Budget 2011: Focus areas

The Finance Minister Pranab Mukherjee will present the Union Budget 2011 today. He has a tough role to play as the country is reeling under inflation and high crude price has been a dampener. The major focus areas of the budget are likely to be:

* Fiscal Deficit: The market is talking about FY12 deficit of 5-5.5% but watch out for absolute figure as gross domestic product (GDP) has been revised from Rs 60 lakh crore to Rs 90 lakh crore. Hence, fiscal deficit absolute number can come at Rs 4.5 lakh crore instead of Rs 3 lakh crore even if the fiscal deficit is at 5%.

* Market Borrowing: The government could announce market borrowings of around Rs3.8 trillion (USD80 bn) - 4.5% of GDP, compared to a projected Rs 3.45 trillion (USD76 billion) in FY11, as the one-off telecom receipts are not available in FY12. Revenue growth to slow on lower tax buoyancy and no asset sale windfall is expected.

* Clarity on GST and DTC

* On taxation side: Some broad basing of the service tax, higher income tax exemptions, and a possible increase in excise duties on autos is expected.

* Sectors: The metals and capital goods industry is looking for an increase in import duties to protect domestic manufacturers. IT has asked for continuation of the STPI benefits, while oil companies have asked for a reduction in excise and customs duties. Real-estate companies have asked for tax sops for low-cost housing. Except for the sop to low-cost housing, other measures seem unlikely. In an attempt to boost tax revenues the government may focus on:
1) Increasing taxes on its favourite targets - cigarettes, alcohol, high-end consumer durables
2) Widening the services tax net
3) Rationalising excise duties by reducing exemptions or carve-outs (eg, small cars)
4) Introduction of cess to fund social sector schemes can not be ruled out

Railway Budget

Union Railway Minister Mamata Banerjee, while presenting her third Rail budget, not only kept fares and freight rates untouched, but also promised to invest Rs 57,630 crore (USD 12.68 billion) in the network in the financial year 2011/12. As expected, she barely attended to the mounting deficit of the transportation institution and instead yielded to gimmicks that befits a politician eyeing the polls—in this case, the West Bengal Assembly.

While announcing her Railway Budget, Ms Banerjee said she was optimistic that financial health of the Railways will be revived by FY12. "We will see Rs 5,260 crore savings in FY12,". Where, on one hand, Banerjee left passenger fares untouched and reduced AC booking charges from Rs 20 ro Rs 10. She also announced 85 proposals for PPP and okayed launch of nine new Duranto and three Shatabdi trains. For Mumbai, she proposed  raising capacity to 107 local trains.  (See Highlights)

The budget comes at a time when the railways are facing financial crunch with its operating ratio inching close to the 100-level mark. The Railway administration, which is coping with gloomy numbers has to deal with task of delivering what Laloo Prasad Yadav promised in his stint as the Railway Minister.

Despite populist meaures, Railway budget 2011 was a sheer disappointment for the markets. All railway stocks have reacted to the miserable announcement. Despite announcement of steps on anti-collision, Kernex Microsystems has failed to pick up.

Amongst the other populist measures announced by Mamata Banejee include a target of adding 700 km of annual rail line as compared to the current 150 km, to set up new coach factory at Kolar via PPP or JV and to set up additinal wagon units in Kerala via JV.

Rail Budget 2011

With just few hours to go for the Railway Budget, we examine the state of the railways, the challenge facing the railway's minister and the future prospects for this institution.

CNBC-TV18’s Karan Thapar discusses the issue with the Former Chairman of the Railway Board, Satish Vaish; Director, International Relations at the Asian Institute of Transport Development, Sumant Chak and Indian Railways’ Professor at Indian Institute of Management (IIM) Ahmedabad, Professor G Raghuram.

Few weeks back there was news that the expenditure has gone up by Rs 1,330 crore whilst earnings are down by Rs 1,142 crore taking the next deficit to Rs 2,500 crore.

According to Vaish, it is not at all serious because this deficit depends upon so many factors which are not under control of the railway. “The important thing to watch is that the railway does not throttle the economy. The factors, which have come in, like increase in diesel price, inflation, disturbances, all these things will continue, I don't think we can change them. We have to earn more and we have to do some big things,” he adds.

However, Chak says, it is certainly a cause for worry. “What is scary is the long-term scenario, which you see on the railways, because it will tend to throttle the economy. If economy grows at a particular rate, the transport demand grows almost 1.25 times that. With the gross domestic product (GDP) growth being pegged at 9%, the railway should grow at about 12-13%, which they are not. Not only that, you don't see any capacity being created for the railway to carry additional traffic,” he adds.

Nifty ends lower as oil hits $ 96/bbl

Indian equity continued the downtrend for second consecutive session on the back of fall in European markets and further rise in crude oil prices. The Nifty ended below the 5450 level on Wednesday, pulled down by financial, infrastructure, realty and technology companies' shares.

Crude oil inched up by 2.5% to USD 96.08 a barrel today - highest level since October 2008 - on growing fears that unrest in Libya could spread to other top oil producers in the region and cut more output.

Violent clashes in Libya have resulted in at least three oil companies halting output in Africa's third-largest producer, which pumps 1.6 million barrels per day (bpd), or nearly 2 percent of global supply.

"The Libyan situation has just highlighted the concern for the entire Gulf region. As we have seen this contagion spread from Tunisia to Egypt to Libya and now to Bahrain and Dubai and other areas of influence which are now coming under the concern of the people’s revolution. It is more of a concern for the entire area and the potential that this could escalate, which is the concern and why people are actually building in this Middle Eastern premium," Jonathan Barratt, the Managing Director of Commodity Broking Services said.

International Energy Agency (IEA) executive director Nobuo Tanaka said that sustained oil prices over USD 100 per barrel for the rest of the year could tip the global economy back into a repeat of the 2008 economic crisis.

European markets also slipped half a percent to one percent, at the time of closing of Indian equities. The 30-share BSE Sensex fell 118 points, to settle at 18,178 and the 50-share NSE Nifty dropped 32 points, to end at 5,437.

However, Anil Dhirubhai Ambani Group (ADAG), auto and cement companies' shares limited the losses. Heavyweights Reliance Industries and HDFC gained one percent.

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