Pre Budget Expectations 2011-12 21st FEB 2011 2011-12.pdf · Pre Budget Expectations - 2011-12 Page 2 of 17 Executive Summary . Come February and all eyes and ears are on the Finance

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Pre Budget Expectations 2011-12 21st FEB 2011

TM

RR, All rights reserved

Pre Budget Expectations - 2011-12

Page 2 of 17

Executive Summary Come February and all eyes and ears are on the Finance Minister and his budget for the coming year. Almost every citizen of the country has his/her own set of expectations that they would like to see being fulfilled in the coming budget. India Budget Expectations 2011 are quite high. Unlike the situation that prevailed years back, when the national economy was still undergoing an economic depression generated by the global economic meltdown, there is currently a feeling of confidence since Indian economy has quickly come back to its growth track. The government has quite a few challenges on its plate as the budgetary session commences. The inflation that's pinching the common man needs curbing, there's pressure to lower import duty and there's a need for a boost to domestic industry and increase revenue. It isn't a particularly good time for the UPA government as they struggle to end the deadlock in parliament over the opposition demand for a joint parliamentary committee probe in the 2G scam. With the GDP growing at 8.9% in the first half of the current fiscal, there is a near possibility that the government may further withdraw the stimulus in the coming budget with a view to reduce the fiscal deficit, which is expected to be about 5.5% of the GDP in 2010-11 and 4.8% for 2011-12. As per CSO (Central Statistic Organization) estimates Indian economy may grow @ 8.6%. High interest rates and increasing input costs have emerged as headwinds for industrial growth. India's industrial output has vacillated since May when it registered a 12.2% expansion, touched to 15.1% in July and then slid to 1.6% in December. The pace of growth will remain subdued for the remaining months of the current year on account of high base effect. The investment cycle is likely to be further impacted if the RBI raises interest rates in its upcoming reviews. On the resources front however there is good news to speak about with revenues from both direct and indirect taxes likely to exceed earlier set targets. Direct tax collections between April and January in the current financial year crossed Rs 3 lakh crore, at Rs 3,17,501 crore, against Rs 2,63,765 crore in the same period a year ago. The government had budgeted an overall tax mop-up of Rs 7,46,000 crore in the current financial year, which was revised to Rs 7,82,000 crore last month. Elevated price levels will indirectly lead to increase overall tax collections in FY 2011-12; ultimately boost up the government revenue. As a tax reforming tool implementation of DTC and GST may play a major role, but for this we have to wait for a year so. Govt failed to collect Rs 40,000 crore through disinvestment which it announced last budget. But the silver line was that it has managed to garner Rs. 1,06,000 crore from the auction of 3G license and Broadband Wireless Access (BWA) auction. Along with the partial deregulation of petrol from the Govt, we too expect deregulation in diesel till the current rate of inflation gets cools off to the level of 5-6 percent. Agriculture, Infrastructure and Education are likely to see higher spending in this budget. In order to support, Agriculture growth Finance Minister may announce a significant increase in the agriculture credit target for banks to Rs. 4,50,000 crore. Finance Minister is also expected to allocate around Rs.40,000 crore for the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA). Considering inflation Finance Minister would enhance personal income exemption to around Rs. 1,75,000 from Rs. 1,60,000 this budget. Rollback of excise duty of Re. 1 per litre on diesel and petrol is expected to announce in the budget. Based on industry reports and current policy environment, the government is likely to push economic reforms such as increase in FDI limits in various sectors, channelizing financial savings into infrastructure sector through development of bond market and taxation reforms etc. On the reform side GST roll-out and revenue loss compensation structure are key things to be watched in this budget. We believe key challenges before the government are proper policy responses to supply driven food inflation, de-regulation of diesel in high inflationary environment and measures to fix execution issues in sectors such as road, ports, airports, mining, power sector etc. Sector specific roll back of fiscal stimulus particularly in auto, cement and metal sectors are also expected. Government will continue to focus on supporting agriculture, infrastructure, job-intensive industries and SMEs.



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Economic Overview Strong signals:

• 3G auction at a big premium to help narrow down fiscal deficit (even though one time revenue). Revenue collections from direct and indirect taxes from 2010-11 so far are buoyant and exceeding expectations.

• Economic growth vibrant with revised GDP growth at 8%. • Domestic demand robust partially insulating us from the global anxieties on various fronts.

