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Markets Welcome Budget

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A growth-oriented budget that also opened doors to portfolio investments from foreign funds in Sebi-registered mutual funds was how the Sixth Budget presented by Finance Minister Pranab Mukherjee was perceived by the stock market on Monday. The Bombay Stock Exchange benchmark index Sensex zoomed nearly 500 points in the aftermath of the Budget  speech while the NSE Nifty surged 2.65 per cent. Even the marginal hike in MAT from 18 per cent to 18.5 per cent was seen as a sensitive manipulation of what is considered to be burden on the corporates. What's more, signals from the bond and rupee market also showed their belief in the FM's ability to contain fiscal deficit.

Mukherjee also said discussions were on to further liberalise the FDI policy. It may be remembered the government had warned of FDI slowdown in the 2010-11 Economic Survey presented last week.

The Finance Minister presenting his sixth General Budget, attempted a balancing act between populism, good fiscal housekeeping and a push to reforms.

The Prime Ministers economic adviser and former RBI chief C Rangarajan described this budget as one balancing growth needs and need for fiscal consolidation . However, he said this budget will need policy initiatives down the year. Mukherjee has envisaged revenue deficit at 1.8 per cent in FY'12 while fiscal deficit was seen at 4.6 per cent of GDP.

However, the fiscal deficit was still seen as too high as Mukherjee announced a slew of increased social spending  including a food security bill for 2011-12.

In his budget speech,  the finance Minister  said social spending would rise by 17 per cent in 2011-12. That includes health spending, which would rise 20 per cent in the fiscal year starting April 1. This is part of the measures to confront high prices and corruption scandals as well as elections in five states this year.

In a bold move, the budget announced that direct cash subsidy would be given to the poor on fuel and fertilizers by March, 2012 The budget also gave adequate attention to the infrastructure sector.  The government has increased the FII participation in the corporate  infrastructure bond to $40 billion from $20 billion. Also this year,  exemption under section of 80CCF and issuance of tax-free bonds would provide support to the infrastructure funding requirement. Expenditure on infrastructure was aslo raised to 2.14 lakh crore from 1.76 lakh crore last year.

The Finance Minister had began his Budget speech by saying that the economy had bounced back, industry was regaining ground and he projected a double-digit service growth in "the near future." He said the economy was expected to grow at 9 per cent in 2011-12. The GDP, he said, had grown at 8.6 per cent, the agriculture sector had grown at  5.6 per cent, industries at 8.1 per cent and the services sector at 9.6 per cent.

Early in his speech he identified inflation and high food prices and corruption as key challenges before the  government  and said he saw this Budget as a transition to a more transparent and result-oriented economic management. He promised that average inflation would be lower in the coming year.

With a focus on reforms push, Mukherjee said the government would keep up the tempo of the  is investment process. He said the disinvestment target was Rs 40,000 crore.

Budget & You

Here's what the FM did for taxation relief of the aam admi. Here is  what the Finance Minister had for individual tax players, citing focus  on making taxes more moderate:

  • Tax exemption limit raised to Rs 1.8 lakh from Rs 1.6 lakh for the general category.

  • Senior citizens' age qualification reduced from 65 years to 60 years

  • Exemption for senior citizens raised to Rs 2.5 lakh

  • Higher exemption for new category of very senior citizens - above 80 years of age.

  • Tax exemption raised to Rs 5 lakh for these very senior citizens.

  • Low cost housing loans of Rs 15 lakh to get 1 per cent interest sop.   Where the cost of house does not exceed Rs 25 lakh.

  • The existing  interest subsidy is on loans of Rs 10 lakh where the cost of house is Rs 20 lakh.


Earlier, he announced that the Direct Tax Code Bill was likely to be passed by Parliament in the next financial year.
The Finance Minister further said the government proposed to introduce the Constitution Amendment Bill in the current session to pave the way for the introduction of the long-awaited Goods and Services Tax (GST) regime. The government had originally planned to roll out GST from April 1 last year but a consensus could not be reached.
GST would subsume most of the central and state taxes like excise and sales tax, making rules easier for the industry and other tax payers. The Budget comes in the backdrop of high inflation, tight liquidity and
rising current account deficit. Unsustainable subsidies and a sense of policy paralysis as far as major reforms are concerned have been a drag  on the economy. Mukherjee has the difficult task of putting the economy  back on track as well as keep the masses happy.

There was also a bonanza for the farming community, announcing loans at an interest rate of 4 per cent, 3 per cent less than the market rate, for farmers who pay their dues in time. He has also proposed raising the credit target for the farm sector by Rs 1 lakh crore.

The Finance Minister said the credit target for the agriculture sector had been increased by Rs 1 lakh crore to Rs 4,75,000 crore. Also, he said, banks had been asked to focus on farm credit lending to small and marginal farmers. Faced with high food inflation and the country's dependence on import of pulses and edible oil, the Finance Minister also announced various schemes for promoting production of vegetables, pulses, oilseeds, fodder and nutrition-rich crops like millets and maize.