiple lending on the same immovable property to become operational by March 31, 2011.

Financial Sector Legislative Reforms Commission
* Financial Sector Legislative Reforms Commission set up to rewrite and also streamline the financial sector laws, rules
and regulations.

* Companies Bill to be introduced in the Lok Sabha during current session.

AGRICULTURE
* Removal of production and distribution bottlenecks for items like fruits and vegetables, milk, meat, poultry and fish to be the focus of attention this year.

* Allocation under the Rashtriya Krishi Vikas Yojana (RKVY) increased from Rs.6,755 crore to Rs.7,860 crore.

Bringing Green Revolution to Eastern Region
* To improve rice based cropping system in this region, allocation of Rs.400 crore has been made.

Integrated Development of 60,000 pulses villages in rainfed areas
* Allocation of Rs.300 crore to promote 60,000 pulses villages in rainfed areas.

Promotion of Oil Palm
* Allocation of Rs.300 crore to bring 60,000 hectares under oil palm plantations. Initiative to yield about 3 lakh metric tons of palm oil annually in five years.

Initiative on Vegetable Clusters
* Allocation of Rs.300 crore for implementation of vegetable initiative to provide quality vegetable at competitive prices.

Nutri-cereals
* Allocation of Rs.300 crore to promote higher production of bajra, jowar, ragi and other millets, which are highly nutritious and have several medicinal properties.

National Mission for Protein Supplement
* Allocation of Rs.300 crore to promote animal-based protein production through livestock development, dairy farming, piggery, goat rearing and fisheries.

Accelerated Fodder Development Programme
* Allocation of Rs.300 crore for Accelerated Fodder Development Programme to benefit farmers in 25,000 villages.

National Mission for Sustainable Agriculture
* Government to promote organic farming methods, combining modern technology with traditional farming practices.

Agriculture Credit
* Credit flow for farmers raised from Rs.3,75,000 crore to Rs.4,75,000 crore in 2011-12.

* Interest subvention proposed to be enhanced from 2 percent to 3 percent for providing short-term crop loans to farmers who repay their crop loan on time.

* In view of enhanced target for flow of agriculture credit, capital base of NABARD to be strengthened by Rs.3,000 crore in phased manner.

* Rs10,000 crore to be contributed to NABARD’s Short-term Rural Credit fund for 2011-12.

Mega Food Parks
* Approval being given to set up 15 more Mega Food Parks during 2011-12.

Storage Capacity and Cold Chains
* Augmentation of storage capacity through private entrepreneurs and warehousing corporations has been fast tracked.

* Capital investment in creation of modern storage capacity will be eligible for viability gap funding of the Finance Ministry.

Agriculture Produce Marketing Act
* In view of recent episode of inflation, need for State Governments to review and enforce a reformed Agriculture Produce Marketing Act.

Infrastructure and Industry
* Allocation of Rs.2,14,000 crore for infrastructure in 2011-12. This is an increase of 23.3 percent over 2010-11. This also amounts to 48.5 percent of total plan allocation.

* Government to come up with a comprehensive policy for further developing PPP projects.

* IIFCL to achieve cumulative disbursement target of Rs.20,000 crore by March 31, 2011 and Rs.25,000 crore by March 31, 2012.

* Under take out financing scheme, seven projects sanctioned with debt of Rs.1,500 crore. Another Rs.5,000 crore will be sanctioned during 2011-12.

* To boost infrastructure development, tax free bonds of Rs.30,000 crore proposed to be issued by Government undertakings during 2011-12.

National Manufacturing Policy
* Share of manufacturing in GDP expected to grow from about 16 percent to 25 percent over a period of 10 years. Government will come out with a manufacturing policy.

* Two Committees set up for greater transparency and accountability in procurement policy; and for allocation, pricing and utilization of natural resources.

* Issues about reconciliation of environmental concern from various departmental activities, including those related to infrastructure and mining to be considered by a Group of Ministers.

* National Mission for hybrid and electric vehicles to be launched.

* Financial Assistance to be made available for metro projects in Delhi, Mumbai, Bengaluru, Kolkata and Chennai.