Areas of Concern:-

• Continuous Uproar on 2G Auction and non functioning of Parliament during the entire winter session. This could blurt the importance on Budget presentation this year.

• Crude Oil prices again reaching USD 100 per barrel could put the Government on severe strain on subsidies not

provided for to that extent. • Global anxieties still persists on various fronts that could be a dampener on growth. • Higher inflation causing a great concern and regulatory measures of RBI could stagnate growth. • Rising food and fuel prices are affecting the common man to a great extent and is a big drain on their savings. • Government will be forced to increase expenditure in Education, Healthcare, Food, Infrastructure, etc. There will

be other social welfare schemes as well which will increase Government expenditure substantially. Expected Reforms:

• Increasing the FDI limit to 49% in Insurance sector from the current level could be brought about in this budget. • Highlights on the implementation of the GST (Goods and Service Tax) and DTC (Direct Tax Code) will be

discussed in this budget. • New reforms on Public Distribution system may be announced.

Tax Proposals – Direct & Indirect Tax Proposal Expectations

• There is a demand to raise income tax exemption limit to Rs 2 lakh from existing Rs 1.6 lakh in the 2011-12 Budget to provide relief to inflation-hit households.

• India Inc has also sought a reduction in corporate tax from 30% to 25% and the abolition of surcharge and cess

so that more funds are released for investment. • There is a strong case for waiving octroi and local taxes, which impede the smooth movement of essential

commodities. • On excise duty, it is not expected that the rate of 10% will be brought down to 8%. • On the central sales tax, it is expected that the rate could be reduced to 1% from the existing rate of 2%, prior to

the introduction of the already delayed Goods and Service Tax. • With respect to exemptions and thresholds, it is expected that the product specific central excise exemption list

would be trimmed, in order to broaden the base of the tax, and that the threshold exemption limit under the central excise could be increased from the current level of Rs. 1.50 crore (Rs. 15 million).

• Service tax rate hike, along with broadening the net, cannot be ruled out as the likely GST rate would be higher

than the prevailing rate.



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Aam Aadmi Expectations Housewives Indian Housewife wants the FM to do something and anything to ensure that the prices of basic food and vegetables (a.k.a Onions, Drumsticks, Garlic) do not go high as they have done in the last few months. Onions have literally caused tears in most households and there is a great expectation that the FM would come up with some good ideas to curb the rising prices. Many housewives would also be eagerly hoping that the price of Domestic LPG remains untouched. There is constant pressure on the FM to reduce the burden of subsidy on LPG and he could look at increasing prices of domestic LPG cylinders. Tax Payer With the inflation at a high, the tax payers would like to see a progress to the proposals of the new taxes code which envisage raising the first slab (10%) to Rs 10 lakh instead of the current 1.6-5 Lakh slab. This would be beneficial to a big chunk of the working populace as most people in the middle-middle class and upper middle class have an income in excess of 5 lakhs per annum. Farmers The much touted National Rural Guarantee Scheme has played havoc with Farmers. Easy jobs with a guaranteed salary from the NREG have made big numbers of farm labor to migrate away from the hard work and low pay of agriculture work. This has resulted in a very acute shortage of workers and is seen as a major cause for the rise in prices of farm products. Even a good monsoon has not brought any cheer to the farmer as he does not have labourers to harvest his crop! The farming community is expecting the FM to scrap this populist scheme or ensure that migration of farm labourers is plugged. Automobile owners An unending and over ambitious expectation from all owners of automobiles is the hope that prices of Petrol and Diesel will come down. Each budget has only brought disappointment and with the current state of crude prices it seems far-fetched to expect any relief. But it does not cost to expect and so we shall! Infrastructure The last budget had promised a greener land with over 40% of total outlay on Infrastructure. But, sadly nothing much has happened apart from all the so called development at Delhi. The aam aadmi expects the FM to keep the same focus by allocating more funds to infrastructure development along with a framework to ensure that his good intentions are implemented at the ground level. Opposition’s expectation: Trip to Switzerland The idea of millions of Indian currency stashed away in vaults in Switzerland is a very old one. But, recent developments including wiki leaks have put the spotlight back on this burning issue and the FM is expected to put forth measures to bring back black money which has been illegally kept away in foreign havens back to where it belongs: India. Education Loans The student community expects that the FM will declare a loan waiver for Educational Loans. On that note most common Indians expect the FM to bring about a sea change in the Education system (indirectly of course) as School Fees and College fees have started rocketing skywards for no Rhyme or Reason. The common perception is that easy availability of educational loans has tempted colleges to demand higher fees as they are sure that the parents will anyway find a way to pay! Financial Stability The recent spate of mis-dealings by employees of Banks and Financial services has created quite a fear in the minds of the common man about the safety of his investments and finances while dealing with the zillions of companies which have flooded the financial services domain. It is expected that the FM will come up with a long term strategy to ensure that there is stability and a stronger sense of safety prevailing in the Financial Services and Capital Markets domain.



