Budget Analysis 2009 - 2010

INCOME TAX Individual Positive Standard Deduction Existing Proposed Individual Up to Rs.1,50,000 Up to Rs.1,60,000 Individual (Woman) Up to Rs.1,80,000 Up to Rs.1,90,000 Senior Citizens Up to Rs.2,25,000 Up to Rs.2,40,000 To remove Surcharge of 10% on Personal Income Tax. Section 80DD of IT to be hiked to Rs.1 lakh. New Pension System Trust not to attract Income Tax, STT & DDT. Corporate Neutral No change in Corporate Tax TAX - OTHERS Positive CTT to be abolished FBT withdrawn CENVAT reduced GST to be introduced from April 1, 2010 MAT Negative MAT rate to be increased to 15% v/s 10% of book profit. Carry forward tax credit on MAT to 10 years v/s 7 years. AGRICULTURE Positive Target for agriculture credit flow set at Rs.3,25,000 crore for the year 2009-10 v/s Rs.2,87,000 crore in 2008-09. Interest subvention scheme for short term crop loans up to Rs.3 lakh per farmer at the interest rate of 7% per annum to be continued. Additional subvention of 1% to be paid from this year, as incentive to those farmers who repay short term crop loans on schedule. Time given to the farmers having more than two hectares of land to pay 75% of their over-dues under Debt Waiver and Debt Relief Scheme extended from June 30, 2009 to December 31, 2009. Allocation under Accelerated Irrigation Benefit Programme (AIBP) increased by 75% over budget estimate (B.E.) of 2008-09. Allocation under Rashtriya Krishi Vikas Yojana (RKVY) stepped up by 30% in B.E. 2009-10 over B.E. 2008-09. Subsidy regime for fertilizers to change to nutrient- based rather than price-based. Direct transfer of subsidy to farmers being worked out. EDUCATION Positive The overall Plan budget for higher education is to be increased by Rs.2,000 crore over interim B.E. 2009-10. Full interest subsidy for students taking courses in approved institutions. Provision for the scheme ‘Mission in Education through ICT’ substantially increased to Rs.900 crore and the provision for setting up and up-gradation of Polytechnics under the Skill Development Mission enhanced to Rs.495 crore. Rs.827 crore allocated for opening one Central University in each uncovered State. Rs.2,113 crore allocated for IITs and NITs which includes a provision of Rs.450 crore for new IITs and NITs. Rs.50 crore allocated for Punjab University, Chandigarh. Plan allocation for Chandigarh to be suitably enhanced during the year to provide better infrastructure to the people of Chandigarh. INDUSTRIES Automobile and Ancillaries Positive Specific component of excise duty applicable to large cars/utility vehicles of engine capacity 2,000 cc and above to be reduced from Rs.20,000 per vehicle to Rs.15,000 per vehicle. Excise duty on petrol driven trucks/lorries to be reduced from 20% to 8%. Excise duty on chassis of such trucks/lorries to be reduced from ‘20% + Rs.10000’ to ‘8% + Rs.10000’. Banking & Financial Companies Negative Scheduled commercial banks allowed to set up off-site ATMs without prior approval subject to reporting. A sub-committee of State Level Bankers Committee (SLBC) to identify and formulate an action plan for providing banking facilities in under-banked/unbanked areas in the next three years. Rs.100 crore set aside as one-time grant in-aid to ensure provision of at least one centre/Point of Sales (POS) for banking services in each of the unbanked blocks. Exemption from service tax (leviable under Banking and other financial services or under Foreign exchange broking service) being provided to inter-bank purchase and sale of foreign currency between scheduled banks. Loans at a subsidized interest rate of 6% for farmers who pay their dues in time, which is 1% less than what others would get. Time given to the farmers having more than two hectares of land to pay 75% of their over-dues under Debt Waiver and Debt Relief Scheme extended from June 30, 2009 to December 31, 2009. Full interest subsidy for students taking courses in approved institutions. No change in FDI limit in insurance Consumer Durable Positive List of specified raw materials/inputs imported by manufacturer-exporters of sports goods which are exempt from customs duty, subject to specified conditions, to be expanded by including five additional items. Fertilizer Positive Direct transfer of subsidy to farmers being worked out that will unshackle fertilizer companies. Subsidy regime for fertilizers to change to nutrient- based rather than price-based. Excise duty on naphtha to be reduced to 14%. FMCG Negative Investment-linked tax benefits for gas pipelines, cold chains Concessional customs duty of 5% on specified machinery for tea, plantations to be reintroduced for one year, up-to 06.07.2010. Gems & Jewellery Neutral Excise duty on branded articles of jewellery to be reduced from 2% to Nil. Tax holiday for exporters extended until 2011. Custom duty on Gold & Silver increased. Healthcare Positive Allocation under National Rural Health Mission (NRHM) increased by Rs.2,057 crore over Interim B.E. 2009-10 of Rs.12,070 crore. All BPL families to be covered under Rashtriya Swasthya Bima Yojana (RSBY). Allocation under RSBY increased by 40% over previous allocation to Rs.350 crore in B.E. 2009-10. Customs duty on 10 specified life saving drugs/vaccine and their bulk drugs to be reduced from 10% to 5% with Nil CVD (by way of excise duty exemption). Customs duty on specified heart devices, namely artificial heart and PDA/ASD occlusion device, to be reduced from 7.5% to 5% with Nil CVD (by way of excise duty exemption). Adjustment assistance scheme to provide enhanced Export Credit and Guarantee Corporation (ECGC) cover at 95% to badly hit sectors extended upto March 2010. Interest subvention of 2% on pre-shipment credit for seven employment oriented export sectors extended beyond the current deadline of September 30, 2009 to March 31, 2010. Tax holiday for exporters extended until 2011. Infrastructure & Engineering Positive 1 lakh dwelling units for paramilitary forces personnel to be constructed IIFCL (India Infrastructure Finance Company Ltd.) to evolve a Takeout Financing Scheme in consultation with banks to facilitate incremental lending to infrastructure sector. IIFCL to refinance 60% of commercial bank loans for PPP projects in critical sectors over the next 15 to 18 months. IIFCL and Banks are now in a position to support projects involving total investment of Rs.1,00,000 crore. Allocation to National Highways Authority of India (NHAI) for the National Highway Development Programme (NHDP) increased by 23% over B.E. 2008-09. Allocation for Railways increased from Rs.10,800 crore in Interim B.E. 2009-10 to Rs.15,800 crore in B.E. 2009-10. Allocation for Bharat Nirman increased by 45% in 2009-10 over B.E. 2008-09. Allocations under Pradhan Mantri Gram Sadak Yojana (PMGSY) increased by 59% over B.E. 2008-09 to Rs.12,000 crore in B.E. 2009-10. Under Rajiv Gandhi Grameen Vidyutikaran Yojana (RGGVY), allocation increased by 27% to Rs.7,000 crore. Allocation under Indira Awaas Yojana (IAY) increased by 63% to Rs.8,800 crore in B.E. 2009-10. Allocation of Rs.2,000 crore made for Rural Housing Fund (RHF) in National Housing Bank (NHB) to boost the resource base of NHB for refinance operations in rural housing sector. Full exemption from excise duty to be provided on goods of Chapter 68 of Central Excise Tariff manufactured at the site of construction for use in construction work at such site. IT/ITES Positive Custom Duty on LCD panels cut from 10% to 5% Tax holiday for exporters extended until 2011. Sunset clause for Software Technology Parks of India extended by 1 year FBT abolished Media & Entertainment Negative Customs duty of 5% to be imposed on Set Top Box for television broadcasting. Customs duty on LCD Panels for manufacture of LCD televisions to be reduced from 10% to 5%. Oil & Gas Positive Investment-linked tax benefits for gas pipelines, cold chains SEC 80IB benefit extended to natural gas. Blueprint to be developed for long distance gas pipelines leading to a National Gas Grid to facilitate transportation of gas across the length and breadth of the country. Outlay for Assam Gas Cracker Project stepped up suitably in B.E. 2009-10. Government to set up an expert group to advice on a viable and sustainable system of pricing petroleum products. Duty paid High Speed Diesel blended with up-to 20% bio-diesel to be fully exempted from excise duties. Power Positive Cuts customs duty on wind power equipment by 2.5%. Allocation under Accelerated Power Development and Reform Programme (APDRP) increased by 160% to Rs.2,080 crore in B.E. 2009-10 over B.E. 2008-09. Customs duty on permanent magnets for PM synchronous generator above 500 KW used in wind operated electricity generators to be reduced from 7.5% to 5%. Excise duty on naphtha to be reduced to 14%. PSU Neutral While retaining at least 51% Government equity in Public Sector Undertakings, people’s participation in disinvestment programmes to be encouraged. Public Sector Enterprises such as banks and insurance companies to remain in public sector and will be given full support including capital infusion to grow and remain competitive. Real Estate Negative Interest subsidy for homes for loans up-to Rs 1 lakh Telecommunication Neutral Full exemption from 4% special CVD on parts for manufacture of mobile phones and accessories to be reintroduced for one year. Textile Positive Tax holiday for exporters extended until 2011. Adjustment assistance scheme to provide enhanced Export Credit and Guarantee Corporation (ECGC) cover at 95% to badly hit sectors extended up-to March 2010. Interest subvention of 2% on pre-shipment credit for seven employment oriented export sectors extended beyond the current deadline of September 30, 2009 to March 31, 2010. Customs duty on cotton waste to be reduced from 15% to 10%. Customs duty on wool waste to be reduced from 15% to 10%. Excise duty on manmade fibre and yarn to be increased from 4% to 8%. The scheme of optional excise duty of 4% for pure cotton to be restored. Excise duty for man-made and natural fibres other than pure cotton, beyond the fibre and yarn stage, to be increased from 4% to 8% under the existing optional scheme. MARKET REACTION Indices Open At 1:00 PM Change (%) Nifty 4,429.60 4,245.25 (4.16) Sensex 14,962.12 14,324.55 (4.26) BSE Midcap Index 5,211.32 5,057.77 (2.95) BSE Small Cap Index 5,857.54 5,710.23 (2.51) BSE Bank Ex Index 8,540.83 7,972.96 (6.65) BSE Power Index 2,953.98 2,815.74 (4.68) BSE PSU Index 8,288.56 7,903.25 (4.65) BSE Reality Index 3,460.62 3,300.78 (4.62) BSE Metal Index 11,243.54 10,762.61 (4.28) BSE Capital Goods Sector Index 13,142.48 12,585.89 (4.24) BSE Oil & Gas Index 9,664.71 9,308.71 (3.68) BSE Auto Index 4,627.36 4,479.99 (3.18) BSE TECk Index 2,656.95 2,578.42 (2.96) BSE IT Sector Index 3,346.92 3,266.68 (2.40) BSE Health Care Sector Index 3,641.36 3,589.95 (1.41) BSE FMCG Sector Index 2,296.37 2,303.94 0.33 BSE Consumer Durables Sector index 2,992.63 3,016.41 0.79

Markets reacted negatively , plunged more than 4% at around 1 PM (IST)

Domestic markets were trading under huge selling pressure (at around 1 PM) as investors were disappointed after Union Budget 2009-2010 did not contain any major reforms such as a roadmap to increase FDI in infrastructure & insurance, decontrol fuel prices and any clear roadmap on divestment. A surge in fiscal deficit target to 6.8% added to the market's woes. Sensex slipped below the 14,400 mark and Nifty fell below 4,250 mark. The significant selling pressure witnessed among Banking, Power, PSU, Realty and Metal stocks. The broader market indices were also under pressure as both BSE Midcap and BSE Smallcap indices traded with a loss of more than 2% each. However, markets opened higher today ahead of the Union Budget. Sensex crossed the 15,000 mark and Nifty jumped above 4,450 mark in the early trade. All the sectoral indices were trading in green. With the budget focusing on the common man rather than the economy as a whole, Sensex touched lowest level of 14,147.80 and Nifty fall to as low as 4, 195.40 level (at around 1 PM). Shares of companies that run insurance business fell after the Union Budget 2009-2010 did not include any measures to hike foreign direct investment limit in the insurance sector. Reliance Capital ,ICICI Bank, HDFC, Bajaj Finserv, SBI, Aditya Birla Nuvo and Max India fell by between 3-7%. PSU stocks fell as government bypassed announcement of divestment in public sector companies. Central bank of India, Hindustan Copper, MTNL, State Trading Corporation, Bharat Heavy Electricals, Power Finance Corporation fell by between 2-5%. Some of the Positives from the budget are: GST will be implemented from April 1, 2010 FBT abolished CTT removed While, disappointments are: Divestment in Insurance and Banks Fuel policy FDI in Infrastructure

Budget silent on edible oils tax, trade upset

The budget left import duty on edible oils unchanged on Monday, disappointing local industry that had been rooting for at least a small increase.

