Pre-Budget Analysis

2011-2012
Editorial
India had waved the tide of the global slowdown through its robust policies and has continued to maintain an
impressive growth even in hard times. To rise to the challenge of being one of the world’s economic
superpowers, India needs to grow faster. The Union Budget 2011 to be announced on 28 th Feb, 2011 could be
the perfect catalyst. However, supply side inflation and corruption scams have engulfed the economy in the
recent times. Also with absence of one time revenues such as 3G, Wimax License fees, there is pressure on the
Government to reduce the fiscal deficit and charter the path of fiscal consolidation. With elections in 5 states
this year, four UPA ruled, social expenditure on schemes such as NREGA and food security is likely to increase.
The Government is likely to increase its spending towards education, infrastructure and technology that could
give a multiplier effect to the economy to sustain higher GDP in the coming years. On the taxes front, the roll-
out of the GST in April 2011 could also have a significant impact on the manufacturing sector and redefine
supply chain and logistics in the country.

We, the students of SCMHRD, take immense pride in presenting to you our pre-budget analysis of 2011. An
overview of key sectors, including last year’s highlights and this year’s expectations have been covered. We
invite your valuable comments and suggestions at financeclub@scmhrd.edu.

Sectors Covered
BUDGET AT A GLANCE ................................................................................................................................................3
TAXATION ...................................................................................................................................................................4
POLITICAL AFFAIRS .....................................................................................................................................................6
AGRICULTURE .............................................................................................................................................................7
BANKING & FINANCIAL SERVICES ...............................................................................................................................9
DEFENCE ...................................................................................................................................................................12
AUTOMOTIVE ...........................................................................................................................................................15
EDUCATION ..............................................................................................................................................................17
PHARMACEUTICAL....................................................................................................................................................18
INFORMATION TECHNOLOGY & INFORMATION TECHNOLOGY ENABLED SERVICES...............................................20
TELECOM ..................................................................................................................................................................22
RETAIL .......................................................................................................................................................................24
ENERGY & PETROLEUM ............................................................................................................................................25
POWER......................................................................................................................................................................27
INFRASTRUCTURE .....................................................................................................................................................30
CEMENT ....................................................................................................................................................................33
COAL & MINING........................................................................................................................................................34
STEEL.........................................................................................................................................................................36
ABOUT FINANCE CLUB ..............................................................................................................................................38
ABOUT SCMHRD .......................................................................................................................................................39
BUDGET AT A
GLANCE
Union budget 2011-2012 marks the last year of
the 11th five year plan and the finance ministry has
something to smile about! It has done well on the
revenue side in the current financial year. It has
managed to effectively auction and raise Rs. 1.3
lac crore from the 3g telecom licences. This was
more than 3 times the revenue it had budgeted.
Also the disinvestment process is on track with
the government having achieved more than half
of its target of Rs. 40,000 crore and with a few
more IPO’s and FPO’s in the pipeline it is
expected to reach its goal.
On the tax revenue front the government has
achieved exemplary results having already raked
in about 72% of the 7.45 lakh crore target and this
buoyancy in tax collection has enabled it to raise
its tax collection target to 7.82 lakh crore. While
the direct tax collection has been raised from Rs
4.30 lakh crore to Rs 4.46 lakh crore, the indirect
tax collection estimate has been hiked from Rs
3.15 lakh crore to Rs 3.36 lakh crore.
All this obviously has an impact on the
government’s fiscal deficit target. Pranab
Mukherjee the finance minister had projected a
fiscal deficit of 5.5% sharply lower than 6.8% the
previous year. With this strong pattern of funds
inflow, it may actually be possible to cut the
deficit even beyond the target requirement. This
augurs very well and may actually result in an
upgrade in the country’s rating from the current
BBB status.
Also the forex position of the country is quite
comfortable at $299.39 billion for week ended
January 21. This was mainly due to the
appreciation/depreciation of non US currencies
held in the foreign currency assets reserves.
For this budget the finance minister’s problem is
not from the revenue side but actually how to use
these funds and allocate appropriately to the
various schemes launched by the government. We
believe that this being the last year of the 11th five
year plan there is very little chance of any major
scheme being launched by the government. The
finance ministry which invites request proposals
for allocation of funds for various schemes from
the other ministries has turned down at least 15
of them. We expect further consolidation in the
already launched programs, especially 2 of the
flagship programs of the UPA regime, the
‘Mahatma Gandhi National Rural Employment
Guarantee Scheme’ (MGNREGS) which has been
extremely popular amongst the masses and may
receive an increase in its budget (upto Rs.64,000
crore from 39,100 crore) and the second is the
‘Sarva Siksha Abhiyaan’ for imparting knowledge
and increasing enrolment in schools.