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Sectoral Expectations Agricultural Sector Agriculture is core sector contributing over 18% of India's GDP. Rising prices would be in focus in near to medium term. Increased production and higher productivity will help to secure enough supply to curb prices. Agro input industry is very well placed. There is huge scope for the expansion as only 39% of cultivated land is under irrigation. Country is a net importer of fertilizer and India is one of the lowest per hectare consumer of fertilizer and pesticides. Some favorable policy changes will help to utilize huge business potential in time to come.

Issues Current Status Industry Expectation Impact Stocks to watch

Formulation of Nutrient based subsidy policy

The previous budget announced to adopt nutrient based subsidy from product

base. But it’s still on formulation stage.

Implementation of nutrient based subsidy formula allows

company to produce balanced and complex

fertilizers which were not competent under product

subsidy regime.

Positive Chambal Fertilizers, Coromandal International,

Nagarjuna Fertilser.

Excise and Import cut on pesticides and raw material.

8% Excise Duty on pesticides, 5% Import Duty

on Furnace oil and concessional custom duty of

5% on specified agri. machinery not manufactured

in India

Excise duty on pesticides to reduce to the level of 4%.

Duty cuts on furnace oil are also expected.

Import duty exemption on fuels like furnace oil & LSHS

currently levied 5%.

Positive Coromandal International and agri dependent

industries.

Automobile Sector Automobile sector is already under margin pressure on the back of rising raw material cost & rising interest rates. Raw material prices like steel & rubber have seen a huge jump over the year. We expect that in the coming budget we may see all roll back of the incentives given in the period of recession as partial rollback has already happened in the last budget. The rise in interest rates on bank lending may have impact on growth negatively. Fresh levies will dampen sentiments.


Excise Duty General Excise duty at 10%. To be kept unchanged. With rising commodity prices and higher interest rate, rollback of excise will dent margins and volume growth further.

Neutral All automobile companies

Budget Allocation

- Substantial budget allocation towards rural housing, infra

and agri credit.

Positive Hero Honda, M&M and Maruti.



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Banking Sector Amid the uncertainties of elevated price levels, liquidity crunch, delayed deposit growth and pressure of sustaining of margins, the banking sector continued to record robust earnings growth in each quarter. In terms of core activities, the sector has witnessed accelerated growth in loan book as compared to deposit base driven by infra, service and retail sectors. The Reserve Bank's decision to raise key interest rates for seven times since March 2010 to tackle the inflation issue, has raised the cost of funds for the banking sector. Now in the last 2-3 months, banks have started increasing interest rates and have seen huge jump in incremental deposits.


Issuance of Tax - free Infrastructure Bonds

Not allowed to issue such bonds.

To allow banks to issue tax free bonds and keep this out

of reserve requirement

Positive Whole Banking Sector

Tax Benefits on provisions

Allowed 7.5% deduction from gross total income

A full income tax waiver for the amount provided for

NPAs.

Positive Whole Banking Sector

Export Credit Interest subvention of 2% on export credit for labour -

intensive sectors, is scheduled to expire on

March’11

Extension up to Mar’12 Neutral Benefit to the Exporters

Farm Credit Interest subvention of 1.5% on short term crop loans for

PSU Banks

Subvention of 3% wherein private banks are also allowed to take benefit

Banking Sector as well as agro industry.

