sitemapHome | Registration | Job Portal for CA's | Expert Exchange | Currency Converter | Post Matrimonial Ads | Post Property Ads
News shortcuts: From the Courts | News Headlines | VAT (Value Added Tax) | Placements & Empanelment | Various Acts & Rules | Latest Circulars | New Forms | Forex | Auditing | Direct Tax | Customs and Excise | ICAI | Corporate Law | Markets | Students | General | Mergers and Acquisitions | Continuing Prof. Edu. | Budget Extravaganza | Transfer Pricing | GST - Goods and Services Tax
Latest Expert Exchange
« Budget Extravaganza »
 How Union Budget 2018 impacts individual taxpayers
  How Budget 2018 will be different due to GST
 This is how Budget 2018 announcements may help you save tax
 Here's why the government advanced the Budget date
 Will Budget 2018 Reduce Your Income Tax? 10 Expectations
 How Budget 2018 will be different due to GST
 Will Budget 2018 cut tax on switch from dividend to growth option in mutual funds?
 Startup eco-system looks forward to the budget for addressing tax dilemma
 High time to prioritise non-tax revenue in the Budget
 Govt may abolish dividend distribution tax in budget
 Budget making in the GST era: paradigm shift

Budget 2011-12: A tie between deficit and growth
March, 01st 2011

Finance Minister Pranab Mukherjees Budget lacks tax pyrotechnics, yet it reveals a remarkably improved fiscal position and a conceptual breakthrough in delivering subsidies through cash transfers for kerosene, fertilisers and cooking gas.

He has also boosted reform prospects, pledging to revive seven financial sector bills, including landmark ones to raise foreign direct investment (FDI) in insurance to 49% and lift voting rights of foreign investors in banks.

Mukherjee says he did not highlight this in his Budget speech because his party lacks majority in both houses of parliament, but is optimistic of securing the cooperation of other parties. On FDI in retail, he is non-committal.

A committee under UIDAI chief Nandan Nilekani will suggest ways to implement the proposed shift from physical subsidies to cash transfers, using smart cards. Come October, UIDAI will issue 10 lakh Aadhar (unique identity) numbers daily, and this should make it feasible to bring in cash transfers sometime in 2012. This reform has the potential to drastically curb leakages and malpractices in subsidies.

Indias fiscal position has long worried foreign institutional investors (FIIs), the dominant players in the countrys stock markets. The Budget claimed fiscal deficit was down this year to 5.1% of GDP against the targeted 5.5%, and would decline to 4.6% next year against 4.8% mapped out earlier.

In response, the Sensex initially jumped nearly 600 points, but handed back much of the gains after investors realised some of the Budgets projections were based on statistical revisions and future optimism rather than fiscal stringency.

For instance, the oil subsidy is projected to fall to 23,640 crore next year from 38,386 crore this year, but there is no explanation how this will be managed in an environment of high global crude prices.

Mukherjee may want high prices to be passed on to consumers, but several of his cabinet colleagues are dead against this. The food subsidy will be virtually unchanged next year at around 60,000 crore.

The reason: the implementation of the Food Security Act has been postponed until 2012-13. The consequent hole in government finances has been postponed, not avoided. Only a small part of the fiscal improvement in the Budget relates to tax buoyancy, with statistical revisions of GDP data producing much of the apparent improvement.

Yet the fact is the central governments debt-to-GDP ratio, which the 13th Finance Commission had projected at 52.5% of GDP, is now only 44.2%. This is remarkable given that economies across the world are weighed down by large increases in this ratio. Without the spectrum auction bonanza, fiscal deficit this year would have been 6.3% of GDP. Reducing this to 4.6% next year requires a massive effort to check spending.

The Budget projects total spending to rise marginally to 12.57 lakh crore next year from 12.17 lakh crore this year, and such stringency will be politically tough. Investors will be encouraged by the decision to permit foreign retail investors to invest in Indian mutual funds, and to raise the investment limit for foreign funds in infrastructure debt to $25 billion, raising the overall cap for FII investment in corporate debt to $40 billion. But drafting footloose capital into debt has its risks.

Devising clearsighted policies to attract FDI into infrastructure is far superior to FII flows. The government will allow state-run undertakings to raise up to 30,000 crore by way of tax-free infrastructure bonds, a boost for the sector, along with the proposed creation of tax-free debt funds. The decision to press ahead with the Direct Taxes Code and transition to a countrywide Goods and Services Tax is a welcome reform intent. However, the sheer spread and number of indirect tax rates listed in the Budget gave out a whiff of the 1980s, rather than of futuristic reform.

Home | About Us | Terms and Conditions | Contact Us
Copyright 2018 CAinINDIA All Right Reserved.
Designed and Developed by Binarysoft Technologies Pvt. Ltd.
Software Work Flow Workflow Software Software Automation Workflow automation Software Design Workflow Design Business Work Flow Workflow automation tools

Transfer Pricing | International Taxation | Business Consulting | Corporate Compliance and Consulting | Assurance and Risk Advisory | Indirect Taxes | Direct Taxes | Transaction Advisory | Regular Compliance and Reporting | Tax Assessments | International Taxation Advisory | Capital Structuring | Withholding tax advisory | Expatriate Tax Reporting | Litigation | Badges | Club Badges | Seals | Military Insignias | Emblems | Family Crest | Software Development India | Software Development Company | SEO Company | Web Application Development | MLM Software | MLM Solutions