We expect the Finance Minister to act like the
Conservative head of the family who knows the
family has had a good year yet wants to go slow
on the spending. There are indications that the
Mr. Mukherjee will announce a partial roll back of
the Rs. 20,000 crore stimulus package announced
in 2009 with the economy doing well and this is
further expected to increase the government’s
revenue for the next fiscal. He has specifically
asked exporters to fight their own battles and
stop looking for financial incentives from the
government. Exports have already reached USD
164.7 billion during April-December 2010-11 and
according to Commerce Ministry's assessment
they may well touch USD 215-220 billion by the
end of the fiscal.
One of the major problems of this government
has been its ability or rather inability to tackle
inflation especially food inflation which was at a
record high of 17% in Jan’11. The RBI has tried
containing it by hiking interest rates for a record 6
times last year and the government on its part has
restrained itself from hiking diesel prices as they
have a direct impact on the food prices. Along
with this it has banned exports of some key food
products like onions and we believe Mr.
Mukherjee will provide more sops to agriculture
this year to ease supply side constraints.
The GDP growth rate for the current fiscal stood
at 8.6% led by a strong recovery in the agriculture
and allied activities from 0.4% last year to 5.4% in
2010-11 according to Advance Estimates released
by the Central Statistical Organisation. It is
expected that the government will unveil some
measures to boost infra projects further and
strengthen economic growth.
Ashish Ranjan
Charul Mahajan
Chintan Shah
TAXATION
BUDGET 2010 - 2011
ANNOUNCEMENTS AND IMPACT
The Budget for the year 2010 – 11 was termed by
the Finance Minister to be a budget for the “AAM
AADMI”. The hike in the exemption limit,
reduction in corporate taxes, no talk withdrawal
of the fiscal stimuli – of these steps desired one
outcome i.e. increase in spending and
consumption on the back of greater disposable
income in the hands of the people. However, the
increase in spending has had an unintended
consequence – inflation. Politically, it may prove
to be very costly for the government as in the
past, Indians have little tolerance to double – digit
inflation. The last time there was double digit
inflation, it led to the formation of the Navnirman
Morcha in Ahmedabad, leading to the countdown
to imposition of the Emergency. Keeping this in
mind along with the dire predictions of food riots
engulfing the world as made by various
international organisations, the politically astute
Finance Minister will have to make this year’s
budget more counter – inflationary than he would
have liked. It may be possible that he will take to
steps that may hurt growth in the short term.
DIRECT TAXES
Specific Announcements
 Deduction for investment in notified long term
infrastructure bonds has led to channelization
of personal savings into productive national
assets. This is far more direct participation of
people in infrastructure than routing these
investments through banks, mutual funds, or
other market participants.
 Reduction of corporate surcharge by 2.5% has
put more money in the hands of the
companies to expand their productive capacity
and enhance their productivity.
 Increase in Minimum Alternate Tax (MAT) to
18% for companies under its provisions has led
to greater revenue and the extension of the
period over which the set off can be availed
has also benefitted the companies.
 The tourism sector related benefits will have a
deep imprint on how India emerges as a tourist
destination in the future. The benefits being
extended to small sized 2 star hotels will lead
to a large number of budget hotels and rooms
becoming available for tourists.
 The extension of the period of completion for
real estate and housing projects came as a
lifeline to the beleaguered sector, suffering
from the credit crunch and fall in housing
prices then. Today its prospects are much
brighter.
 Increase in limits of compulsory audit and
presumptive taxation has been a
rationalization step and also a boom for the
beneficiaries, who can avoid all the paperwork
that came along with the compliance with the
earlier limits.
 Exemption of LLP’s from Capital Gains has
brought more clarity to the sunrise sector of
business organizations with respect to its
taxability.
EXPECTATIONS FROM BUDGET
2011 - 2012
It has been repeated so many times, for so many
budgets, that it has become a cliché. But it ought
to be said that the Finance Minister, through his
budget, will set the ball rolling for streamlining the
taxation laws. Since there is broad consensus on
the intention of the Direct Tax Code (DTC) and the
Goods and Services Tax (GST), he has the
additional advantage of knowing the destination.