Education India is expected to have highest working age population over the next 20-30 years which can propel economic growth in the country; however, India will have the highest number of illiterate adults and a large number of unemployed literate people. Education sector has this big challenge of educating adults and also ensuring employability. Issues Current Status Industry Expectation Impact Stocks to watch

Budget Allocation

- Budget allocation may increase to 5.5-6% of GDP

from 3-4%

Positive Educomp, Everonn, NIIT

FDI in education

- FM may consider allowing FDI in education sector


Tax exemptions to private players

- Govt. may allow certain tax sops to the private players

in education segment


Engineering During the current fiscal year, operating profit margin remained under pressure due to rise in raw material cost especially that of steel and lower price realization on the back of escalating competition both domestically and from overseas. Though strong order backlog along with strong investment under pipeline in the infrastructure sector as well as pick up in industrial capex support the industry but strong competition from overseas capital goods manufacturers, high commodity prices and rising interest rate are the cause of concerns. Higher allocation to infrastructure will benefit companies like, L&T, BHEL, Crompton etc, as they command a higher market share and have excellent execution track records


Central Excise Duty

- Expected increase in central excise duty

Negative BHEL, Larsen & Toubro, Crompton Greaves, Engineers

India Ltd Defence Budget

- Expected increase in the outlay for defense

Positive Larsen & Toubro, BEL

Plan outlay for power sector

- Higher allocation for power sector

Positive Larsen & Toubro. Engineers India Ltd

IIFCL financing for infra

- Increase in IIFCL re-financing to banks for the

infrastructure sector

Positive BHEL, Larsen & Toubro, Crompton Greaves, Engineers

India Ltd



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FMCG There are some near term challenges like inflation and irregular monsoon during the year for the sector. We are expecting this situation will be reversed after harvesting of Rabi crop. With demand shifting from need based to want based we believe personal care and home care categories would lead the growth momentum with 20% and 15% growth, respectively, in CY11. FMCG companies are witnessing good volume growth of 15-17%, giving a reflection of consumerism and demographics that are paying rich dividends. Further good monsoon season, govt. initiatives like NREGS, direct subsidy to farmers etc. have also helped in stimulating growth in rural areas for the companies. On one hand good revenue growth is coming in for the FMCG companies, however, on the other hand margin pressure is also building up. The key raw ingredients like palm oil, sunflower oil, copra prices etc. have seen unprecedented rise in the last one year. Issues Current Status Industry Expectation Impact Rationale

Rapid implementation of GST

Multiple indirect taxes currently levied on FMCG

products.

Rapid implementation of theproposed goods and

service tax(GST)

Positive All FMCG companies

Excise cut roll back

Excise cut roll back by 2% to 10% from 8%

The industry is not expecting any major cut, although some cut can

happen as food inflation continues to remain high

Neutral All FMCG companies

Farm credit Current Rs. 375000 cr. Farm Credit target is expected to rise 20% to 450000 crore from the

current year's 375000 cr

Positive HUL, Dabur, Colgate, Marico, ITC, GPCL

Hike in excise for cigarettes

Excise duty ranges Rs 659 to Rs 1424 per thousand

on filter cigarettes

There is a 8-10% excise duty hike is expected

Negative ITC

MAT Rate 18% Increase may happen as it could be a step towards

direct tax code

Negative MAT paying companies like Dabur and GPCL

Information Technology The Indian IT industry showed remarkable resilience during the recessionary period and global downturn, now expected to deliver approximately 20% in future. Demand for IT Services exports is expected to continue with the recovery in developed countries like US & Europe and rising discretionary spend on IT infrastructure by consumers. According NASSCOM reports exports are expected to dominate the Indian IT industry, which account for $59 billion out of the $76 billion software industry. However, the industry has its share of concerns. Fear of slower than expected recovery in US and other developed markets, pricing pressure due to competitive domestic markets, higher wage inflation and attrition and protectionist stance by the US government have forced a neutral outlook on the industry. On the backdrop of such mixed scenario, the industry is eagerly awaiting the Government's proposals in the budget. Though Indian IT companies are witnessing good revenue growth in all verticals but what they are getting are short duration orders as the global recovery is still fragile. Finance minister is also likely to throw a light on the issue of double taxation for IT companies. Software is sometimes treated as a good when sold on a compact disc, while it is considered a service when supplied via electronic download.


Extension of the tax holiday scheme for Software Technology Parks (STP)

Expiring 31st March, 2011 Extend the scheme for atleast another year, until

31st March, 2012

Positive Zensar, Hexaware, KPIT Cummins



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Metal Industry Metal industry is currently grappling from crippling rise in cost of inputs like coking coal that forms a major part of operating cost and has doubled in the last one year. Also with the increased prices of metals like steel, aluminium the demand is expected to come down for metals.


Budget allocation for housing and basic amenities

- Enhanced budget allocation that will increase the

demand for metals like steel, aluminium

Positive SAIL, Tata steel, Hindalco, Nalco

Plan allocation for power sector

- Higher budget allocation for power sector

Positive SAIL, Tata steel, Hindalco, Nalco, Sterlite Industries.