"There is no news for the edible oil sector. We are little bit disappointed as nothing has been announced to promote domestic oilseeds production," said B.V.Mehta, executive director of the Solvent Extractors' Association of India.

The market expected the government to impose a nominal tax on crude palm oil imports and marginally raise the levy on refined oils.

India allows tax free imports of crude variants, while levies a 7.5 percent tax on refined imports.

With soaring stocks of imported edible oils at Indian ports, the government was under pressure to slap duties on new cargoes.

An analyst said the decision to leave the tax regime unchanged indicated the government was still assessing the monsoon's progress.

India, the world biggest edible oil consumer after China, mainly buys palm oil from Indonesia and Malaysia, and small quantity of soyoil from Brazil and Argentina.

"Imports of edible oil will continue to be higher in coming days as the global prices are at comfortable level," said Veeresh Hiremath, senior analyst with Karvy Comtrade.

He said local prices of oils and oilseeds would decline.

Govt expects 497.50 bln rupees from state-run firms

The budget expects to generate 497.50 bln rupees from dividends and profits of state-run firms in 2009/10 and estimates food subsidy at 524.90 bln rupees during the fiscal year ending March 2010.

The budget also said the government would issue 103.06 bln rupees in bonds to oil firms.

Mahindra Satyam open offer gets poor response

Indian software services firm Tech Mahindra Ltd (TECHM.NS : 707.3 -44.8) said on Monday its open offer to the shareholders of Mahindra Satyam (SATYAM.BO : 73.9 -3.65) received less than 0.1 percent of the outstanding shares.

A total of 420,915 shares were tendered in the open offer, it said in a statement. Tech Mahindra intends to subscribe for 198.66 million additional shares at 58 rupees each, it said.

The company, which is 31 percent owned by BT Group, won an auction in April for a controlling stake in fraud-tainted Satyam Computer Services, now rebranded as Mahindra Satyam.

After the open offer is completed, Tech Mahindra will own 31.04 percent of Mahindra Satyam, formerly Satyam Computer Services Ltd.

Budget 2009-10: Experts' analysis and opinions

TAKAHARI OGAWA, ANALYST, STANDARD AND POOR'S RATING AGENCY

Ogawa said the size of the country's fiscal deficit was within the expected boundary, after India announced its fiscal deficit would widen as it outlined increased spending. However the lack of details about fiscal consolidation and privatisation was disappointing, Ogawa told Reuters in an interview.

SEBASTIEN BARBE, HEAD OF EM RESEARCH AND STRATEGY, CALYON, HONG KONG

"The government was elected on a pro-growth and pro-poor programme so I don't think they are going to make a big move in terms of reducing the fiscal deficit in the short term.

Beyond the short term outlook for the fiscal deficit what could be of interest is whether or not the government suggests some sort of precise and detailed roadmap to come back to a more controlled fiscal deficit. If they commit themselves to reduce the fiscal deficit in the next, say, 3 years to something closer to 3.5-4 percent of GDP, the market is likely not to be too harsh on the government. A large fiscal deficit is already priced in.

If they just announce a large fiscal deficit without a committment to a control in fiscal performance, there is a risk of a sovereign downgrade. But if they take strong commitments, I am not sure there will be a downgrade."

S. SRINIVASA RAGHAVAN, TREASURY HEAD, IDBI GILTS, MUMBAI:

"The budget is not up to the expectations and disappointing, too. They are saying that the fiscal deficit is manageable, but we have to wait and see how they are going to do that.

"The federal borrowing for the fiscal year at more than 4.5 trillion rupees, coupled with the state governments' share is going to be a huge burden for the market. Bond prices have come down already and we can expect some more falls."

JIGAR SHAH, SENIOR VICE-PRESIDENT AT KIM ENG SECURITIES IN MUMBAI

"The budget is good if we view it against the prevailing economic scenario, in India as well as globally. The budget is directed towards increasing demand, by leaving key tax rates unchanged. It was silent as to policy actions like (how to) increase foreign investment and stake sales in government units. That aspect isdisappointing."

KIRAN MAZUMDAR-SHAW, CHAIRMAN AND MANAGING DIRECTOR, BIOCON LTD

"It's not a bold budget. It's not such a great budget which will give a fillip to the industry. I was expecting many bolder reforms would be announced. There should have been much larger outlay for infrastructure and power. I am also disappointed that the budget had nothing substantial for the healthcare sector."

DEEPAK JASANI, HEAD OF RETAIL RESEARCH, HDFC SECURITIES, MUMBAI:

"There is a mismatch between market expectations and what was delivered. There were hopes the government would be bolder, but it has only gone for spending route and expecting things to take care of themselves.

"On most counts, there are a lot of general statements of intent, without any specific targets or timelines.

SUJAN HAJRA, CHIEF ECONOMIST, ANAND RATHI SECURITIES, MUMBAI:

"The budget is more on the populist side and seems to address immediate rather than longer-term problems. Both the expenditure overrun and relief on the direct tax front, especially on personal income taxes, are ahead of our expectations."

RUPA REGE NITSURE, CHIEF ECONOMIST, BANK OF BARODA, MUMBAI:

"The real concern emerging from the budget is that it has not given confidence as to how the government will go about the fiscal consolidation process, after hiking the fiscal deficit target.

"While the thrust on agriculture, infrastructure, etcetera augurs well from a long-term growth perspective, the fiscal profligacy is quite obvious in the near term and hence the markets have also reacted negatively."

SHUBHADA RAO, CHIEF ECONOMIST, YES BANK (YESBANK.NS : 136 -6.8), MUMBAI:

"The budget is clearly focused on maintaining the growth drivers, that is, the rural economy and infrastructure, which is a strong positive for retail segments. Overall concerns do remain on higher expenditure as that would translate into higher fiscal deficit."

HARISH GALIPELLI, HEAD OF RESEARCH, KARVY COMTRADE, HYDERABAD:

"By pushing banks to lend aggressively to farmers, we can expect an increase in the productivity of agricultural produce. With incentives for exporters, export-oriented commodities like cotton and spices may rule firm."

KRISHNA BIR CHAUDHARY, PRESIDENT OF BHARATIYA KRISHK SAMAJ, NEW DELHI:

"The announced higher allocation for the irrigation sector is too little as 60 percent of the country's farm land is still rain fed. We expected more."

MARKET REACTION:

* The BSE Sensex (^BSESN : 14103.03 -810.02) tumbled as much as 5 percent as budget unfolds on concerns over how government will fund ballooning deficit.

* The partially convertible rupee falls nearly 1 percent to 48.33/35, versus 47.88 before the budget speech began and compared with Friday's close of 47.89/91. It traded later at 48.30/32.

* Yield on benchmark 10-year bond spikes 16 basis point to 6.99 percent. Most traded 2014 bond rises to 6.48 percent on the government's higher borrowing plan from 6.40 percent.

BACKGROUND:

- India could see growth of around 7 percent this year and more in coming years if it makes sweeping reforms including removal of subsidies and speeds infrastructure development, a government report said last Thursday.

- Bonds have jumped this year to factor in a massive increase in government borrowing. The market had priced in expectations that the deficit will swell to between 6.25 percent and 6.5 percent of GDP.

-Last week India unexpectedly raised gasoline and diesel prices by as much as 10 percent, passing onto consumers some of the recent rise in global oil prices and easing some of the pressures on the budget from subsidies.

- India fiscal deficit widened to 6.2 percent in 2008-09 as the government unleashed stimulus spending to insulate the economy against the global downturn.

- If the government fails to present a plan to bring the deficit back under control in subsequent years, the country's credit rating could come under pressure.

- India's shoddy infrastructure is considered by many foreign investors as the Achilles' heel of the economy that prevents the sort of double-digit growth seen in China

- The current fiscal year of 2009/10 runs until the end of next March.

Budget 2009-10: Key Points

OTHER KEY POINTS:

* Infrastructure spending

- allocations for highways, urban renewal to rise sharply

* Energy sector

- to develop long distance natural gas pipelines for a national grid; to set up panel to review domestic fuel prices

* Agriculture spending

- to provide additional 10 billion rupees over interim budget for more irrigation; to offer direct subsidies to farmers

* Government asset sales

- aims to raise 11.2 bln rupees from stake sales, 350 billion rupees from 3G telecom spectrum auction

* Growth

- 2008/09 GDP growth seen at 6.7 pct; government aims to return economy to high growth path of 9 pct/yr at the earliest

Budget hikes spending, deficit 6.8 pct/GDP

he new government said it will hike spending to spur growth, pushing the 2009/10 fiscal deficit to a much higher than expected 6.8 percent of GDP, slamming local stocks and pushing bond yields higher.

Financial markets had been expecting the fiscal deficit in the 2009/10 budget unveiled on Monday to rise to as high as 6.5 percent of GDP, from a previous government target of 5.5 percent.

The government's gross market borrowing is expected to rise to 4.51 trillion rupees, versus 3.95 trillion rupees in a Reuters poll.

Finance Minister Pranab Mukherjee pledged the government would return to fiscal responsibility targets "at the earliest". He also vowed to return the country to a higher growth rate of 9 percent a year as soon as possible, from an estimated 6.7 percent in 2008/09.

Total spending in the 2009/10 budget will rise to 10.2 trillion rupees, up 36 percent from 2008/09.

India's BBB-minus sovereign rating, placed on negative outlook in February, does not face any significant rating pressure, Standard & Poor's analyst Takahari Ogawa said after the budget was released.

