Wednesday, March 2, 2011

Union Budget 2011 - A hit or flop show ?

Everyone spent hell lot of time speculating about budget before Feb 28, 2011. Media gets an easy topic to discuss 24 hours and experts gets the chance to show their speculation skills to the public.

Well, when I talk about whether this year's budget is hit or flop is my perspective and lot of people may agree or disagree to it. Couple of days before the Union Budget I wrote a post with title "If I were Finance Minister - Union Budget 2011" (Click link to see the post http://allaboutmoneyandprofit.blogspot.com/2011/02/if-i-were-finance-minister-union-budget.html), now that was like a dream to me and I thought of writing a revolutionary budget. But reality is different so I will not compare but I said there with what has been announced by Finance Minister on Feb 28.

Disinvestment of PSU - Good for Economy

An aggressive promise from Government. They are going to raise Rs 40,000 Crores in 2011-12 from disinvestment. Keep in mind that this is just a promise, lets see what comes in reality. Looking at the past trend of UPA they have been conservative about such promises so I hope that the number of Rs 40,000 Crores is conservative and actual realization would be way ahead of it. However its a matter of timely execution. A good step to bridge the gap towards Fiscal Deficit.

Foreign Investment in Mutual Funds

Another aggressive step wherein foreign investment has been allowed in mutual funds in India. Of-course this will bring more investment to India but I am skeptical about it. Mutual Funds till date have been relatively considered as stable investments than equity but the way FII plays with equity markets if the same practice is replicated in mutual funds, small investors will loose big time.

Aadhar (UID) Cards

It has been promised that 10 lakhs UID cards shall be issued everyday w.e.f 1st Oct 2011. This system will bring transparency and eliminate the corruption at various levels and bottom of pyramid will get the most benefit out of it.

Well, keeping in mind that Nandan Nilekani is leading this project I have no doubts in mind that it will not happen on time.

Economic Growth
  • The GDP growth is expected to grow at 9% in 2011-12
  • No major steps to control Inflation and seems that it will continue to bite the poor of India

Direct Transfer of Cash Subsidy

Prima facie it looks really a step towards inclusive growth wherein we are talking about transferring benefits to beneficiary directly for Kerosene, LPG & fertilizers and remove all mediators, which on paper will help control corruption as well. But reality is going to be completely different. All hopes on the Task Force which will set up the process for it. I am very very skeptical about it, my only hope is UID if in case task force is able to use that efficiently.

Foreign Direct Investment

Till now the statement is just on paper that discussions are underway to liberlise FDI policy. Pure lolly pop.

Agriculture

My favorite topic and thankfully this was covered  in length. Few key initiatives which I liked :
  • Rashtriya Krishi Vikas Yojana budget increased from Rs 6,755 to Rs 7,860/-
  • Rs 400 crores allocated to Eastern  Region to promote Rice based crops
  • Rs 300 crores allocated to bring 60,000 hectares under Palm Oil plantation
  • Rs 300 crores allocated to promote animal based protein production through live stock development.
  • Credit Flow increased from Rs 3,75,000 crores to Rs 4,75,000 crores in 2011-12
  • 15 more mega food parks approved for 2011-12
  • Private players to be allowed for Storage capacity and warehousing. 

Black Money

Five fold strategy, membership of various international fora of money laundering, DTAA etc were announced but let me tell you that all these are just excuses. It just need WILL to attack this dragon which no one in our politics has. If it happens, the names involved in it will change the history of India and no one who is in power wish to do so.


Bharat Nirmaan

I just copied a statement of our Prime Minister about the scheme to give you an idea of what Bharat Nirmaan is. “Bharat Nirman will be a time-bound business plan for action in rural infrastructure for the next four years. Under Bharat Nirman, action is proposed in the areas of irrigation, road, rural housing, rural water supply, rural electrification and rural telecommunication connectivity. We have set specific targets to be achieved under each of these goals so that there is accountability in the progress of this initiative.”

A significant allocation of funds has been done to this initiative. The budget has been increased to Rs 58,000 Crores for 2011-12 from mere Rs 10,000 Crores for 2010-11.

Government is targeting to provide broadband connectivity to all 250,000 villages in next three years. Thats called inclusive growth.

Please do read more on Bharat Nirmaan at http://bharatnirman.gov.in. This is the real work which would enable every Indian to be self dependent.

MGNREGA

The original name NREGA has been changed to MGNREGA. As expected the salary under MGNREGA has been linked with Consumer Price Index. So more dent to the budget.

Anganwaadi salaries have been doubled for workers and helpers both.

IT Initiatives
  • Some more initiatives will be seen in efficient tax administration although no clear plans unveiled.
  • Rs 300 crores allocated to modernize state stamp and registration in next three years. This will change the history if it happens with real WILL POWER to reform this area.

Taxation
  • Government seems to have fed up with GST by now. Consensus among states is a major headache to UPA. Many changes, many drafts, many deadlines and it seems that it is still not in a position of actual implementation even in phases. The scope of GST has been narrowed, really dont know what has been excluded or compromised till now.
  • Direct Tax Code (DTC) would be effective from 1st April 2012, a good news. Lot of hassle and complication of taxation would hopefully go away.
  • Income Tax exemption of Individual tax payer increased from Rs 160,000 to Rs 180,000, benefit of Rs 2,000 annually
  • Minimum Alternate Tax (MAT) increased from 18% to 18.5% for companies. Good one, get from the companies who are earning more and pass on the benefits to deserving ones and i.e. Poor India.
  • Additional deduction of Rs 20,000 for investment in long term Infrastructure bonds for Individual tax payers
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As a tax payer there is nothing exciting which I got from this budget however looking at the challenge of controlling Fiscal Deficit and a step toward double digit growth, I would rate this budget at 6 out of 10 and purely this is because there are few initiatives on Agriculture front which I liked, some promise about FDI liberlisation and commitment towards bottom of pyramid by increasing budget for Bharat Nirmaan scheme and by linking wages with CPI under MGNREGA.

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