Pharmaceuticals We believe companies having a strong hold in the domestic market along with Niche opportunities would continue to trade at a premium. We remain bullish on the sector more specifically on the Generic Companies. Growing economy, lifestyle related health issues, improving healthcare insurance penetration, government initiatives and increasing disposable income are some of the factors that are leading to continuous double digit growth of Rs 1-lakh-crore pharmaceutical industry. As per DIPP (Department of Industrial Policy and Promotion), 61 drugs worth over $80 billion are going off patent, making it possible for domestic companies to produce cheaper versions of those drugs.


Excise Duty Excise duty currently for pharmaceutical

formulations and Drugs at 4% and 10% respectively,

while some samples of drugs given to doctors are

taxed at normal rates.

Excise duty on API may be rationalized and made at par with Pharma goods,

while the list of life saving drugs exempt from tax may

be expanded. Further Pharma samples should be exempted from excise duty

since its given free to doctors

Positive Glenmark , Dr. Reddy 's, Ranbaxy, Biocon, Piramal

Healthcare, Sun Pharma and Cadila Healthcare

Custom Duty Abatement limit of 35% of the Product value.

Abatement limit raised to 45% of the product value



Weighted income tax deduction on R&D expenditure

Provision of weighted deduction of 200% on

expenditure incurred on in-house R&D and 175% on

payments made to National Laboratories, research associations, colleges, universities and other

institutions for scientific research

Extended weighted deduction on in-house R&D

to domestic pharma companies who are

increasingly undertaking R&D activities to become

research driven companies in the long term





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Power Sector We expect higher allocation to reforms like R-ADARP, Ultra Mega Power Projects (UMPP), Rajiv Gandhi Gramin Vikas yojna RGGVY, and Bharat Nirman to continue. This will also contribute positively to the sector’s long term growth. Power Sector will be the priority of the government to enhance capacities. One of the major concerns of the power sector is the need to reduce the losses in the distribution. Concern for the operator is the rising input cost which has already affected the OPM during the first nine months of the current fiscal, especially ever escalating coal price amidst short supply due to flood in Australia. The sector offers huge opportunity on account of sustained double digit power deficit in the country with economic wheel on ascent. Structured reforms to be introduced to attract investments and increase productivity. Green power sector will be encouraged with subsidies to ensure viability.

Issues Current Status Industry Expectation Impact Rationale

Import duty on power equipments

15-20% Expectation of increase Positive NTPC, Tata Power, NHPC, Adani power, Reliance Power

Service tax exemption on building Power Projects

Exemptions are granted on development Of infra

projects, including roads, railways, airport, transport

terminals and bridge.

Including power projects development in the

exemption list

Positive NTPC, Tata Power, NHPC, Adani power, Reliance Power

Plan allocation for power sector

- Expectation of increase Positive NTPC, Tata Power, NHPC, Adani power, Reliance Power

Plan allocation for renewable energy

- Expectation of increase Positive Suzlon, Moser Baer

Real Estate Housing may be considered on priority and for the first dwelling unit; the Government can give relief in Interest rates through Banks (a small percentage) to continue the growth in this sector. More reforms to regulate the real estate sector are also expected. High land investments, lower execution cycle, rising interest rates, higher commodity prices and increase in labour cost are some of the factors that are seriously affecting the real estate companies’ revenue and profitability. Further debt ridden balance sheets have almost taken back the pricing power for most of the companies. Construction & Infrastructure investment is the major driver for India in attaining consistent 8-10% GDP growth.


MAT Increase 18% 20% Negative All real estate companies-DLF,Unitech etc.

Interest Subvention

1% interest subvention on Housing loan upto Rs.10

lakh, where the cost of the house does not exceed

Rs.20 lakh

Continuation of scheme Positive All real estate companies-DLF,Unitech etc.

Increase in the cap on tax deduction available on housing loans

Currently only maximum deduction is allowed upto Rs. 1,50,000/= on interest

repayments apart from Rs.100000/= deduction

allowed on principal repayment under section

80C

Increase in the cap on tax deduction

Positive All real estate companies-DLF,Unitech etc.



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Shipping Freight rates are expected to be under constant pressure on account of demand moderation and supply overhang. Hence, the operating performance of shipping companies is expected to be subdued. Companies with high debt could also report a negative bottomline. However, the offshore shipping segment offers the best play in the entire shipping space on account of firmness in crude oil prices. Vessel day rates are also expected to rise in the near to medium term.