Budget 2009-10: Taxes

Service tax levied on law firm

Custom duty on gold re-imposed

Customs duty to be reduced on drugs for heart treatment

No new tax on edible oil imports

4 per cent excise duty on cotton products restored

Customs duty on bio-diesel reduced

Life saving devices on heart contidion exempted from custom duty

Small business exempt from advance tax

To maintain overall customs and excise duty structure

Tax holiday to natural gas extended

Tax slab raised

MAT hiked to 15 per cent of book profit

Commodity transaction tax abolished

New pension scheme

Tax holiday for exporters extended untill 2012

Personal income tax exemption hiked by Rs 10,000

Abolish fringe benefit tax

Tax holiday extended for textile units

Goods and services tax from April 1, 2010

Share of direct taxes has increased to 56 per cent in 2008-09

Federal Tax/GDP ratio is 11.5 per cent

No surcharge of 10 per cent on personal income tax

Increase in exemption slab for senior citizen

No change in corporate taxes

Hike in IT exemption for women to Rs 1,90,000

Govt committed to tax reforms

Increase automation in direct tax collection

New tax code in 45 days

Centralised processing center at Bengalooru to streamline taxation

Income tax forms should be user friendly

Tax system should be such that it shold encourage voluntary compliance

Saral form 2 will be introduced

Budget 2009-10: Highlights

Budget speech completed. Finance Bill-II 2009 introduced.
Customs duty on bio-diesel reduced.
Silver to cost more.
Tax to be levied on Law Firms.
Textile units to receive tax holiday.
LCD TVs to cost less. Custom duty on LCD TVs cut from 10% to 5%.
Set-Top Boxes to cost more. Customs duty of 5% on set-top boxes.
To extend tax holiday for commercial production of mineral oil and natural gas.
Enhance budgetary support by Rs 40,000 cr.
Fringe Benefit Tax abolished.
Commodity Transaction Tax abolished.
Personal income tax exemption hiked by Rs 10,000.
No surcharge of 10% on personal income tax.
Centralised processing center at Bengalooru to streamline taxation.
No change in corporate tax.
Increase in exemption slab for senior citizens by Rs 15,000.
Fiscal deficit at 6.8% of GDP.
Proposes Rs 500 cr for rehabilation of displaced persons of northern and eastern areas of Sri Lanka.
Aila Relief proposed at Rs 1,000 crore.
Increased allocation for higher education. New IITs to be set up. Rs 2,113 cr for IITs and NITs.
Rs 25 cr each for AMU campuses in Murshidabad and Mallapuram.
Defence outlay goes up. One lakh dwelling units for paramilitary forces personnel to be constructed.
Allowances to para-military forces at par with defence forces.
One rank, one pension for ex-servicemen.
Allocation for Commonwealth Games to be raised to Rs 3472 crore
Online job exchange to be started with private partnership.
Unique ID plan to roll out in 12-18 months.
Top people from private sector to be given responsibility of vital national projects.
Interest subsidy for home loans up to Rs 1 lakh.
All BPL families to be bought under one smart card program.
50% of all rural women to be brought into self-help group programmes.
Rural mega clusters in Bengal and Rajasthan.
To add handloom clusters in West Bengal and Tamil Nadu.
75% hike in irrigation projects.
Rural Housing: Allocation to Indira Awaas Yojna hiked by 63% to Rs 8,883 cr. Rs 7000 crores for rural electrification scheme.
Rs 31,100 crore allocation for NREGA. NREGA gave employment opportunities to more than 4.479 cr households.
Rs 100 cr one-time grant to expand banks in non-banking areas.
Banks, insurance to stay with Govt. Banking network to be expanded.
Expert panel to look into petroleum product pricing. Domestic oil prices must be in sync with global prices.
'Aam Admi' is the focus of all our programmes and schemes: Pranab
Tax system should be such that it shold encourage voluntary compliance.
Income Tax forms to be made user-friendly. Saral-II forms to simplify taxation process.
Export Credit Guarantee scheme extended till March 2010.
Stimulus package to print media extended till December 31.
Farmers loan interest to come down to 6%. Interest subvention scheme for farm loans to be manitained.
Additional budget allocation for farmers.
IIFCL will refinance 60% of commercial bank loans in PPP. IIFCL to look at infrastructure needs.
Mumbai flood management allocation hiked to Rs 500 cr.
87% rise in urban renewal mission. Housing allocation hiked.
Fiscal stimulus at 3.5% of GDP
Allocation for NHAI up 23%
Trade in goods and services doubled in 2008
Job creation hit due to economic slowdown: Pranab
Govt took 3 stimulus packages so far. Two worst quarters of the global economic crisis is now behind us: Pranab
One budget can not solve all problems: Pranab
Foreign capital inflow is important
Increased focus on growth and encourage nation's development
Sustain growth rate of 9% for a longer period. Farm sector growth at 4%
Union Finance Minsiter begins his speech. This is Pranab Mukherjee's 4th budget.
Cabinet approves Union Budget.

Budget allocates Rs.39,000 crore for rural jobs scheme

The government Monday hiked the allocation for its flagship rural job scheme by 144 percent to Rs.39,000 crores.

"I am allocating Rs.39,000 crores for NREGA (National Rural Employment Guarantee Act). This is a hike of 144 percent," Finance Minster Pranab Mukherjee said while presenting the budget for fiscal 2009-10 in the Lok Sabha.

"NREGA is a magnificent success. The government is committed to providing a wage of Rs.100 a day to rural households in convergence with other schemes for rural areas. One hundred and fifteen pilot districts have been identified for these convergence schemes. The details will be given by the minister for rural development," Mukherjee added.

The finance minister said the government would soon publicise a draft food security (guarantee) bill and seek comments from everybody before finalising the bill. In its election manifesto earlier this year, the Congress had promised 25 kg of rice or wheat a month at Rs.3 per kg to families below the poverty line.

Increased allocations growth-oriented, says industry body

The All India Association of Industries (AIAI) has welcomed the hikes in allocations for infrastructure, agriculture and small and medium enterprises (SMEs) for exports in the fiscal 2009-10 budget announced Monday, and termed the move as "growth-oriented".

According to AIAI president Vijay Kalantri, the increased allocation of Rs.5,000 crore for railways, 23 percent for national highways, higher allocation for gas grid, Rs.7,000 crore for rural electrification and 87 percent increase in the Jawaharlal Nehru National Urban Renewal Mission would generate employment and serve as a growth stimulus.

"The increase in allocation of 75 percent towards irrigation sector will boost the agro-industries sector," Kalantri said in a statement after Finance Minister Pranab Mukherjee presented the union budget for 2009-10 in the Lok Sabha Monday.

"AIAI also welcomes the hike in allocation to Market Development Scheme and the Rs.4,000 crore special fund to be operated by banks for SMEs to revive from the recessionary trends," he added.

India Inc welcomes Budget with reservations

India Inc on Monday welcomed the focus on reviving economic growth to 9 per cent as also the indications for bold tax reforms, but expressed regret that the Minimum Alternate Tax was raised and Security Transaction Tax was let to continue.

"Finance Minister Pranab Mukherjee's efforts to revive the economy back to nine per cent (growth) is in the right direction," ICICI Bank MD and CEO Chanda Kochhar said today.

"I am happy on behalf of the whole industry that Fringe Benefit Tax has been abolished, but I am a little bit unhappy about MAT," top industrialist Rahul Bajaj said.

The MAT rate was hiked to 15 per cent from 10 per cent. Kochhar felt that the Securities Transaction Tax too should have caught the government's attention.

"Health care sector has been ignored. We had been expecting a boost for the health care infrastructure, but nothing has been said. Budget was mute. We are disappointed," Shivinder Mohan Singh of Fortis said.

The stock market tanked 700 points mid-way during Mukherjee's Budget speech, but recovered partially at 1315 hrs.

The industry also welcomed restoration of seven year tax break on natural gas production, saying it will help attract foreign bidders for NELP-VIII.

"This was always there. It is not a new benefit. We are very happy about the clarification as it ends the ambiguity," said P M S Prasad, President and CEO (Oil & Gas), RIL.

Budget 2009-10 backs infrastructure, farmers

Government on Monday outlined measures to speed infrastructure development and unveiled increased spending for farmers and the poor in its first budget since Prime Minister Manmohan Singh's government was reelected by a resounding margin in May. Finance Minister Pranab Mukherjee, sticking to the theme of "inclusive growth" espoused by the Congress party-led government, unveiled breaks for exporters hard-hit by the global downturn and direct subsidies for farmers.

He also urged a return to fiscal responsibility targets as soon as possible. "The first challenge is to return the GDP growth rate of 9 percent per annum at the earliest," Mukherjee said. "The second challenge is to deepen and broaden the agenda for inclusive development." Bond yields rose rose after the announcement of additional spending, while stocks were down by 1.37 per cent.

The first budget of Singh's new administration is seen as a roadmap for how he will govern for the next five years after his Congress party-led coalition was reelected by an unexpectedly decisive margin. Mukherjee called on states to remove bottlenecks for infrastructure projects, and outlined plans for more flexible financing for infrastructure and development of long-distance gas pipelines.

Unconstrained by its previous alliance with leftist parties, Singh's new government has a freer hand to implement economic liberalisation measures to drive expansion but has also promised "inclusive growth" to support social programmes and rural development. At the same time India is hobbled by a fiscal deficit that ballooned to 6.2 per cent in the financial year that ended in March, with the bond market pricing in expectations that the figure could creep higher this year to as much as 6.5 per cent.

Including off-balance sheet items like subsidies for fuel and food, as well as state-level shortfalls, country's overall fiscal deficit for the year that ended in March was about 10 per cent of GDP. That compares with less than 3 percent of GDP for China and more than 12 per cent of GDP for the United States in the latest fiscal years.

Country's economy grew at 6.7 per cent in the most recent fiscal year, held back by the global downturn, after expanding at least 9 per cent for three straight years. The finance ministry said on Thursday that growth could rise to 7 per cent this year -- towards the high end of the range of private forecasts -- and subsequently increase to 8.5 to 9 per cent if the government adopts sweeping reforms and speeds infrastructure development.

With the developed world mired in recession, big emerging economies led by China, which is on track for 8 per cent growth this year, and India account for a rising share of global output and are expected to help drive global recovery. Both economies have been fuelled by stimulus spending to spur domestic demand.

The run-up to annual budget announcement, always subject to fierce jockeying by ministries, industries and other interest groups, was especially frenzied this year given the ruling coalition's decisive electoral win.

Anticipation that the government would unleash sweeping market-oriented reforms sent Indian stocks surging 17 per cent on the first trading day after the election result in May. But that has led market watchers to warn that expectations for the administration's first budget may be unrealistically high.

Stocks jumped by nearly half in the April-June quarter. Last week, the government unexpectedly raised fuel prices by as much as 10 per cent, passing part of the recent surge in global oil prices on to consumers. Friday's railways budget, however, included improved services and fare cuts for the poor.

Budget 2009-10: IT exemption limit increased, corporate tax rate unchanged

With a view to providing interim relief to small and marginal taxpayers and senior citizens, the budget 2009-10 has increased the
Budget
personal income tax exemption limit by Rs 15,000 from Rs 2.25 lakh to Rs 2.40 lakh for senior citizens. Similarly it has aslo raised the exemption limit by Rs 10,000 from Rs 1.80 lakh to Rs 1.90 lakh for women tax payers and by Rs 10,000 from Rs 1.50 lakh to Rs 1.60 lakh for all other categories of individual taxpayers. Further, it has also increased the deduction under section 80-DD in respect of maintenance, including medical treatment, of a dependent who is a person with severe disability to Rs 1 lakh from the present limit of Rs 75,000.

In the past, surcharges on direct taxes have generally been levied to meet the revenue needs arising from natural calamities. The Government has set up the National Calamity Contingency Fund to build up resources to meet emergency situations. As a corollary, surcharge on direct taxes should be removed. However, this has to be balanced with the revenue needs of the Government. Therefore, the budget has phased out the surcharge on various direct taxes by eliminating the surcharge of 10 per cent on personal income tax.

There is no change in corporate taxation.

Deduction in respect of export profits is available under sections 10A and 10B of the Income-tax Act. The deduction under these sections would not be available beyond the financial year 2009-2010. In order to tide over the slowdown in exports, I propose to extend the sun-set clauses for these tax holidays by one more year i.e. for the financial year 2010-11.

The budget has aslo abolished the Fringe Benefit Tax that wa sintroduced in the Finance Act, 2005 on the value of certain fringe benefits provided by employers to their employees.

The budget has also extended the scope of the current provision of weighted deduction of 150% on expenditure incurred on in-house R&D to all manufacturing businesses except for a small negative list.

The budget has extended investment-linked tax incentives to the businesses of setting up and operating ‘cold chain’, warehousing facilities for storing agricultural produce and the business of laying and operating cross country natural gas or crude or petroleum oil pipeline network for distribution on common carrier principle. Under this method, all capital expenditure, other than expenditure on land, goodwill and financial instruments will be fully allowable as deduction.

Further, the period allowed to carry forward the tax credit under Minimum Alternate Tax (MAT) has been extended from seven years to ten years.

It has also exempted the income of the NPS Trust from income tax and any dividend paid to this Trust from Dividend Distribution Tax. Similarly, all purchase and sale of equity shares and derivatives by the NPS Trust will also be exempt from the Securities Transaction Tax.

Commodity Transaction Tax (CTT)introduced in The Finance Act, 2008 to be levied on taxable commodities transactions entered in a recognized association has been abolished.

To facilitate the business operations of all small taxpayers and reduce their compliance burden, the budget has proposed to expand the scope of presumptive taxation to all small businesses with a turnover upto Rs.40 lakh. All such taxpayers will have the option to declare their income from business at the rate of 8 per cent of their turnover and simultaneously enjoy exemption from the compliance burden of maintaining books of accounts. As a procedural simplification, they can also pay their entire tax liability from business at the time of filing their return by exempting them from paying advance tax. This new scheme will come into effect from the financial year 2010-11.

It has extended the tax holiday under section 80-IB(9) of the Income Tax Act, which was hitherto available in respect of profits arising from the commercial production or refining of mineral oil, also to natural gas. This tax benefit will be available to undertakings in respect of profits derived from the commercial production of mineral oil and natural gas from oil and gas blocks which are awarded under the New Exploration Licensing Policy-VIII round of bidding. Further, it has retrospectively amend the provisions of the said section to provide that “undertaking” for the purposes of section 80-IB(9) will mean all blocks awarded in any single contract.

'Budget makes no difference to us'

More than half the respondents of a pre-Budget survey think this annual exercise doesn't impact their daily lives.

Even as Pranab Mukherjee rises to present the Union Budget in Parliament at 11 am on Monday, a nationwide survey reveals that most Indian households think this annual exercise has no significant effect on their daily lives.

Adding to this, a majority (60 per cent) of the 5,468 households surveyed, covering different income groups, said the Budget document did not make much sense to them and a quarter of the respondents derided the relevance of the exercise because they believed most policy decisions were taken outside the Budget anyway.

The survey, conducted by UTVi-CVoter to gauge the expectations of ordinary citizens from the Budget, found that the majority wanted the Budget to be a less secretive document and easier to understand.

The survey also found that almost half the respondents did not believe that their lives were getting better and as much as 68 per cent felt the taxes they paid were too high and should be reduced to leave more money in people's hands to meet rising day-to-day expenditure.