* Capital investment in fertilizer production proposed to be included as an infrastructure sub-sector.

Exports
* Of the 23 suggestions made by Task Force on Transaction Cost, constituted by the Department of Commerce, 21 suggestions already implemented. Action to be taken on the remaining two suggestions. Transaction Cost of Rs.2,100 crore will thus be mitigated.

* Self assessment to be introduced in Customs to modernize the Customs administration.

* Proposal to introduce scheme for refund of taxes paid on services used for export of goods.

* Mega Cluster Scheme to be extended for leather products. Seven mega leather clusters to be set up during 2011-12.

* Jodhpur to be included for the development of a handicraft mega cluster.

Skill Development
* Additional Rs.500 crore proposed to be provided for National Skill Development Fund during the next year.

* An international award with prize money of Rs.1 crore being instituted for promoting values of universal brotherhood as part of National celebrations of 150th Birth Anniversary of Gurudev Rabindranath Tagore.

Unorganized sector
* Exit norms under co-contributory pension scheme “Swavalamban” to be relaxed. Benefit of Government contribution to be extended from three to five years for all subscribers who enroll during 2010-11 and 2011-12.

* Eligibility for pension under Indira Gandhi National Old Age Pension Scheme for BPL beneficiaries reduced from 65 years of age to 60 years. Those above 80 years of age will get pension of Rs.500 per month instead of Rs.200 at present.

BUDGET ESTIMATES 2011-12
* Gross Tax receipts are estimated at Rs.9,32,440 crore.

* Non-tax revenue receipts estimated at Rs.1,25,435 crore.

* Total expenditure proposed at Rs.12,57,729 crore.

* Increase of 18.3 percent in total Plan allocation.

* Increase of 10.9 percent in the Non-plan expenditure.

* XI Plan expenditure more than 100 percent in nominal terms than envisaged for the Plan period.

* Increase of 23 percent in Plan and Non-plan transfer to States and UTs.

* Fiscal Deficit brought down from 5.5 percent in BE 2010-11 to 5.1 percent of GDP in RE 2010-11.

* Fiscal Deficit kept at 4.6 percent of GDP for 2011-12.

* Fiscal Deficit to be progressively reduced to 3.5 percent by 2013-14.

* Effective Revenue Deficit” estimated at 2.3 percent of GDP in the Revised Estimates for 2010-11 and 1.8 percent for 2011-12.

* All subsidy related liabilities brought into fiscal accounting.

* Net market borrowing of the Government through dated securities in 2011-12 would be Rs.3.43 lakh crore.

* Central Government debt estimated at 44.2 percent of GDP for 2011-12 as against 52.5 percent 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 and qualifying age reduced for senior citizens.

* Higher exemption limit for Very Senior Citizens, who are 80 years or above.

* Current surcharge of 7.5 percent on domestic companies proposed to be reduced to 5 percent.

* Rate of Minimum Alternative Tax proposed to be increased from 18 percent to 18.5 percent of book profits.

* Tax incentives extended to attract foreign funds for financing of infrastructure.

* Additional deduction of Rs.20,000 for investment in long-term infrastructure bonds proposed to be extended for one more year.

* Lower rate of 15 percent tax on dividends received by an Indian company from its foreign subsidiary.

* Benefit of investment linked deduction extended to businesses engaged in the production of fertilizers.

* Investment linked deduction to businesses developing affordable housing.

* Weighted deduction on payments made to National Laboratories, Universities and Institutes of Technology to be enhanced to 200 percent.

* System of collection of information from foreign tax jurisdictions to be strengthened.

* A net revenue loss of Rs.11,500 crore estimated as a result of proposals.

Indirect Taxes
* To stay on course for transition to GST.

* Central Excise Duty to be maintained at standard rate of 10 percent.

* Reduction in number of exemptions in Central Excise rate structure.

* Nominal Central Excise Duty of 1 percent imposed on 130 items entering in the tax net.

©Entrepreneur March 2011

Tags:
Budget 2011, highlights