Port developments

- Port Development at various new locations should be encouraged including public private partnership to handle

increased traffic of goods and materials efficiently

Positive Mercator Line, ABG Shipyard and Great Offshore

Telecom Industry The industry has witnessed consistent growth during the current fiscal year on the back of rollout of newer circles by operators, network rollout in semi-rural areas and increased focus on the value added services (VAS) market. The sector is reeling under overcapacity leading to stagnant revenue, high operating cost and huge debt resulting in dwindling earnings and regulatory uncertainty led contracting multiples. With an abating rate of decline in key metrics, telecom companies are expected to fare better in FY12E than in FY11E. Companies with exposure in foreign markets, like Bharti Airtel and OnMobile Global may see higher growth than the industry. Lower realization due to price war, high interest cost on fund raised to bag 3G licenses and Broadband Wireless Access (BWA) coupled with high cost business promotion impacted the margins of the players in the industry during the period under review.


Single Taxation Regime

Taxes/levies include service tax, spectrum

charges, license fee, excise duty, customs duty, etc

To have a single unified tax on revenue

Positive All telecom Operators

Extension of tax holiday available under section 80IA

Available for services launched till 31st March

2005

TO extend it for services launched till 31st March

2011


Benefit to claim credit of 4% special Additional Duty of Customs (SAD) against VAT

The telecom service provider is liable to pay 4% SAD on imported network

equipment

SAD should be exempted ormade creditable against

VAT


Textile Sector The textile industry performed well in the current fiscal. Despite the rise in raw material prices like cotton, the companies were able to pass on the higher cost to the end consumer's as the high cotton prices got absorbed by U.S. Europe and Indian Markets.


Technology Upgradation Fund scheme

Currently extended till 2012 Expect continuation of Technology

Upgradation Fund Scheme

Positive Alok industries, Vardhman Textile

Import Duty on Raw Silk

Currently, the import duty on raw silk is 30 percent

whereas that on silk fabrics is 10 percent

Reduction in Import duty on raw silk

Positive S. kumar Nation, Alok Industries



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Budget Glossary AD-VALOREM DUTIES These are the duties determined as a certain percentage of price of the product. ANNUAL FINANCIAL STATEMENT "It is a statement of receipts and expenditure of states for the financial year, presented to Parliament by the government. It is divided into three parts: Consolidated Fund, Contingency Fund and Public Account. APPROPRIATION BILL This Bill is like a green signal enabling the withdrawal of money from the Consolidated Fund to pay off expenses. These are instruments that Parliament clears after the demand for grants has been voted by the Lok Sabha. BALANCE OF PAYMENTS The difference between demand and supply of a country's currency in the foreign exchange market. BALANCE OF TRADE The difference between monetary value of exports and imports of output in an economy over a certain period of time. It is the relationship between a nation's imports and exports. Banking cash transaction tax (BCTT) BCTT is a small tax on cash withdrawal from bank exceeding a particular amount in a single day. The basic idea is to curb the black economy and generate a record of big cash transactions. This tax was introduced in 2005-06 budget. BUDGETARY DEFICIT Such a situation arises when expenses exceed revenues. Here the entire budgetary exercise falls short of allocating enough funds to a certain area. BUDGET ESTIMATES It is an estimate of Fiscal Deficit and Revenue Deficit for the year. The term is associated with estimates of the Center's spending during the financial year and income received as proceeds of tax revenues. CAPITAL GOODS Goods used in the manufacturing of finished products. CAPITAL BUDGET Capital Budget keeps track of the government's capital receipts and payments. This accounts for market loans, borrowings from the Reserve Bank and other institutions through sale of Treasury Bills, loans acquired from foreign governments and recoveries of loans granted by the Central government to State governments and Union Territories. CAPITAL PAYMENTS Expenses incurred on acquisition of capital assets. CENVAT This is a replacement for the earlier MODVAT scheme and is meant for reducing the cascade effect of indirect taxes on finished products. This is more extensive scheme with most goods brought under its preview. CESS "This is an additional levy on the basic tax liability. Governments resort to cess for meeting specific expenditure. For instance, both corporate and individual income is at present subject to an education cess of 2%. In the last Budget, the government had imposed another 1% cess as secondary and higher education cess on income tax to finance secondary and higher education. CURRENT ACCOUNT DEFICIT This deficit shows the difference between the nation's exports and imports. CURRENT ACCOUNT SURPLUS Excess of receipts over expenditure on current account in a country's balance of payments. CUSTOM DUTIES These duties are levied on goods whenever they are either brought into the country or exported from the country. The importer or the exporter pays custom duties.