Respondents felt a reduction in personal tax levels would make consumer goods, health insurance, automotives and certain food items like dairy products, tea and coffee cheaper, leading to positive impacts on the cost and quality of living.

In 2008-09, when the global economic crisis started impacting India, 48 per cent of the respondents revealed that their expenditure had gone up and incomes were static while around 20 per cent experienced a surge in expenditure and declining income.

The survey revealed that nearly 75 per cent of the respondents felt an income of Rs 50,000 a month is enough for a family of four with nearly a third saying incomes should be made tax-free.

The survey also found that the quality of life of around 65 per cent of Indian households has deteriorated in the past one year because of rising prices, especially of food articles. The inflation rate has remained below 3 per cent since December 2008 and entered negative territory three weeks ago.

Besides rising prices of food, prices of other items like cooking gas, local transport, airfares, education, fuel prices, property rentals, healthcare and even expensive domestic help have significantly increased the cost of living for the average Indian household.

As far as the future outlook on the quality of life is concerned, public opinion is divided with 38 per cent saying the quality of life will be static, another 38 per cent predicting an improvement, with the rest expecting a deterioration in the next year.

After 25 years, Pranab Mukherjee present budget again

He's the first finance minister to present Budgets on either side of an election and the first to do so after a quarter-century gap.

When finance minister Pranab Mukherjee rises in the Lok Sabha on Monday to present the Union Budget for 2009-10, he would have earned a unique distinction.

No other finance minister in independent India has presented an interim Budget before the elections and then followed that up with a regular Budget for the same year after being voted back to power.

His prime minister, Manmohan Singh (finance minister from 1991 to 1996), presented the Interim Budget for 1996-97 before the polls, but the Congress lost the general elections held in April-May 1996.

Palaniappan Chidambaram became the finance minister under the United Front government and presented the regular Budget in July 1996.

Yashwant Sinha faced a similar fate. As finance minister in the Chandra Shekhar government, he presented the Interim Budget for 1991-92, but his party lost the elections, paving the way for the P V Narasimha Rao government.

Jaswant Singh also presented the Interim Budget for 2004-05, but the National Democratic Alliance did not return to power after the elections. It was Chidambaram, this time under the United Progressive Alliance, who presented the regular Budget for 2004-05.

There have been nine more Interim Budgets since independence. However, none of these was presented before the elections.

In fact, the timing of the elections was such that there was no need for an interim Budget before the country went to the polls.

After the formation of the new government in each of these cases, the finance minister first presented an interim Budget because he needed more time to prepare a regular Budget a few weeks later.

Mukherjee's other distinction on Monday will be that no other finance minister has presented two Budgets with as large a gap between them as 25 years. His last three Budgets were presented between 1982 and 1984.

Apart from the tinkering with tax rates through exemptions and concessions and placing greater reliance on indirect taxes to raise resources (see table), those Budgets will also be remembered for the economic policy mindset that prevailed during the 1980s.

His first Budget referred to the government's rationale for seeking recourse to an SDR 5 billion loan from the International Monetary Fund under its extended fund facility.

The Indira Gandhi government was under attack for seeking the IMF loan that its opponents feared would jeopardise India's economic sovereignty. In a bid to assuage such sentiments, Mukherjee said in his Budget speech that the loan 'will help us implement our own policies, which have been sanctioned and approved by our people and Parliament'.

In his third Budget in 1984, Mukherjee referred to the IMF loan again. But this time he talked about the government's decision to return the last tranche of the loan.

In a triumphant tone, Mukherjee said, "Belying the prophecies of doom by many a self-styled Cassandra, the economy has emerged stronger as a result of the adjustment effort mounted by us.

"None of the dire consequences that we were being warned about has occurred. We have not cut subsidies. We have not cut wages. We have not compromised on planning. We have not been trapped in a debt crisis...We have come out of it with our heads high."

Corporate India will remember Mukherjee's first Budget for a different reason. In a bid to attract investments from Indians living abroad, Mukherjee allowed non-resident Indians to buy shares of companies quoted on the stock exchanges subject to specified limits, among many other incentives.

This policy change led to the controversial takeover bid by London-based Swraj Paul of the Caparo group on DCM and Escorts in 1983.

The bids finally did not succeed, but India Inc can hardly forget how Mukherjee's first Budget shook its leaders out of their complacence.

Mukherjee had also extended the scheme for investment allowance for another five years till 1987.

Investment allowance permitted companies to claim deduction for tax purposes on their capital expenditure according to prescribed rates. This was abolished in April 1990.

The big question he is likely to answer on Monday is whether investment allowance will be reintroduced in some form.

Headlines : 6 July 2009

Corporate News Headline
•	JSW Steel announced that its production rose by 45% to 1.4 MT in the first quarter of this fiscal year following robust demand in sectors such as Automobile, Construction and White Goods. (BS)
•	DLF has raised around Rs. 10 bn through the sale of land parcels across four cities in the past 4-5 weeks and is currently in the process of closing more such deals worth another Rs. 5 bn in the coming weeks. (ET)
•	SBI has offered a loan of up to USD 1 bn to Bharti Airtel to partly fund the Indian telecom firm's plans to buy a stake in South Africa's MTN. (ET)
Economic and Political Headline
•	In the Railway Budget for 2009-10, the Indian Railways (one of the largest profit-making industries in the country) has proposed to invest Rs. 407.45 bn in the current fiscal, up from Rs. 367.73 bn in the previous financial year. The Budget did not increase the passenger fares and freight tariffs.(BS)
•	Six banks in Illinois and one in Texas were seized by the US regulators as the deepening financial crisis pushed the toll of failed US lenders this year to 52, the highest since 1992. (Bloomberg)
•	The UK service industries from law firms to consultancies grew to 51.6 in June for the second month, suggesting that Britain may be on it way to emerging from the recession. (Bloomberg)

Maytas Infra gets bank lifeline

Crisis-ridden and cash-starved Maytas Infra got a lifeline when a consortium of 18 banks approved the corporate debt restructuring (CDR) package for the company. As part of this, Maytas will get Rs 100 crore as working capital, besides more time to repay loans.

With this, the company is back in the reckoning for the Hyderabad Metro Rail project. The fate of the Rs 12,000-crore project is hanging in balance because Maytas Metro consortium has been unable to achieve financial closure due to lack of funds. It has asked the state government for extension of the deadline. Now the funds from the banks might come in handy to pay the performance guarantee that is due from the company, analysts averred.
“The bankers will pay Rs 100 crore as working capital to the company and provide another Rs 200 crore as bank guarantee,” confirmed Ved Jain, the government appointed director of Maytas Infra, on Thursday in New Delhi after a board meeting.

The CDR package was approved by 18 banks including State Bank of India, ICICI Bank, Punjab National Bank, IDBI Bank and Indian Overseas Bank.

According to the company, it had earlier sought Rs 600 crore — Rs 200 crore to be fund-based and Rs 400 core non fund-based.

Out of this, it requested Rs 100 crore fund-based and Rs 200 core non fund-based to be released immediately with the balance to be made available in the next three months based on the company’s performance. This has been accepted by the lenders.

Further, Jain said that for the outstanding debt of Rs 1,600 crore, the banks have given the company more time to repay it. According to the terms of the CDR, the company will start repaying loans after three years and have 10 years to clear its dues.

Jain said the issues concerning the extension of the time period for the metro rail project is pending with the state government and would be sorted out shortly.

Brokerage expectations from 2009/10 budget

Following are the main sectoral expectations of brokerages from the budget 2009.

AUTO

* Retention of excise duty cuts that were part of the stimulus package.

* Duty differential between small cars (which attract 8 percent duty) and large cars (which attract 21 percent plus duty) to be brought down substantially.

* Extension of depreciation benefits for commercial vehicles and trucks until end of FY10.

* Reintroduction of investment allowance under income tax considering the capex plans across the sector.

* Measures for better financing through finance ompanies.

BANKING & FINANCIAL SERVICES

* Tax relief on interest earned on infrastructure lending in order to facilitate more lending to the sector.

* Removal of 10 percent voting right cap on Foreign Institutional Investors (FII) in banks and hike in FII holding limits in PSU banks.

* Limit of deduction for interest on housing loans may be raised from 0.15 million rupees to 0.25 million rupees in order to augment demand for housing loans.

* Tax exemption for deposits for maturity between 3-5 years. Currently only 5-year deposits are eligible for exemption.

* To allow power financing companies to float tax free bonds.

* Directed lending to be provided to small scale industries and export oriented units with guarantee on behalf of government.

CEMENT

* Abatement of 55 percent on excise duty levied on the maximum retail price

* Uniform rate of excise duty on cement

* Reimposition of counter vailing duty on imports

* Reduction in royalty on limestone.

ENGINEERING & CAPITAL GOODS

* Rationalisation in excise duty structure which currently varies from 8 percent to 16 percent.

* Introduction of tax breaks and incentives to attract public-private partnership in infrastructure projects and also attract independent private developers.

* Raising import barriers in capital equipment to encourage local sourcing and support domestic players.

FMCG

* Boosting rural economy by increasing allocation for various employment generating, rural and agriculture-centric schemes.

* Reduction in fringe benefit tax and complete exemption from Central Sales Tax.

* Rationalisation of Value Added Tax (VAT) across all states. * Reduction in VAT from 12 percent to 4 percent for biscuit makers.

* A hike in excise duty on cigarettes from 6 percent to 8 percent.

HOTELS

* Infrastructure status for hotel industry

INFRASTRUCTURE

* Increased allocation for infrastructure-related projects.

* Availability of long-term financing for infrastructure projects

INFORMATION TECHNOLOGY

* Extension of tax holiday granted to Software Technology Parks of India by another 3 years for those units that have not yet completed 10 years of operations.

* Extension of tax benefits to be extended further by 3-5 years.

* Reduction in excise duties on electronic and IT goods from 10 percent to 8 percent.

MEDIA

* Increase in Foreign Direct Investment limit in media companies.

* Reduction in import duty on set top boxes used in DTH and digital cable.

* 10 year tax holiday for the gaming, animation and the visual effects industry.

* Reduction in Fringe Benefit Tax for media companies from 20 percent to 5percent.

PHARMA

* Ten year extension of tax benefits for standalone Research & Development entities.

* Raising rate of weighted deduction from 150 percent to 200 percent and to be extended up to March 2017.

* Extension in 100 percent deduction in profits for operating and maintaining hospitals in rural areas from 31st March 2008 to 31st March 2012.

* Reduction in custom duty rate on advanced medical equipments to 5 percent.

* Total excise exemption on 354 drugs specified in the national list of essential medicines.

* Healthcare sector to be granted infrastructure status.

* Extension in tax benefit for Export Oriented Unit beyond fiscal 2010.

POWER

* Excise duty exemptions available to power developers for Ultra Mega Power Projects, should be made available for transmission companies.

* Tax holiday benefit for the generation and distribution of power to be extended beyond March 2010.

* Extension of excise and customs benefits to captive power plants.

* Power financing companies may be allowed to issue infrastructure bonds.

* Expanding infrastructure status related income tax sops to entire power sector, by broadening the beneficiaries beyond developers to equipment suppliers, contractors.

* Relaxation on sectoral caps and group caps on financing to facilitate the financing of the projects

REAL ESTATE

* Reintroduction of tax holiday scheme for housing projects.

* Extension in external commercial borrowing scheme to entire real estate sector.

* Reduction in customs and excise duty for capital and construction requirement of the real estate companies

* Increase of limit exemption on interest payment for home loans from 150,000 rupees to 250,000 rupees.

RETAIL

* Allowing FDI in multi brand outlets.

* Increasing FDI limit from current 51 percent to 74 percent in single brand retailing.

STEEL

* Increase in import duty or introduction of safeguard duty on steel imports.

* Infrastructure status for steel industry.

* Imposition of export tax on iron ore and reduction in import duty on raw materials.

TELECOM

* Implementation of a uniform license fee regime.

* Early completion of 3G auction.

* Reduction in license fees to 6 percent across services.

* Tax holiday in case of merger or amalgamation and for new service launches between Jan 2005 to Jan 2010. * Rationalization of multi levy structure to a single levy structure

Insurance firms not concerned in VC funding

It seems that insurance companies are not interested in venture capital (VC) funds despite Insurance Regulatory and Development Authority''s (Irda) allowed insurance companies one year back to invest in VC funds. In August last year, Irda had permitted life insurers to invest 3 per cent of their total investible corpus in VC funds or 10 per cent of the fund''s size, whichever is lower. For general insurers, the limit is 5 per cent of investment assets or 10 per cent of the fund size whichever is lower. Insurers said investments in venture capital funds were long term while their 90 per cent premium was collected under unit-linked plans (Ulips). "Venture capital is not exactly a matter class we are looking at. There are other avenues like project finance, corporate bonds and equity. We have invested less than 0.5 per cent of the investible corpus, Rs 1,65,000 crore. Irda''s guideline is not a constraint for us," said Life Insurance Corporation of India (LIC) Executive Director, Investments, N Mohan Raj.

