OVERALL BUDGET 2011-2012 ANALYSIS

OVERALL BUDGET 2011 – 2012 ANALYSIS BY:

Pinaki Bhadury

Vice President, Strategy Consulting || South Asia, Middle East and North Africa || Frost & Sullivan

Key Announcements Made In a Snapshot -

Announcement 1: Increase in CRR in Banks, Higher cash infusions in PSU Banks

Impact: Higher cash / liquidity in the market, expected to spur investments in manufacturing and agricultural sectors, increase agricultural produce, increase availability of food hence control food price inflation

Announcement 2: FDI and FII investment limits increased and reforms, Tax Free Bonds for Infrastructure

Impact: Higher investments in infrastructure projects, higher manufacturing activities

Announcement 3: Rural Infrastructure Development Fund

Impact: Long term – growth of the Rural Sector and their inclusion in the economy will see the growth sustainability of the economy for years to come, offer opportunities for employment, development of Tier 2 and Tier 3 cities in to Tier 1 and Tier 2 cities, and thereby decrease the pressure on urbanization of the existing Metros

Announcement 3: Manufacturing Policy and simplification of financial processes

Impact: Will help increase the contribution of Manufacturing in the Indian GDP from present 16 percent to higher planned value of 25 percent - growth of manufacturing sector

Announcement 4: Increase in Budgetary support to the social sector

Impact: Higher urbanization, higher spending and hence higher economic growth

Announcement 5: Direct Tax – increase in exemption limit from Rs 1,60,000 to Rs 1,80,000 for individuals

Impact: Not much, likely to see marginal increase in savings. Therefore, some increase in FMCG and Consumer Goods spend by individuals.

Announcement 6: Direct Tax – Corporate Tax Surcharge decreased from 7.5% to 5%

Impact: Some increase in liquidity and hence expect increase in investments and therefore growth

OVERALL IMPACT: Positive for Growth

OVERALL ANALYSIS: The government has focused on fighting Food Price Inflation through investments in the agricultural and social sectors; while making available money in the hands of the individuals for savings and investments. Although it has focused on investments into the food and farm sector, it has left the market forces and the industry to invest in the manufacturing sector and make it grow. It has assisted the industry indirectly by not increasing the overall Excise Duties or Service Tax though it has rationalized some of the sectors in to the tax bracket in order to increase its

revenue resources. Budgetary support for Infrastructure is expected to give a big impetus to growth of various sectors of the economy and in the long-term support our Economic Growth at 9 percent or more. Though there has not been any budgetary support to any particular industry, industrial growth has been more or less left to the industry to work out their growth plans. With the focus on Rural Development, there is going to be huge opportunities for investment in the Rural Economy which in turn will spur growth in manufacturing and services.

TOP FIVE - 2011 EXPECTED GROWTH DRIVERS:

1. FII and FDI in infrastructure, MF and Corporate Bonds
2. Infrastructure Development Bonds & Increase in Bharat Nirman Allocation – Growth in infrastructure projects
3. Investment in NABARD and decrease in interest rate for farmers - Rise in Agricultural Investments
4. Stimulus for Fertilizer Sector – investment in fertilizer manufacturing and downstream segments, ancillary sectors
5. No negatives in Direct & Indirect Taxes – spur in manufacturing, increase in savings and investments

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