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COUNTERVAILING DUTIES (CVD) This is levied on imports that may lead to price rise in the domestic market. It is imposed with the intention of discouraging unfair trading practices by other countries. CONSOLIDATED FUND This is one big reservoir where the government pools all its funds together. The fund includes all government revenues, loans raised and recoveries of loans granted. CONSUMER PRICE INDEX It is a price index covering the prices of consumer goods. CONTINGENCY FUND It is more or less similar to that extra little bit of savings that all mothers set aside in case of an emergency. Likewise, the government has created this fund to help it tide over difficult situations. The fund is at the disposal of the President to meet unforeseen and urgent expenditure, pending approval from Parliament. The amount that is withdrawn from the fund is recouped. CAPITAL EXPENDITURE Long-term in nature they are used for acquiring fixed assets such as land, building, machinery and equipment. Other items that also fall under this category include, loans and advances sanctioned by the Center to the State governments, union territories and public sector undertakings. CAPITAL RECEIPT Capital Receipts consist of loans raised by the Center from the market, government borrowings from the RBI & other parties, sale of Treasury Bills and loans received from foreign governments. Other items that also fall under this category include recovery of loans granted by the Center to State governments & Union Territories and proceeds from the dilution of the government’s stake in Public Sector Undertakings. CENTRAL PLAN OUTLAY It refers to the government’s budgetary support to the Plan. It is the division of monetary resources among different sectors in the economy and ministries of the government. DIRECT TAXES Taxes paid directly by the person or organisation on whom they are livied. Income Tax and Corporate Tax fall under this tax category. DISINVESTMENT It is the dilution of government’s stake in Public Sector Undertakings. DEMAND FOR GRANTS It is a statement of estimate of expenditure from the Consolidated Fund. This requires approval of the Lok Sabha. EXCISE DUTIES These duties refer to duties imposed on goods manufactured within the country. FINANCE BILL It is the government’s proposals for imposition of new taxes, modification of the existing tax structure or continuance of the existing tax structure beyond the period approved by Parliament. FISCAL DEFICIT It is the difference between the Revenue Receipts and Total Expenditure. FISCAL POLICY Fiscal policy is a change in government expenditure and/or taxation designed to influence economic activity. These changes are designed to control the level of aggregate demand in the economy. Governments usually bring about changes in taxation, volume of spending, and size of the budget deficit or surplus to affect public expenditure. FRINGE BENEFIT TAX (FBT) It is the tax lievied on the ‘fringe benefit’ / perks given by a company to its employees. Companies could no longer get away with marking such expenses as ‘ordinary business expenses’ and escape tax when they actually gave out club memberships to their employees. Employers had to now pay a tax (FBT) on a percentage of the expense incurred on such perquisites. This tax was introduced in the 2005-06 budget.



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FRBM ACT Enacted in 2003, the Fiscal Responsibility and Budget Management Act required the elimination of revenue deficit by 2008-09. This means that from 2008-09 , the government was to meet all its revenue expenditure from its revenue receipts. Any borrowing was to be done to meet capital expenditure i.e. repayment of loans, lending and fresh investment. The Act also mandates a 3% limit on the fiscal deficit after 2008-09; one that allows the government to build capacities in the economy without compromising on fiscal stability. GROSS DOMESTIC PRODUCT Total market value of the goods and services manufactured within the country in a financial year. GROSS NATIONAL PRODUCT Total market value of the finished goods and services manufactured within the country in a given financial year, plus income earned by the local residents from investments made abroad, minus the income earned by foreigners in the domestic market. GST A GST (Goods and Services Tax) contains the entire element of tax borne by a good / service including a Central and a state-level tax. INCOME TAX This is the tax levied on individual income from various sources like salaries, investments, interest, etc. INDIRECT TAXES Taxes imposed on goods manufactured, imported or exported such as Excise Duties and Custom Duties. INFLATION A progressive increase in prices of goods and services. It is the percentage rate of change in the price level. In inflation, everything tends to appear more valuable except money. MINIMUM ALTERNATE TAX (MAT) It’s known that a company pays tax on profits as per the Income-Tax Act. If a company's tax liability is less than 10% of its profits, it has to pay a minimum alternate tax of 10% of the book profits. MODVAT It stands for Modified Value Added Tax and is a way of giving some relief to the final manufacturers of goods on Excise Duties borne by their suppliers. MONETIZED DEFICIT Measures the level of support the RBI provides to the Centre’s borrowing program. NATIONAL DEBT Total outstanding borrowings of the central government exchequer. NON-PLAN EXPENDITURE Expenses that don’t form a part of the government’s five year plan. These expenses consist of Revenue and Capital Expenditure on interest payments, Defense Expenditure, subsidies, postal deficit, police, pensions, economic services, loans to public sector enterprises and loans as well as grants to State governments, Union territories and foreign governments. NON-TAX REVENUE Any loan given to state governments, public institutions, PSUs come with a price (interests) and forms the most important receipts under this head apart from dividends and profits received from PSUs.The government also earns from the various services including public services it provides. PEAK RATE It is the highest rate of Custom Duty applicable on an item. PERFORMANCE BUDGET It is a compilation of programs and activities of different ministries and departments. PER CAPITA INCOME The national income of a country, or region, divided by its population. PROGRESSIVE TAX STRUCTURE A tax structure in which the marginal tax rate increases as the level of income increases.