Railway Budget 2009-10: 50 railway stations to be of world standard

Presenting the Railway Budget 2009-10, Railway Minister Mamata Banerjee today said that about 50 stations are to be developed into world class stations with international level facilities.

Banerjee said that these stations would be developed through innovative financing and in Public Private Partnership mode.

Some of these stations are: CST Mumbai, Pune, Nagpur, Howrah, Sealdah, Bhubaneswar, New Delhi, Lucknow, Varanasi, Amritsar, Kanpur, Guwahati, Jaipur, Chennai Central, Tiruvananthapuram Central, Secunderabad, Tirupati, Bangalore City, Baiyapanahali (Bangalore), Ahmedabad, Bhopal, Habibganj, Gaya Jn., Agra Cantt., Mathura Jn., Chandigarh, Kolkata, New Jalpaiguri, Majerhat, Mangalore, Porbandar, Anand Vihar, Brijwasan, Ajmer and Puri. Banerjee also announced the construction of Multi-Functional Complexes (MFCs) in station premises for providing rail users facilities like shopping, food stalls and restaurants.

The MFCs will also have book stalls, PCO/STD/ISD/Fax booths, medicine, budget hotels and underground parking.

She said that during this year, 50 such railway stations would be developed in places of pilgrimage, industry and tourist interest.

"The responsibility for development of Multi-functional Complexes would be entrusted to IRCON and Rail Land Development Authority (RLDA)," she added.

The 49 identified stations to be developed as MFCs are: Alipurduar, Allahabad, Anandpur Sahib, Banspani, Bikaner, Bilaspur, Cuttack, Darjeeling, Dehradun, Digha, Durg, Ernakulum, Gandhidham, Ganga Sagar, Ghatsila, Gwalior, Hajur Sahib, Hubli, Hyderabad, Indore, Jabalpur, Jammu Tawi, Jasidih, Jhansi, Jodhpur, Kanyakumari, Kathgodam, Katra, Khajuraho, Madurai, Manmad, Mysore, Nanded, Nasik, Palakkad, Parasnath, Raebareily, Raipur, Rajgir, Rameshwaram, Ranchi, Shirdi, Silchar, Tarapith, Tiruchirapalli, Udaipur, Ujjain, Vadodara and Visakhapatnam.

Unemployment rate to fall below 5% by 2012

Despite the severe meltdown in global economy and consequent job losses in India since September last year, the Economic Survey has exuded optimism that there would be reduction in unemployment rate by the end of the Eleventh Five Year Plan (2007-12).

According to the Survey, it is projected that the total labour force in the country between 2007 and 2012 would be 45 million as against 58 million employment opportunities that would be created in the country during the Eleventh Five Year Plan. This would be greater than the projected increase in labour force leading to a reduction in the unemployment rate to below 5% by the terminal year of the plan, it says.

This comes close on the heels of a survey by the ministry of labour and employment that says there was a decrease in employment of about half a million workers between October and December last year. Gems and jewellery was the worst effected sector with 8.58% decline in employment followed by transport that registered a dip of 4.03%, automobiles where employment declined by 2.42% and textiles where 0.91% of workers lost their jobs.

While large number of measures has already been taken by the government to help the industry in general and more affected labour intensive export sectors in particular since October last year, the Economic Survey has emphasised on programmes to boost pro-poor public investment in physical and social infrastructure, programmes and schemes that protect and promote incomes of the poor and expansion in scope and coverage of social security schemes for the unorganized workers so that they were immediately assured of a minimum level of social protection.

It was in the interim Budget of February 16, 2009, that the government had announced continuation of interest subvention of 2% on pre- and post shipment credit for most employment-oriented sectors such as textiles, carpets, leather, gems and jewellery, marine products and SMEs beyond March 31, 2009 till September 30, 2009.

Banking sector top job provider in first quarter: Assocham

The banking sector remained the biggest job provider in the country inthe first quarter this fiscal, an industry lobby survey said. The sector hired 16,200 people during the period.

State Bank of India, alone created 13,000 jobs. Further, Yes Bank hired 1,000 people during the period while Danalakshmi Bank and Andhra Bank recruited 1,300 and 900 people respectively, according to the survey by the Associated Chambers of Commerce and Industry (Assocham).

Overall, the banking sector''s share at fresh job announcements stood at 42 per cent, the survey said.

Banks keen on lending

The banks are showing their eagerness to lend in a big way with scheduled commercial banks together lends credit of Rs 13,090 crore in the fortnight ended June 15. The bankers attribute this to quarter-end considerations whereby the banks bulk up their lending portfolio. However, in the preceding fortnight, the banks collectively had lent Rs 22,029 crore. On account of the government''s aggressive push to its borrowing programme, SCBs'' investment in the reporting fortnight was Rs 18,092 crore as against Rs 18,856 crore in the preceding fortnight. SCBs'' deposits in the reporting fortnight fell by Rs 4,792 crore as compared to an accretion of Rs 6,116 crore in the preceding fortnight.

Bank credit observes growth of Rs 13,000 crore

Credit offtake by banks improved for the second consecutive fortnight as increased by Rs 13,005 crore in the first half of June. The growth was Rs 21, 460 crore during the fortnight ended June 5. Outstanding bank credit stood at Rs 27,70,216 crore on June 19, 2009, as against Rs 23,93,239 crore a year ago, as per latest data by the Reserve Bank of India (RBI). However, growth in advances is better than the credit offtake during the corresponding period of previous year. Moreover, the loans had increased by Rs 12,030 crore during the fortnight ended June 20, 2008.

Exports boost car sales in June

Maruti Suzuki posted a growth of 22.6 per cent in sales during June at 75,109 units out of which 18 per cent came from the exports. The company had reported total sales of 61,247 units during the same month last year, when exports contributed to below 8 per cent. The auto maker''s new car- A-star, witnessed an impressive demand in the export markets of Germany, UK, Netherlands, Spain and France. The company exported 13,336 units last month while 4,836 units were exported in the same month a year ago. Similarly, Hyundai Motor India (HMIL), the Korean car brand, posted a growth of 17.63 per cent in total sales to 47,267 units during June. The company''s exports surged 32.5 per cent to 24,251 units as compared to 18,301 units during the two comparable months. The growth in exports for both companies is on account of government-driven incentive programme that helps the car owners avail financial gains. Maruti''s India sales of 61,773 units sales grew by 9.5 per cent, mainly due to healthy demand for the newly launched compact models like Ritz and A-star, besides the regular models like Swift and Swift DZire. It had sold 56,411 units during June last year. While, Hyundai''s domestic sales grew by 5 per cent to 23,016 units during the reporting month as compared to 21,881 units. The company is hoping that the upcoming budget will provide some incentive to the export segment. The sales of Mahindra & Mahindra shot up by 56 per cent during June to 17,653 units as compared to 11,311 units. This growth was primarily on account of resumption of production of the Xylo, a multi-utility vehicle, which is witnessing a strong demand. However, sales of Logan, slumped to just 501 units as compared with 1,351 units. Meanwhile, sales of Tata Motors remained flat. The car maker sold 17,039 units during June as against 17,017 units sold in the same month last year. However, the Indica range outperformed with a growth of 19 per cent at 10,210 units, while that of Indigo and Sumo/Safari dipped by 26 per cent and 11 per cent respectively. Honda Siel Cars reported a growth of 6.5 per cent at 5,039 units in June as compared to 4,732 units reported in the same month last year. The company''s newly launched super premium car- Jazz sold 2,032 units since its launch of June 10.

Company Review: ABG Shipyard

ABG Shipyard’s (ABG’s) topline for the quarter stood at Rs3,368.6 million, indicating a growth of 40% y-o-y.
However, the topline declined by 29.3% q-o-q. This was largely on account of slower-than-expected order execution by the company. Subsidy booking for the quarter stood at Rs340 million.
EBITDA margins also declined to 19.7% as against 22.7% in Q4FY08 as the company has started utilising its steel stock that had been accumulated at higher prices.
ABG has been accounting for the difference between raw material cost as assumed on the date of book closure and actual raw material cost under the financial expenses head as against under the raw material head. This has been corrected in the current quarter.
Although ABG’s debt increased from Rs12 billion in Q3FY09 to Rs15 billion in Q4FY09, the overall finance charge declined from Rs513 million in Q3FY09 to Rs302 million in Q4FY09.
Besides a change in the accounting policy, LC and bank guarantee charges were lower in the quarter.
The company also converted certain working capital loans to commercial paper, thereby leading to a decrease in the average borrowing cost. ABG’s net profits increased by 12.8% y-o-y and q-o-q on account of this saving.
The stock currently trades at a PER of 8.9x FY10 and 6.3x FY11 (ex-subsidy). We expect the company’s profits (ex-subsidy) to grow at 16.2% CAGR over the next two years. We maintain our ACCUMULATE rating on the stock.

Downgrade SBI

Despite a debilitating economic environment, State Bank of India (SBI) exhibited a strong bottomline for FY09.

The Bank’s FY09 net profit increased 35.5% y-o-y to Rs. 91.2 billion. While the growth in the first three quarters was led by NII, in Q4’09 it was dependent on other income.

For the next few quarters, we foresee SBI’s bottom-line to be pressured by declining yields, higher cost structure, and larger provisioning-outlay required due to rising delinquencies.

The stock currently trades at a P/B multiple of ~1.5x, which we believe is high considering the uncertainty regarding the quantum of the Bank’s delinquencies and the growth in SBI Life’s new-business premium.

We see limited upside from current levels and therefore, downgrade our rating to HOLD.

Sector Review: Banking

We expect PSU banks to continue cornering a lion’s share of incremental business over the next 12 months.
Our expectation is based on GoI’s commitment to recapitalize PSU banks for unlocking the lending freeze and reviving the credit markets.
We believe that over the next one year, the larger PSU banks would outperform their private sector counterparts in terms of balance sheet expansion and credit quality control.
Our demand-side analysis of credit off-take suggests expansion of credit in the 16-18% range, driven by infrastructure (primarily power and telecom), housing (and ancillary industries), pharmaceuticals, autos, and textiles.
On the supply side, our credit growth estimates for the top eight banks under our coverage universe (51% of overall bank credit) indicate a credit expansion of ~19% during FY10E.
At an aggregate level, we expect a sharp increase in the systemic gross NPAs for banks, from ~Rs800bn (as of Mar’09) to Rs980bn (by Mar’10).
We, however, believe that the valuations (just prior to the recent surge) factored in risks that were overplayed in the domestic context without taking due cognizance of levers (like coverage ratios) employed by banks to tide over tough times.
Our estimates build in a scenario of restructuring the loan book to the extent of 4% during FY10E.
We expect banks within our expanded coverage universe (except ICICI Bank) to report close to 20-30bps y-o-y drop in NIMs during H1FY10E.
However, by H2FY10E, the liability-side re-pricing at a portfolio level would begin reflecting in a lower cost of funds, partially cushioning the decline in margins.
Risks/Valuations
Our investment thesis is anchored on expectations of a revival in credit demand from H2FY10E. A more prolonged period of subdued systemic credit growth would be negative for all banks within our coverage universe.
Our assumptions on incremental delinquencies factor in ~12-18% of slippages coming through from the restructured portfolio (restructuring for FY10E assumed at 4% of loan book). Any slippages beyond these levels would be negative from a valuation perspective.
We initiate coverage on Bank of Baroda, Bank of India, and Union Bank of India with a BUY rating and on HDFC Bank with a NEUTRAL rating.
We recommend Union Bank of India and Punjab National Bank as the top picks within our PSU universe.

