28 June 2017

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Analytical Point: Thorough Analysis of Budget 2011

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By V Pradeep Kumar

 India has been weathering the global slowdown pretty well with impressive growth rates thanks to the service sector contributing over 55% to our GDP. With signs of recovery across the developed world, India now has tremendous opportunities to bolster its economy and hence the Union budget 2011 was keenly awaited.

However, a critical analysis reveals that one shouldn’t read too much into the optimism of industry and the stock market.

Health & Education: Education gets an allocation of Rs 52,057 crores, which is an increase of 24% over the previous year. We need to augment the skill sets of our manpower strength to exploit the opportunities in an increasingly flattening world economy and hence this increase is welcome.

However, the special grants to certain universities and institutes, smacks of election politics. This apart, an increased spending on education by government and foreign investors will further augment the education sector.

Health gets an increase of 20% over previous year to Rs 26,760 crores, which should have been higher considering poor penetration of private sector in rural areas and the objective of ‘inclusive growth’  proclaimed by the government. Even though health and education are the most priority sectors, it’s a paradox that our defense outlay continues to gobble up a major chunk of our resources, with Rs 164, 415 crores being spent on this sector.

As in any government spending, and going by past scams, how much of this allocation will get well utilized to health, education or defense is indeed a question.

Infrastructure: Infrastructure being critical for our development rightly gets an allocation of over Rs 2,14,000 crores, which is 23.3% higher than previous year. Additionally, measures to attract foreign funds into infrastructure and continuing tax savings for investing into long term infrastructure funds is welcome. There are good chunks of allocation for the new metro projects too.

Industry: Measures such as reduction of corporate surcharge from 7.5% to 5%, continuing excise duty at 10% [which was expected to move to 12%] are expected to ease the tax burden only marginally and may not be a relief in sustaining corporate profits particularly with increasing inflation impacting both input and manpower costs. Many Industries will not be able to contain costs forcing a review of their pricing policy.  This is likely to add to inflationary trends. With very high corporate taxes much above world average, the FM could have done away with the surcharge.

SEZs units being brought under the purview of MAT from 1st April, 2012 was unexpected and is a step in the wrong direction. Further, adding Rs 1000 crores to SIDBI for refinancing incremental lending by banks looks inadequate.

Taxation: On tax reforms, moving towards GST is being awaited for a long time and no deadline for its full implementation has been indicated. The RBI committee to look into issues related to micro finance sector has submitted its report, but the FM hasn’t announced any specific measures other than adding Rs 100 crore corpus funds, which is miniscule.

Audit exemption for enterprises unto a turnover of Rs 60 lakhs can only impact micro enterprises and even there, the benefit is only procedural and not financial.

With increasing inflation and high interest rates, we may as always, wait for further moves by RBI in this direction.

Inflation: The biggest disappointment in the budget is on measures to control inflation. The FM does not seem to have come out with specific and concrete measures to contain the inflation.  Merely comparing inflation figures as of previous year of 20.2% to the current year of 9.3% doesn’t alleviate the consumers. On the contrary, the FM has subjected the middle class to ‘pay more for high growth’ by increased taxes on several food products and services availed in private hospitals, airlines, hotels and restaurants. Thus tourism, healthcare and hospitality sectors could suffer. A more prudent move should have been a cut in service tax, with a widened net of taxable services.

A reduction in duty structure for petroleum products was expected but surprisingly, even with a burning Middle East and Africa, there is no new initiative. Further shocks on account of imminent oil crisis, are likely and it’s hoped that the ministry will soon relook into this critical issue.

Overview: As far as industry is concerned, there’s nothing exciting nor does it bring any relief to consumers suffering from record inflation. The savings to individuals on account of increased tax free slab of personal income to Rs 1.8 lakhs is too meager.  The FM has also not clarified how the fiscal deficit will go down from 5.1% to 4.6% in the next year. The FM reiterated the commitment to bring in black money stashed outside the country. But it is devoid of a target oriented plan and specific timeline.

In a globalized world, outlook for any region including India, in reality is also dependent on a combination of external factors. The US Dollar-Chinese Yuan trends and the performance of the European markets in the light of the sovereign debt crisis could have significant impact on our overall performance. Further, the deficit on external account could increase further with an imminent oil crisis.

With no significant impetus to Industry and for mobilizing savings, one cannot be sure, how the GDP can grow by 9% in real terms. The FM while saying, it’s a good strategy to diversify one’s risks, does nothing much about it. Rightly so, the Indians need blessings of Goddess of wealth and God of rain to bestow on us timely and bountiful rains, in order to continue with Indian growth trajectory.

About the author

V.Pradeep Kumar is a publishing and media expert, and a management consultant with diverse local and international experience.

Mr. Kumar holds an MBA [1980] and has strong cross functional knowledge and skills, both strategic and hands on leadership. He has got experience in the arena of both start ups and established operations, with balance of people and task orientation.

After starting the southern operations of Tata Infomedia Ltd, as General Manager [south], in 1993, Mr. Kumar is credited with the successful launch of Tata Press Yellow Pages in southern India. He was part of senior management responsible for diversification of the company into several B2B and B2C magazines such as Overdrive, Better Photography, AV Max, Search and so on.

From 2003 till 2009, Mr. Kumar headed Hawk Media LLC, Dubai, UAE and was responsible for the resurrection of the brand, ‘Hawk’.

After 30 years of distinguished corporate experience, he is now based at Bangalore focusing on management consultancy and training services.

Mr. Kumar is also a prominent writer on leadership, management, economy and education. His first book, ‘Simple is difficult’ was published in 2009 and he is currently working on several new book projects.

Websites:  

http://www.promaxintl.com 


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Last Updated ( Sunday, 06 March 2011 22:53 )  

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