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PUBLIC ACCOUNT It is an account where money received through transactions not relating to consolidated fund is kept. PUBLIC DEBT The difference between borrowings and repayments during the year is the net accretion to the public debt. Public debt can be split into two heads, internal debt (money borrowed within the country) and external debt (funds borrowed from non-Indian sources). PLAN EXPENDITURE Consists of both Revenue Expenditure and Capital Expenditure of the Center on the Central Plan, Central Assistance to States and Union Territories. PLAN OUTLAY Plan Outlay is the amount for expenditure on projects, schemes and programmes announced in the Plan. The money for the Plan Outlay is raised through budgetary support and internal and extra-budgetary resources. The budgetary support is also shown as plan expenditure in government accounts. PRIMARY DEFICIT Fiscal Deficit minus Interest payments. PROPORTIONAL TAX A tax taking the same percentage of income regardless of the level of income. REGRESSIVE TAX A tax in which the poor pay a larger percentage of income than the rich. It is the opposite of Progressive Tax. REVENUE DEFICIT It is the difference between Revenue Expenditure and Revenue Receipts. REVENUE SURPLUS Opposite of Revenue Deficit, it is the excess of Revenue Receipts over Revenue Expenditure. REVISED ESTIMATES Usually given in the following budget, it is the difference between the Budget Estimates and the actual figures. REVENUE BUDGET Consists of Revenue Receipts and Revenue Expenditure of the government. REVENUE RECEIPT Consists of duties imposed by the Centre, interest and dividend on investments made by the government. REVENUE EXPENDITURE Expenditure incurred for the normal functioning of the government departments and various other services such as interest charges on debt incurred by the government. SUBSIDIES Financial aid provided by the Center to individuals or a group of individuals to be competitive. The grant of subsidies is also aimed at improving their skills of those who benefit from the subsidies. SUBVENTION This is how a government bears the loss that financial institutions incur when asked to give farmer loans below the market rates. SURCHARGE This is an extra bit of 10% on the tax liability that individuals pay for earning more than Rs. 10 lakh. Companies with a revenue of up to Rs. 1 crore are spared. SECURITIES TRANSACTION TAX (STT) STT is a small tax you need to pay on the total amount you pay or receive in a share deal. In the 2004-05 Budget, the government did away with the tax on profits earned on the sale of shares held for over a year (known as long-term capital gains tax) and replaced it with STT. TREASURY BILL (T-BILLS ) These are bonds (debt securities) with maturity of less than a year. These are issued to meet short-term mismatches in receipts and expenditure.



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VAT This tax is based on the difference between the value of output and the value of inputs used to produce it. The aim here is to tax a firm only for the value it adds to the manufacturing inputs, and not the entire input cost. Thus, VAT helps avoid a cascading of taxes as a product passes through different stages of production/value addition. VOTE ON ACCOUNT It is a sort of interim budget where the government presents accounts required to keep the process on until the next government takes over. WAYS AND MEANS ADVANCE (WMA) RBI is the banker for both Central and State governments. Hence, it provides a breather to manage mismatches in their receipts and payments in the form of ways and means advances. WHOLESALE PRICE INDEX Prices of goods that are dealt with wholesale (mostly inputs to production, rather than finished commodities).



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