Company Review: Sun TV Network

Sun TV Network’s (Sun TV’s) Q4FY09 results were in line with our expectations. Revenue for the quarter reported a healthy growth of 12% y-o-y to Rs2,759 million.
This was contributed by a 6% y-o-y increase in the advertisement revenues and Rs180 million from the movie segment. However, the real fillip came from the DTH-based revenues which stood at ~Rs360 million for the quarter.
Operating profit margins are not strictly comparable as Q4FY08 included a one-time charge of Rs310 million. Also, the company has reclassified its cost of movie amortisation, now to be clubbed along with depreciation and amortisation.
This resulted in the company reporting an operating profit margin of 81.8% for the quarter. Accordingly, the net profit for the quarter grew by 24.7% y-o-y to Rs1,140 million.
In Q4FY09, Sun TV had 4.4 million DTH-based subscribers, as compared to 3.3 million in Q3FY09. For FY09, total DTH-based subscription revenues for the company stood at Rs840 million.
The company expects its DTH subscriber base to touch 6.25 million by the end of FY10, resulting in doubling of DTH-based subscription revenues to ~Rs1.5bn in FY10.
Fund Infusion
South Asia Multimedia Technologies (SAMT), which currently owns 6.98% in South Asia FM (SAFM), is mulling to hike its stake to 20% in the subsidiary company of Sun TV. With this transaction, Sun TV’s stake in the subsidiary is likely to drop to 60% from 65% held currently.
The transaction will result in a fund infusion to the extent of Rs0.75-Rs1 billion, effectively valuing Sun’s stake in the subsidiary at Rs3,456 million (at the lower band of the estimated fund raising amount).
SAFM’s per share value contribution to Sun TV’s stock price comes to Rs7 per share. Sun TV’s other subsidiary Kal Radio is expected to see an EBITDA breakeven in FY10. Sun TV has guided its share of losses in the overall radio business at Rs400-450mn for FY10.
Outlook and Valuation
Sun TV’s core business stands firm despite the industry-wide slowdown. The company has guided for 12-15% growth in the ad revenues for FY10.
However, the same has a potential upside with an up-tick in the utilisation of newly launched channels and a possible ad rate hike in H2FY10.
Steady growth in DTH-based subscription revenues and ability to deliver on new business as per guidance (movie business RoI of 15% in FY09) lends us further comfort.
With cash on book of Rs3.3 billion and price to earnings trading at 21.4x FY10E and 17.9x FY11E, we maintain our ACCUMULATE rating on the stock.

Company Review: ICICI Bank

ICICI Bank reported a 41.5% sequential decline in its net profit for Q4’09 to Rs7.4 billion and a 9.6% fall in the net profit for FY09 to Rs37.6 billion.
The decline was mainly due to higher tax expenses and lower non-interest income. The net interest income, on the other hand, rose 15% for FY09 to Rs83.7 billion as net interest margin increased from 2.2% in FY08 to 2.4% in FY09.
We believe the margins are unlikely to fall in the foreseeable future and will remain in the range of 2.5%–2.7% till FY2012 as the Bank boost its CASA ratio via branch expansion and repays its high-cost bulk deposits by Q3’10.
In FY09, the Bank’s NIM improved from 2.2% in FY08 to 2.4% as the cost of funds declined from 7.5% in FY08 to 7% in FY09. This decline in the funding costs was mainly due to increase in the CASA and sharp decline in the wholesale deposit rates.
Given the Bank’s aggressive growth strategy in the past and the current muted growth phase of the economy, investors’ concerns about the Bank’s asset quality and restructuring of assets continue.
Valuation
We have valued ICICI Bank’s stock by using the sum-of-the-parts methodology. The standalone ICICI Bank has been valued at Rs485, assuming a 16.24% cost of equity and a 10.4% terminal growth rate.
The Bank’s overseas banking subsidiaries have been valued at 1.0x its FY10 books, leading to a valuation of Rs39.
ICICI Prudential Life has been valued at a new business achieved profit (NBAP) multiple of 17.5x, which is lower than the industry’s average on account of its aggressive growth in the past, which may affect the quality of underwriting. This gives the life insurance business a valuation of Rs138.
ICICI Lombard has been valued at Rs30 by assigning a multiple of 18x to its normalised profit. The AMC has been valued at 4.5% of its AUM, leading to a valuation of Rs12.
We have valued ICICI Securities and ICICI Securities Primary Dealership at Rs66, based on a target P/E multiple of 18x. This helps us arrive at the consolidated price of Rs. 785. Therefore, we give a HOLD rating to the stock.

Fuel price hike boosts PSU oil firms

Shares in state-run oil companies jumped on Thursday after an unexpected hike in government-set fuel prices raised hopes of a lower fuel subsidy burden for the companies.

Late on Wednesday, Govt unexpectedly raised gasoline and diesel prices by as much as 10 per cent, its first increase this year, passing some of oil's rally into an economy just beginning to find its feet amid a global recession.

The government-controlled fuel pricing regime forces state-run producers such as Oil and Natural Gas Corp to partially subsidise state oil marketing companies, which in turn, sell products at low prices to consumers.

At 10:39 a.m. (0509) GMT, shares in ONGC (ONGC.NS : 1127 +75.4) were trading 3.08 per cent higher at 1,085 rupees in a Mumbai market which was down 0.2 per cent.

Earlier in the day, ONGC Chairman R.S. Sharma told a TV channel that the company's fuel subsidy burden for the current year will be significantly lower than the previous year, if the crude prices stay around the current level.

"If the prices remain around $70 a barrel, surely the subsidy burden is going to be less," Sharma said when asked if the recent fuel price hike would help ease the company's subsidy burden.

State-run oil refining and marketing companies Indian Oil, Hindustan Petroleum and Bharat Petroleum (BPCL.NS : 454.15 -1.15) rose 1.7-3.1 per cent in early deals.

"With the pass-on of prices at a fast pace, the government has not only reduced the long-term under-recovery burden on the sector, but has also increased our confidence in its intent to pass on prices to consumers," Edelweiss Securities said in a note on Wednesday.

Summary of Economic Survey 2008-09

The speed with which the Indian economy returns to the high growth path in the short term depends on the revival of the economy, particularly the US economy and the Government's capacity to push some critical policy reforms in the coming months, says the Economic Survey 2008-09, which was presented by Finance Minister Pranab Mukherjee in Parliament today.

It says that if the US economy bottoms out by September 2009, there would be a good possibility for the Indian economy repeating its 2008-09 performance that is around 7.0 0.75 per cent in the fiscal 2009-10 (assuming a normal monsoon).

However, in the event of a more prolonged external economic downturn, the revival of the global economy/US economy being delayed until 2010, the growth may moderate to the lower end of the range.

It says the recovery is likely to be assisted by the likely developments in the external sectors.

The declining trend in trade deficit suggests that with reasonable invisible account surplus, which has been an attribute of Indian economy for the last several years economy may end up with a current account surplus of 0.3 to 2.8 per cent of GDP in 2009-10.

The Survey says, the prospects of Indian economy are somewhat different from most other countries. A large domestic market, resilient banking system and a policy of gradual liberalisation of capital account have been key factors.

The Survey says a major concern at this stage though not entirely unexpected is a sharp dip in the growth of private consumption. Four factors seem to have contributed to this slowdown.

First, it could be due to the wealth effect, resulting from decline in the equity/property prices.

Secondly, the uncertainty in the labour market and some decline in employment. Thirdly, cutbacks in consumer credit by private banks, NBFCs and other lenders.

Fourthly, during slowdown a dominance of precautionary motive may induce consumer to either defer their spending decisions or shift to unbranded alternatives.

The Survey goes on to note that there are early signs of recovery in the global economy manifested in rising stock prices and increasing price of commodities.

It is however, debatable whether rising prices are an indication of green shoots of recovery or a result of position taken by financial investors seeking to benefit from global recovery expectations.

It says, though the financial crisis and the transmission of its impact on the real economy is now better understood and global financial conditions have shown improvement over the recent months, uncertainty related to the revival of the global economy remain. That makes it difficult to forecast the short-to-medium term growth prospects of the Indian economy.

The Survey says to counter the negative fall out of the global slowdown on the Indian economy, the Government responded by providing substantial fiscal expansion in the form of tax relief to boost demand and increased expenditure on public assets.

The net result was an increase in fiscal deficit from 2.7 per cent in 2007-08 to 6.2 per cent of GDP in 2008-09.

The difference between the actuals of 2007-08 and 2008-09 constituted the total fiscal stimulus not withstanding that some expenditure was on account of implementation of the Sixth Pay Commission Award and the Agriculture Debt Relief Scheme announced in 2008-09 Budget.

It says despite the slowdown in growth, investment remained relatively buoyant growing at a rate higher than at the rate of the GDP.

The ratio of the fixed investment to GDP consequently increased to 32.2 per cent in 2008-09 from 31.6 per cent in 2007-08. This reflects the resilience of Indian enterprise, in the face of massive increase in global uncertainty and risk aversion and freezing of highly developed financial markets.

Domestic food price inflation as measured by the Wholesale Price Index (WPI) food sub index, though declining remains much higher than overall inflation.

The Survey expresses concern over the existence of hunger and widespread malnutrition despite the country achieving self-sufficiency in food production and with mounting public food stocks at its command.

It says it is time that various interventions at the State and Central level addressing these issues are reviewed and redesigned.

The Survey says that India continues to retain its position as a preferred destination for investments. A recent study by UNCTAD found that India achieved a growth of 85.1 per cent in foreign direct investment flows in 2008, the highest increase across all countries.

According to the study FDI investments into India went up from US Dollar 25.1 billion in 2007 to US Dollar 46.5 billion in 2008, even as global flows decline from US Dollar 1.9 trillion to US Dollar 1.7 trillion during the period.

While fiscal policy plays a dual role as a short-term counter-cyclical tool and an instrument to maintain microeconomic stability and promote growth in the medium term, the Economic Survey underlines the need to restore Centre's fiscal deficit to the FRBM target of 3 per cent of GDP at the earliest.

It says a number of factors will make it possible. They include reversal of much of the decline in business and corporate tax collections when growth accelerates from the second half of the year and the expected introduction of GST in 2010-11.

On the monetary policy front the Survey says that high deposit rates have now come in the way of cutting lending rates at a pace which is consistent with the current outlook on inflation and the need for stimulating investment demands.

Reflecting on the high oil and other energy prices, the Survey says that as long as domestic prices remained below the cost of imports, demand would continue to grow, accentuating the negative impact of the terms of trade effect on national income.

Referring to the volatility of global oil prices, it says, the fall could be a temporary respite and provides a golden opportunity to reform the pricing and control system. It says that as the low prices of oil has provided a temporary window for decontrol of petrol and diesel, this window must be utilised at the earliest.

Other elements of energy policy such as open access to power, decontrol of coal also need to be addressed to have a viable long-term solution to our dependence on foreign oil and the debilitating effect of power failure.

The Survey says although the economy continues to face wide ranging challenges-the Indian economy has shock absorbers that will facilitate early revival of growth.

The banks are financially sound and well capitalised, foreign exchange position remains comfortable and the external debt position has been within comfortable zone. The rate of inflation provides a degree of comfort on the cost side for the production sectors. griculture and rural demand continues to be strong and agricultural prospects are normal.

The Survey says while there are indications that the economy may have weathered the worst of the downturn, the situation warrants close watch on various economic indicators including the impact of the economic stimulus and developments taking place in the international economy.

Taking policy measures that squarely address the short and long term challenges would achieve tangible progress and ensure that the outlook for the economy remains firmly positive.

Budget 2009: what should you look for

The new UPA government will present the FY10 federal budget on July 6 and is expected to expand both the budget deficit and its market borrowing requirement to support growth.

Following are some scenarios on what Finance Minister Pranab Mukherjee may announce and its impact on financial markets. The current fiscal year of 2009/10 runs until the end of next March.

BUDGET DEFICIT

The government is almost certain to expand the 2009/10 budget deficit beyond the 5.5 per cent set in an interim and pre-election budget in February.

Bonds have priced in expectations that the deficit will swell to between 6.25 per cent and 6.5 per cent of GDP. So it is unlikely to be rattled so long as the deficit is around these levels.

But any sign that the government is bowing to pressure for populist spending measures to make good on promises made in the April and May general election would spark a bond sell off.

If it also fails to present a plan to bring the deficit back under control in subsequent years, the country's credit rating could come under pressure.

GOVERNMENT BORROWING TARGET

The government will raise its borrowing target for 2009/10 to help pay for its increased budget deficit.

Bond yields have jumped to factor in a massive increase in government borrowing. Ten-year bond yields, for example, are up 170 basis points since the start of the year.

The forecast borrowing would be 29 per cent above 2008/09 borrowing of 3.06 trillion rupees.

ASSET SALES:

Mukherjee is likely to announce plans to sell shares in some state run firms to help fund rural and social programmes, a central part of the government's election platform.

Asset sales would relieve pressure on the bond market and help keep the budget deficit in check.

Analysts say the stock market could absorb 100 billion rupees ($2.1 billion) in share sales. A higher amount would be difficult to swallow and would weigh on market sentiment.

