Friday, February 18, 2011

What to expect from Union budget 2011

While the Finance Ministry gives the final touches to the country's biggest financial planning exercise, people in general are anguish over the government's inability to tackle inflation, bring back black money banked overseas and keep fiscal deficit in check.
The Finance Minister no doubt has a tough job on hand to bring down inflation, curtail the rising fiscal deficit and at the same time ensure that the economic growth is on track while withdrawing the stimulus measures.
Double-digit inflation rates have stayed on for two years. Food inflation is at all-time highs. Will the Budget offer any respite to the common man? Does the Budget have a solid plan for India's one billion-plus population?
With mounting pressure on inflation, the government will take steps to bring down prices. The government has already deferred price hike in diesel as it can impact prices of essential commodities.
The ban on onion export has already brought down the prices. With more sops for agriculture sector, the government will focus on increasing productivity and balance the demand-supply chain.
Food inflation, which is at a record high of 17 per cent in January, will fall further as the government will take steps to ease supply constraints, Finance Minister Pranab Mukherjee said recently.
Led by a smart recovery in farm output, the economic growth rate for the current financial year stands at 8.6 per cent, as against 8 per cent a year ago.
Agriculture and allied activities are likely to grow at 5.4 per cent in 2010-11, compared to just 0.4 per cent in 2009-10, according to Advance Estimates released by the Central Statistical Organisation. The ban on onion export has already brought down the prices. With more sops for agriculture sector, the government will focus on increasing productivity and balance the demand-supply chain. Onion cultivators of Nasik protesting on the ban of onion export as the whole sale price has crashed to Rs 12 per kg. According to a few Economists, the economy may grow by 8.5 per cent despite rising inflation. The ban is going to be lifted soon. While contribution of agriculture to the gross domestic product (GDP) is 14.6 per cent, about 65 per cent of the population was dependent on it. Hence, it may get more Budgetary push for increasing productivity.
The funding may go to areas of research, as for a long time there has been little improvement in terms of new strains of crops, an official in the finance ministry said.
The agriculture sector is also anticipating tax benefits on import of agricultural tools and other mechanization equipment. The Budget will unveil several measures to boost infrastructure projects and further strengthen the economic growth.
The income tax would remain the same as is now. Currently, income between Rs 1.6-5 lakh (Rs 160,000-500,000) attracts 10 per cent tax; Rs 5-8 lakh (Rs 500,000-800,000)20 per cent and beyond Rs 8 lakh 30 per cent.
The government is likely to retain these rates and wait for DTC Act to come into force from April 1, 2012. Since it is also in talks with states to bring Goods and Services Tax from the same date, the government might also not change indirect tax rates.
However, it may tinker with threshold limit. The lower income group may get more relief.
The software industry has been hit by the double taxation issue on software packages.
This Budget is likely to bring cheer to the software industry by rationalizing the tax structure.
The imposition of service tax and countervailing duty for software packages sold with licenses is a deterrent for software companies.
In 2010, the Budget introduced conditional exemptions from countervailing duty or excise duty on the import/manufacture of packaged software if the importer/manufacturer is registered for service tax.
The Indian IT industry has sought extension of tax benefits under STPI and simplification of the tax structure to encourage investments in the sector, among others as part of its budget wish-list. Big incentives await Small and Medium industries. The most of the enterprises of Northeast are in small and medium sectors as such entrepreneurs of North east may be able to reap benefit in terms of cheaper finance.
The $76 billion software industry has requested the government to extend the Software Technology Parks of India (STPI) scheme till the Direct Tax Code (DTC), which is under consideration, is implemented.
RBI is considering allowing new private sector banks, including participation by big industrial houses. A roadmap for the same could be announced in the annual Union Budget to be presented later this month.
While the formal and final guidelines would be announced by the Reserve Bank of India on who should be allowed to set up new banks and what should be the terms and conditions for them, a roadmap on the subject could be announced in the Budget speech on February 28 by Finance Minister Pranab Mukherjee, according a knowledgeable circle of Economists In his Budget speech last year, Mukherjee had said that there was a need for extending the geographic coverage of banks and improving access to banking services.

To mobile better resources, the government will tighten service tax regime and remove loopholes in sectors like construction, oil and gas, telecom and construction. The government is also planning to bring many new services under the tax regime.
In view of the present inflationary pressures in a difficult macroeconomic environment, it is likely that the rate of basic customs duty, could be brought down.
Surely, the present duty structure on oil will undergo changes, given the present high prices and the significant quantities of oil imports. In any event, median customs duties must be brought down, if we are to reach ASEAN levels in the near future.
Higher education is likely to get a big boost in the Budget. The finance Ministry has been asked to double the budgetary allocation for the higher education to over Rs 30,000 crore (Rs 300 billion) in 2011-12. by the party in power.
Sarva Shiksha Abhiyan, which has turned into a vehicle for implementing the Right to Education, has already got a boost in funding, as the Centre's share of funds has increased to 65 per cent from 50 per cent.
So, this year again, the allocation may see a slight increase from the Rs 31,000-crore (Rs 310 billion) allocation in 2010-11.It likely to get a 20 per cent increase each over their 2010-11 Budget allocations.

The government is likely to remove the loopholes in international taxation to add more money to the exchequer.
Black money has become a major headache for the government. With millions of dollars stashed away in foreign banks, Indian government is under pressure to stop the flow of money to tax havens. The Budget will bring about tax and administrative changes.The labour ministry may get a higher allocation for various programmes like the much-publicised health insurance for the poor.
Though social sector spending will continue to be the government's top priority with a major chunk of allocation expected to be made towards existing schemes like the Mahatma Gandhi Rural Employment Guarantee Scheme (MGREGS), many social sector ministries have got broad hints from the finance ministry that no new schemes would be entertained and the government's emphasis in the Budget is likely to be on the existing schemes in agriculture, education and infrastructure.


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