Income Tax
Personal Income Taxes – The Finance Minister has
made it very clear that the DTC, in its current
form, will be the legislation to replace the ossified
and leaky Income Tax Act, 1961. Budget 2011 – 12
gives him the opportunity to adjust the direct tax
slabs accordingly in such a way that migration to
the DTC at the time of implementation is easier
and hassle free. Thus, the basic exemption limit
may be enhanced from Rs. 1.6 lakh to Rs. 1.7 or
1.8 lakh. It will be a windfall if the exemption limit
is directly enhanced to Rs. 2 lakh, but that seems
unlikely as some fiscal leeway for a political
gesture at the time of introducing the DTC will
also have to be budgeted for!
Corporate Income Taxes – There may be some
detailed tinkering in the form of some deductions
and exemptions being withdrawn and the
surcharge may be reduced by a further 2.5% to
5%. To compensate for the net losses on account
of these changes, Minimum Alternate Tax may be
increased from its current 18%.
Capital Gains Tax
 The capital gain taxes are unlikely to be
touched.
 Even the synchrony between the Dividend
Distribution Tax and Short term capital gains
tax may be left untouched.
 Since the DTC leaves the long term capital gain
exempt, the Budget is unlikely to change the
status quo.
 The exempt – exempt regime in mutual funds,
by which neither the mutual fund nor the unit
holder pay any tax on the dividend received
from the mutual fund or capital gains from
transfer of units is likely to continue.
 In an investor friendly move, this budget may
seriously consider the possibility of giving
similar exemptions to long term capital gain by
way of transactions in unlisted securities. The
benefits are twofold – it brings abut parity in
the securities transactions and avoids any tax
hassles like the ones affecting Vodafone and
Ranbaxy.
Income from other Sources
The scope of income from other sources may be
expanded to include interest received from
accounts held in foreign countries in foreign
currencies, so as to have a trail of money stashed
abroad.
INDIRECT TAXATION
Specific Announcements
 The budget of last year witnessed a first time
in the history of Parliament a walkout by the
entire opposition in protest against the
introduction of this one amendment – increase
in excise on petroleum refined products and
imposition of custom duties on crude. This was
done primarily to raise revenue, but with an
increase in crude prices these duties have
yielded more than required revenue. But, with
these prices being passed down by the oil
companies to the final consumer, prices have
been on a spiral all across.
 SSI’s being allowed to pay excise duties on a
monthly rather than a quarterly basis is an
administrative convenience given to them,
considering that small entities would find it
easier in their liquidity management. Besides,
permitting them full credit of excise duty paid
on capital assets in one go, will also serve their
interests.
 Stress in ecological alternatives and intention
to incentivize their use vis – a – vis the existing
products was also visible in the budget.
Proposals for duty reductions for Soleckshaw,
electric cars, LED lights, radar blades of wind
energy generators, machinery of solar power
units, and imposition of cess on coal to create
a corpus for the National Clean Energy Fund
will widely help the cause of those seeking to
provide alternatives to existing energy sources.
 To mitigate impact of rising gold prices on
government revenue, the modification of
excise from ad valorem basis (8%) to specific
Rs. 280 per 10 grams on gold was made, and
has been beneficial for the gold jewels sector.
 Agriculture was given special well deserved
and much desired focus, and the growth rate is
expected to cross more than 5% aided by a
good monsoon.
 Attempts to create better storage and a cold
chain received a fillip following the
announcement to grant project status and
concessional import duty of 5% for machines
involved therein and refrigerated vans and
trucks being fully exempt from customs
 Budget 2010 brought forward a windfall for
mobile phone users. Not only was 3G spectrum
auctioned in FY 2010 – 11, but also duty
exemptions were extended on parts of battery
chargers and headphones. Also, the exemption
from special duty has been extended.
 As an incentive to reduce costs for the
recession – hit gems polishing sector, the
Budget reduced basic customs duty. This led to
cost reduction, making the industry more
competitive globally.
EXPECTATIONS FROM BUDGET
2011 - 2012
The government is already battered by a stealthily
rising inflation. Besides, it desires the
implementation of the GST by next financial year.
In such a situation, the Finance Minister is unlikely
to increase any of the indirect taxes.