Analysts suggest Coal India Ltd and hydro-power generator NHPC would be among the easiest IPOs to complete.

Shares in railways consulting firm RITES, power equipment maker Bharat Heavy Electricals Ltd (BHEL.NS : 2157 -57.5), Rural Electrification Corp and power transmission firm Power Grid Corp could also be sold off smoothly, they say.

However, potential sales of telecoms firm Bharat Sanchar Nigam Ltd and Air India may be problematic. Unions have opposed IPOs of the telecoms firm and loss-making Air India would need to be restructured to make it attractive to investors.

INFRASTUCTURE:

Mukherjee is expected to announce more plans to repair India's shoddy infrastructure, considered by many foreign investors as the Achilles' heel of the economy that prevents the sort of double-digit growth seen in China.

Infrastructure investment is currently around 6 per cent of GDP, so that figure could rise, although the budget deficit limits spending for now.

Measure would cover both urban and rural projects and include improving the rural roads network and building more low-cost homes to deal with massive demand. It will also announce plans to revamp public transport across the country including building metro rail networks in other cities.

These moves will be positive for infrastructure firms and could benefit India's largest infrastructure firm Larsen and Toubro and others such as GMR, GVK and HCC among others.

Indeed, the real estate sub-index on the Bombay stocks market has more than doubled in the past three months, compared with a 50 per cent rise in the main index.

REFORMS:

The government is unlikely to unveil any significant economic reform plans in the budget even though its decisive election victory has put pressure on it to deliver new initiatives.

Parliament is already chewing over plans to raise the foreign investment ceiling in insurers to 49 per cent from 26 per cent and reforms in the pension fund management sector -- a process likely to take 6-8 months before approval is reached.

HIGHLIGHTS - Economic survey

India could see growth this year of roughly 7 percent and then resume the faster expansion of recent years, provided it makes sweeping reforms including removal of fuel subsidies and accelerates infrastructure development, a key government report said on Thursday.

The economic survey prepared by the finance ministry, and released ahead of Monday's budget announcement for the fiscal year ending in March 2010, said inflation was no longer a worry and called for an urgent return to the targeted fiscal deficit of 3 percent.

Following are the highlights of the survey:

GROWTH

* The economy could grow around 7 percent in the year to March 2010, if the U.S. economy bottoms by September.

* The economy could return to 8.5-9 percent growth in medium term if reforms are pursued.

* It is imperative that the government revisits economic reforms at earliest to boost growth.

* A calibrated monetary policy approach needed for early return to high growth path.

FISCAL DISCPLINE

* The fiscal deficit target should be set at 3 percent of GDP at the earliest.

* Explore new target of zero fiscal deficit on cyclically adjusted basis.

* Lower commodity prices will help cut import bill, reduce off-budget deficit.

* Government should free petrol, diesel prices at earliest as global prices are low.

* Reform petroleum, fertiliser, food subsidies to reduce leakages.

* Revive disinvestment plan to generate at least 250 billion rupees ($5.2 billion) per year.

INFLATION

* Inflation is no longer a concern.

* Efforts to maintain ample liquidity may be source of next inflationary cycle.

* The is a need to roll back excess liquidity in orderly manner once growth picks up.

INTEREST RATES

* Real interest rates remain high despite easing of monetary policy.

* High bank deposit rates an obstacle for lowering lending rates.

CAPITAL FLOWS

* India may see current account surplus of 0.3-2.8 percent of GDP in 2009/10

* Medium to long-term capital flows likely to be lower as U.S. deleveraging persists.

FOREIGN INVESTMENT

* Raise foreign equity share in insurance to 49 percent.

* Favours foreign direct investment (FDI) in multi-format retail, starting with food retail.

* Increase FDI limits on banks, greater entry of foreign banks, tighter regulation.

FINANCIAL REFORMS

* Introduce/allow repo, derivatives in corporate debt.

* Introduce exchange-traded derivatives such as interest rate swaps.

* Introduce standardised credit default swaps on exchanges, subject to strict controls.

TAXES

* Rationalise dividend distribution tax to ensure full single taxation of receiver.

* Review, phase out surcharges, cesses and transaction taxes.

* Review customs duty exemptions and move to uniform duty structure.

INFRASTRUCTURE, TELECOMS

* Infrastructure development needs greater urgency to remove policy hurdles.

* Radio spectrum must be auctioned and should be freely tradeable.

CONCERNS, STRENGTHS

* A sharp dip in the growth of private consumption is a major concern at this stage.

* A large domestic market, resilient banking system and policy of gradual liberalisation of capital account would help early mitigation of the adverse effect of global financial crisis and recession.

* Increased plan expenditure, reduction in indirect taxes, sector specific measures for textile, housing, infrastructure through stimulus packages are providing support to the real economy.

Business sentiment improves: D&B India

Just on the eve of big budget 2009, the Dun & Bradstreet Composite Business Optimism Index brought some optimism. For the Q3 of the calendar year 2009, it recorded an increase of as much as 40.8% (q-o-q), inched up to 132.1 after touching an all-time low of 93.8 in Q2 2009.

Although the BOI has witnessed a significant increase compared to the previous quarter, the index remains below the last year's level. On a y-o-y basis, the BOI for Q3 2009 recorded a marginal decrease of 3.3 per cent.

Based on the responses received, it was observed that five out of the six optimism indices – namely, volume of sales, net profits, selling prices, new orders, and employee levels have registered an increase as compared to the previous quarter. Only one out of the six optimism indices – inventory levels – declined by 2 percentage points as compared to the previous quarter.

Demand conditions are expected to witness some improvement during Q3 2009, with as many as 72% of the respondents anticipating an increase in sales volume. While about 19% of the respondents expect volume of sales to remain unchanged, around 9% of the respondents anticipate a decrease in sales during Q3 2009. The resultant optimism for volume of sales stands at 63%, an increase of 40 percentage points as compared to the previous quarter.

Profit expectations of the Indian corporates improved substantially, with as many as 69% of the respondents expecting an increase in their net profits during the forthcoming quarter.

While about 10% of the respondents are anticipating a fall in their net profits in the forthcoming quarter, about 21% of the respondents expect no change in net profits during the Jul-Sep 09 quarter. The resultant Optimism for net profits stands at 59%, an increase of as much as 41 percentage points as compared to the previous quarter.

"The improvement witnessed in the business optimism during Q3 2009 indicates that the worst may be behind us. As the Composite BOI is still below the Q3 2008 level, it suggests that it would take some more time for the economy to recover completely. Positive data releases, improving investment sentiment along with the post-election optimism seem to have provided the much needed support to corporate confidence," said Kaushal Sampat, Chief Operating Officer, Dun & Bradstreet – India.

The majority of respondents anticipate no change in the size of the workforce employed during Q3 2009. Approximately 57% of the respondents intend to keep the number of employees unchanged. While 38% of the respondents expect an increase in the number of employees, 5% expect a decline. The resultant Optimism for Employees stands at 33% for the Jul-Sep 09 quarter, an increase of around 20 percentage points as compared to the previous quarter.

The D&B Business Optimism Index is considered as an indicator, which measures the pulse of the business community and serves as a reliable benchmark for investors. The index is arrived at on the basis of a quarterly survey of business expectations.

PSU stocks eyed as budget nears; index gains 31%

After May 16, the day result of the general election was announced, there has been increased investor participation. Since May 18, markets have seen a good run up with Nifty registering 16% rise. But its performance has been beaten by BSE PSU Index that registered gain of 31% till June 30.

In this journey, public sector understandings (PSUs) turned out to be better performers over last one year as well. Compared to 10% return generated by Nifty, BSE PSU Index rewarded investors with stellar 45% return for the year ended June 30, 2009.

As the market awaits the next positive trigger, Union budget, PSUs have again emerged as centre of attraction as there is expectation that the government may take a relook at divestment after a long gap and Bharat Earth Movers (98%), STC India (86%) and MMTC (82%) have emerged as the top three performers from the BSE PSU constituents post May 16.

There is no sectoral bias for the good performers within PSUs but there is a common thread among the poor performers. Highly regulated energy sector companies have not done well. Though there was talk of dismantling the administered price mechanism, there is little interest in the oil marketing companies.

Barring ONGC and Neyveli Lignite, other energy sector plays such as GAIL, NTPC, PFC and PCGIL have underperformed both the Nifty and BSE PSU Index. Stocks such as Nalco and Container Corporation along with Syndicate Bank and Canara Bank also appear in this list of underperformers.

"ITI, SCI and Hindustan Copper are to be watched for any divestment announcement from the government," said Shaishta Shaikh, research head with a broking firm. A few fund managers hold the view that PSU banking stocks would gain prominence.

Six lakh jobs losses in India in four months

More than 6,00,000 Indians, many employed in the gems and jewellery sector, lost jobs in just four months from October 2008 as the impact of the global economic crisis hit the country's shores.

About 5,00,000 people lost their jobs in the October- December 2008 period, while over 1,00,000 were shed in January this year, the Economic Survey said.

In September, the crisis turned severe following the bankruptcy of American financial services major Lehman Brothers. Since then, millions of jobs have been shed worldwide, as companies resorted to massive layoffs as part of their cost cutting measures.

Attributing to a survey conducted by the Ministry of Labour and Employment, the report said that during the three months from October to December 2008, there was a decline in employment of about half a million workers.

Among the sectors, the most hit by the financial turmoil are gems and jewellery, transport and automobiles.

"The most affected sectors were gems and jewellery, transport and automobiles where employment has declined by 8.58 per cent, 4.03 per cent and 2.42 per cent, respectively during the period (October to December 2008)," it said.

Another "thin sample survey" by the Ministry of Labour and Employment indicated that in January

Another sample survey carried out by the Department of Commerce for 402 exporting units showed that 1,09,000 jobs were shed during August 2008 to mid-January 2009 period.

"Two other surveys (by Department of Commerce) for the period August 2008 to February 9, 2009 and August 2008 to February 28, 2009 revealed job losses (direct and indirect) of 1,17,602 and 1,19,159 persons, respectively," the Economic Survey said.

However, there is a reason to be optimistic since yet another survey conducted by the Labour Bureau for the January-March period showed improvement in the employment scenario in selected sectors.

The Labour Bureau survey, which covered 3,192 units, indicated improvement in the selected sectors with employment rising by a "quarter million".

"Sectors registering increased employment were gems and jewellery (3.08 per cent), textiles (0.96 per cent), IT-BPO (0.82 per cent), handloom-powerloom (0.56 per cent) and automobile (0.10 per cent)," the Survey said quoting the Labour Bureau.

In the Eleventh Five Year Plan (2007-12), about 58 million employment opportunities are projected to be created and the unemployment rate is anticipated to fall below five per cent.

3G auction will take time, rules awaited

India will auction 3G wireless spectrum within three months after the government finalises the number of slots and the floor price for each, the telecoms minister said, indicating the process would take time.

The potential multi-billion dollar auction was initially planned for January, but has been delayed after high prices fetched by private telecoms companies for selling stakes prompted a review of the floor price.

"Two issues are there. What will be the number of slots going to be auctioned? And what is the base price for each slot?" Andimuthu Raja told lawmakers on Thursday in the upper house of Parliament in reply to questions.

He said a committee of ministers would be constituted to consider the issues.

"I hope it will be settled within a fortnight as soon as the committee is constituted," he said.

"Within three months as soon as the stipulation comes from the government, it will be completed," Raja said, on the auction.

As per the initial guidelines issued last year, the government planned to conduct the auction for 20 of India's 22 telecoms zones and had said firms could bid for four slots in most of these areas.

The auction of third-generation radio spectrum would allow firms to offer high-speed Internet and video downloads on mobile phones.

Budget 2009 may boost farm, energy sectors

India is expected to give commodities and energy a boost in its updated budget on Monday, as lifeline monsoon rains are forecast to be below normal, threatening farm output and economic growth.

India is expected to give commodities and energy a boost in its updated budget on Monday, as lifeline monsoon rains are forecast to be below normal, threatening farm output and economic growth.

The government may seek to keep prices of food items such as sugar, grains and edible oils down, by either keeping import duties low or limiting exports.

Following are some of the expectations on the budget for the 2009/10 fiscal year that began on April 1, based on representations by industry and trade bodies:

FARM POLICY –

Food subsidy could be raised from around 500 billion rupees ($10.4 billion) in 2008/09.

- Farmers may be offered relief on interest on loans to boost rural demand for items ranging from consumer goods to gold.

ENERGY –

May give tax holiday for natural gas production, as is the case with crude oil, to attract investment and help ongoing projects.

- Natural gas, which attracts different taxes in various states, may get a uniform levy of 4 percent across the country.

- May impose 5 percent import tax on crude oil and raise taxes on fuel.

- Roadmap for fuel price deregulation likely. - Gas pipelines may get infrastructure status to allow them to take advantage of a 10-year tax holiday, boosting investment.

SUGAR –

Might extend duty-free imports of raw sugar beyond July to augment supplies as domestic production is low.

- Sugar producers expect lower excise duty on molasses to boost ethanol production.

GRAINS –

Tight control on exports may continue as the government would like to wait and see how the monsoon rains progress. If rainfall increases, some exports of wheat may be allowed as stocks are high.

EDIBLE OILS –

Import duty change, if any, would seek to balance huge domestic stocks and inflationary fear due to weak monsoon. A small hike on the current zero duty on imports of crude oils and 7.5 percent on refined oils may be imposed.

BASE METALS –

May announce safeguard duty on primary aluminium to help protect domestic producers such as state-run National Aluminium from cheap imports. The government had recently imposed a similar duty on rolled products.

- May lower import duty from 5 percent on unfinished metals such as copper cathodes, zinc ingots and aluminium ingots to help consuming industries.

STEEL AND IRON ORE –

Unlikely to raise steel import duty as prices are poised to rise and the government would want to keep costs down for its infrastructure push.

- Iron ore exports could be curtailed to preserve domestic resources for local steel mills and keep prices down. Export duty may be increased from 5 percent on lumps and nil on fines.

Power cos eye tax sops, pro-investment moves

India's power companies are hoping the federal budget to encourage much-needed investments in the sector and have sought an extension of an income tax holiday beyond 2010, industry officials and analysts said.
Power project developers have been granted a 10-year exemption from income tax, if they begin to generate power before March 31, 2010.
"There is a very compelling business case as well as economic case to extend the tax holiday," said Jai Mavani, head of infrastructure at KPMG, adding that the move could help augment power infrastructure in the country.
Asia's third-largest economy is crippled by power shortages -- often 12 to 16 percent of the peak demand --, and the Planning Commission estimates that the country needs over 2 trillion rupees to meet the targeted power addition of 78,577 MW by 2012.
The budget, due on Monday, is likely to extend income tax sops to power project developers and make provisions to meet target set by power ministry to add 14,507 MW of capacity in 2009-10, analysts said.
The Council of Power Utilitites (CPU) has sought income tax exemption
up to March 2013, abolition of minimum alternative tax for power companies and tax exemptions for the carbon emission reductions.
Minimum alternate tax (MAT), that refers to fixed percentage of tax on profit, which the CPU says is negating the benefit of infrastructure sops.
While firms are hopeful that their demand for exemption of income tax may be granted, removal of minimum alternate tax seems unlikely, an official who declined to be named said.
The Independent Power Producers Association of India (IPPAI), another industry body, has demanded merger and demerger activities be brought under income-tax exemptions, and also sought tax-sops be extended to captive power plants.
However, as electricity from captive power plants is used by the producers themselves, income tax exemptions for them are unlikely, a Mumbai-based analyst said.
Power sector policies need long-term view than a view of just single financial year, while their implementation can be accelerated and monitored on a regular basis, for which the budget can provide a good benchmark, an analyst said.
"In terms of direction it (the budget) may contain some good-to-have announcements, but in terms of the actual details on what it will amend, perhaps we must set expectations at realistic level," KPMG's Mavani said.

Economic Survey: Delink licence from spectrum, auction 3G

Suggesting delinking of spectrum from telecom licences, the Economic Survey for the year 2008-09 has suggested auctioning radio frequencies for the forthcoming 3G mobile services.

"Auction 3G spectrum," the Survey, tabled in Parliament, said, adding that "the auctioned spectrum must be freely tradable, with capital gains on spectrum to be fixed under the Income Tax Act."

The Government is eyeing huge revenue from the auction of 3G spectrum and is likely to fix a reserve price of Rs 4,040 crore for pan-Indian spectrum. Going by this, the Government will get nearly Rs 30,000 crore from auctioning spectrum.

Giving suggestions on auction price, the Survey, which is a pointer to future economic policies, said the price can be fixed or be charged per unit of bandwidth per annum, or a combination of two.

Though the government had announced e-auction for 3G and BWA spectrum in August 2008, the process has not taken off as the Government is yet to decide the reserve price for the radio waves.

The survey has also suggested disaggregating spectrum from telecom licence.

At present, a pan-Indian telecom licence comes bundled with spectrum. For GSM services, the licence has 4.4 MHz of start-up spectrum while a CDMA operator gets 2.2 MHz of air waves.

The Survey also suggested that spectrum should be "traded" freely among telcos having licences.

"Spectrum should be freely tradable among the companies having a telecom licence," the Survey said in its policy prescription. At present, the policy structure in the country does not support trading airwaves.

It further added that a telecom licence should have a nominal regulatory charge and be based on the capability to provide sustained services.

The telecom sector, with about 414 million subscribers in February 2009 and adding over 14 million subscribers in 2008-09, has seen an inflow of Rs 11,595.48 crore of foreign direct investment in 2008.

The government has also set a target to reach 600 million subscribers by the end of the Eleventh Five-Year plan ending 2012.

With focus on rural telephony, it has also proposed to achieve a rural teledensity of 25 per cent through 200 million rural connections by 2011-12.

Rural teledensity reached 13.81 per cent in January 2009, while urban teledensity shot up to 83.66 per cent.

$500 bn infrastructure spending difficult

The government's USD 500 billion infrastructure spending plan by 2012 is a tough one to achieve as fund availability is proving a problem, the Economic Survey said on Thursday.

"The Eleventh Five-Year Plan has estimated an investment requirement of USD 500 billion in infrastructure for broad- based and inclusive growth. The foregoing analysis indicates that achieving this is a challenging task," it said.

Public initiatives of mobilising private investment is constrained by factors like inadequate shelf of bankable projects and shortage of long-term finance for projects.

It, however, expressed the hope that given the resilience that the Indian economy and its financial system
has demonstrated amidst adversities, the issues will be addressed and suggested government for a regulatory authority for the transport sector covering highways, railways, ports and airports.

"The planning Commission could act as the nodal body for carrying out the selection procedure for the chairman and for staffing the economic unit," it said.

The corresponding department or ministry could be the authority for appointing the sub-sector member and the specialised sub-units. The Chairman of the body would also be assisted by a neutral economic unit.

If needed the authority could also have specialised groups of professionals in each sector, the Survey added.

It also identified six constraints in promoting PPP projects including policy and regulatory gaps, inadequate availability of long-term finance and inadequate capacity in the private sector - both in the form of developer and technical manpower.

The 11th Plan envisages infrastructure investment of 20,56,150 crore, to be shared between the Centre, states and private sector in the ratio of 37.2, 32.6 and 30.1 per cent.

The total required debt financing has been estimated at Rs 9,88,035 crore while out of Rs 6,19,591 crore projected infrastructure investment by the private sector in the 11th Plan period, Rs 1,85,877 crore is expected from internal equity financing.

The Survey underlined the need for addressing bottlenecks in infrastructure projects like delay in land acquisition, law and order problems in states and shortage of raw materials systematically.

"...timely implementation of projects is critical for ensuring their financial viability, as also for reaping the projected economic benefits," it stressed.

Attributing the economic miracle of high-growth Asian economies to substantial investment in infrastructure, the Survey said, "The current economic slowdown provides an opportunity for countries like India that have substantial degree of unmet infrastructure requirements... spending on infrastructure has large multiplier effects."

Economic Survey proposes decontrolling sugar, fertiliser sectors

In a path breaking recommendation, the Economic Survey today suggested decontrol of sugar and fertiliser sectors to cut government subsidises.

The Survey for 2008-09 recommended changing the subsidy policy by giving government assistance directly to consumers, instead of producers.

The sugar sector is totally controlled by the Centre, right from setting up a mill to selling the sweetener in the market.

In the fertiliser sector, the government has fixed the maximum retail prices of all major nutrients - Nitrogen (N), Phosphorous (P) and Potash (K) to provide farmers these fertilisers at cheaper rates while subsidising manufacturers on the difference between cost of production and MRP.

In the 2007-08 Budget, the government had mentioned about launching a pilot project on direct subsidy to farmers. But it could not be implemented due to resistance from various quarters.

The Economic Survey has recommended "convert fertiliser subsidy from a part-producer subsidy to a wholly farmer-user nutrient related subsidy, with freedom to producers to set prices of formulations with different mix of nutrients."

The fertiliser subsidy bill surged to a record Rs 1,17,000 crore in 2008-09 fiscal from Rs 45,659 crore in the previous fiscal, due to unprecedented rise in the prices of farm nutrients in early part of the last fiscal.

India had imported 175.30 lakh tonnes of urea, DAP and MOP during 2008-09 as domestic production was not enough to meet the demand. While there was no production of MOP, the urea output was 199.22 lakh tonnes and DAP was 29.33 lakh tonnes in last fiscal. The country had also produced 68.48 lakh tonnes of complex fertilisers, which are partially- subsidised.

Though, there is no direct subsidy involved in the sugar sector, the government had last year extended transport assistance to mills for undertaking exports in 2007-08 season (October-September).

Facilitate growth of labour intensive industries

As jobs were getting lost by the thousands as a fall-out of the economic downturn, the Survey today asked the government to review labour laws for pushing growth in employee-intensive sectors.
"...there is an imperative need to facilitate the growth of labour-intensive industries, especially by reviewing labour laws and labour market regulations," said the pre-Budge t Survey that was tabled in Parliament.
It said the manufacturing employment trends in the country are "not-so-encouraging".
"Besides, the growth in many industries is constrained by the acute scarcity\depleting reserves of important raw materials like coal, iron ore, natural gas and forestry resources," it said.
It said industrial sector recorded a growth of 2.4 per cent in the last fiscal against 8.5 per cent in the year ago period. "The pace of slowdown accelerated in the second half of 2008-09 with the sudden worsening of the international financial situation and global economic outlook," it said.
The Survey said only two out of 17 industrial groups - beverages and tobacco and machinery - grew at robust rates during 2008-09 despite high base.

Rising food prices could undermine inclusive growth

High domestic food prices are still a cause for concern despite India hugely benefiting from a slump in global oil and commodity prices that pushed inflation into negative zone, the Economic Survey said today.

"The continued food inflation, though moderating of late, could undermine inclusive growth, in particular, the effort to combat poverty," said the pre-Budget Economic Survey tabled in Parliament.

For the week ended June 13 inflation stood at (-)1.14 per cent against (-)1.61 per cent in the previous week.

It, however, warned that some financial investors could be at play behind sharp rise in oil prices despite build up of inventories and forecasts of lower global demand. This along with rise in commodity prices could put strain on the economy.

Domestic food price inflation as measured by the WPI food sub-index, it said, remains much higher than overall inflation.

Food grains, fruit and vegetables, other food articles, sugar and salt being the group which registered two digit inflation from October, 2008 onwards, it said.

In pulses, fruit and vegetables and sugar, the high inflation was prevalent i 2008-09 was in sharp contrast to the negative inflation in 2007-08, it added.

Though volatility is the norms for fruit and vegetables, it said, inflation in milk remained 7-8.5 per cent in 2008-09.

Indian stocks emerge best performers globally in 5-yrs period: Economic Survey

A sharp meltdown during the last year notwithstanding, Indian stock market has emerged as the best performer among its global peers for a time-frame of five years with a return of over 65 per cent for investors, according to Economic Survey.

In the five-year period ending December 2008, the Indian stock market benchmark Sensex posted a positive return of 65.2 per cent, the Survey showed, even as a number of global markets such as Japan, Malaysia and Taiwan, posted negative returns.

The second best five-year return of 43.7 per cent was given by China, followed by 35.5 per cent in Indonesia and 25.6 per cent in South Korea, the pre-budget survey (2008-09) said.

This is the first time that the Indian stock market has posted a better return than any other markets from 2003-end levels. Even at the end of 2007, when Indian markets gave a record high return of 247.4 per cent over 2003-end level, it was lower than 296.8 per cent return in Indonesia.

In 2006 as well, the returns given by the country's benchmark index Sensex of 136.1 per cent was second to Indonesia's 161 per cent, the data compiled by the survey showed. In 2005, Indian stocks were behind South Korea (69.7 per cent) and Indonesia (68.1 per cent).

" The cumulative change in global indices at end-December 2008 over end-2003 level is in sharp contrast to the earlier years," the economic survey tabled today in Parliament stated.