 The government may reduce the customs duty
on crude and excise duties on petroleum, as
this step will have an accelerating effect of
calming input and transport costs across the
economy in times of very high inflation. Also,
the rationale of raising revenue by imposing
 these increases in the previous year’s budget
has also diminished due to higher than
expected revenue realization.
 The median excise rate may be retained at
10%, which prior to the fiscal stimulus was
12%. Though the Finance Minister would want
to withdraw the stimulus, the inflation may
stop him in his tracks.
 The Central Sales Tax rate is likely to be
reduced from 2% to 1%, though the Finance
Minister has the elbow room to abolish it
completely, though in that case, the
compensation to the states will double.
 The Finance Minister may bring some more
services under the tax net.
ASSESSMENT PROCEDURES AND
OTHER ISSUES
The Budget is likely to extend the application for
the STPI Scheme, set to expire on 31st March,
2011. However, the applicability of the scheme
may be reduced to only the younger and small
and medium sized players in the Software
Industry, while making the older and larger
players pay tax as per the provisions of the Act.
Due to the public outrage over corruption, the
Finance Minister may be constrained to announce
some steps to better the government’s image.
One step could be to enhance the scope of wealth
tax to include assets hitherto beyond the scope of
wealth. Such assets may be cash lying in foreign
bank accounts, houses bought in foreign
territories, etc.
The Finance Minister may also announce an
increase in number of tax processing centres like
the one in Bengaluru, to enable faster processing
of returns and speedier refund payments.
There may be an increase in the threshold limit
below which the re – assessments will not be
necessary. Also, the limits for assessing returns by
Commissioners and above may be enhanced.
The Income Tax Dept. is falling short of staff, due
to higher packages being offered to the officers.
To combat such attrition, the Finance Minister is
expected to announce a new scheme of hiring
staff for the Depts.
Jatin Gajwani
Rishabh Baid
POLITICAL AFFAIRS
EVENTS EXPECTED IN 2011
State Assembly elections to 5 states (Tamil Nadu,
Kerala, Assam, Pondicherry and West Bengal) are
expected to be held in May 2011. This coupled
with coalition compulsions will lead to some
election centric populist announcements in the
Budget.
 The Congress is on the upswing in Kerala and
Pondicherry.
 The DMK, already battered by the arrest of
Former telecom Minister A. Raja may not be
very demanding, and may settle for an
announcement of a desalinization plant in
Tamil Nadu or monetary relief for the Lankan
Tamils by the Indian Government.
 Assam already has its politics churning,
through the release of the ULFA leaders and
may not need a dose of economic populism,
save for some money for flood control in
Assam.
 The Trinamool Congress’s leader Mamata
Banerjee will also want to demonstrate her
clout with the centre, by getting some West
Bengal specific announcements made by the
Finance Minister, who, incidentally, is also an
MP from the state.
EVENTS EXPECTED BEYOND 2011
Elections to Punjab, Uttarakhand, Uttar Pradesh,
Manipur, and Goa are scheduled in 2012. The
Uttar Pradesh elections in May 2012 and the
Congress’s strategy to court the Muslims there as
their vote bank means that there additional
financial provisioning for the proposals of the
Sachar Committee report.
 Food Subsidy - The insistence of the food
security bill by National Advisory Council (NAC)
led by Sonia Gandhi, means there will be some
commitment in the budget towards food
subsidy reform by better targeting. A scheme
to integrate the Unique Identity Number into
food scheme may be announced. With food
subsidy likely to touch Rs. 1 lac crore,
rationalization of the subsidy is good
economics and required for the hour, but may
not be forthcoming due to lack of political will.
 Railways budgetary support – Mamata
Banerjee will present what seems to be her
last Railway Budget as a UPA ally, if she moves
to the Writer’s Building, replacing the Left
Front in West Bengal. Due to cost escalation of
various projects, 6th pay commission load, and
no possibility of raising passenger fares or
freight rates in a politically surcharged and
inflationary environment, the gross budgetary
support demanded by the Railways has gone
up to Rs. 39,600 crore, up from Rs. 15,875
crores in 2010-11. In all likelihood, the
Railways will even get it so that it can be more
populist.
 Indexation of NREGA Wages, another key
demand of the NAC likely to be met is to index
Mahatma Gandhi National Rural Employment
Guarantee Scheme Wages to the inflation
index. Even this measure is likely to cause an
increase in spending in range of Rs. 7,500
crores to 8,000 crores.
 Oil prices- Goldman Sachs' 2008 forecast of oil
crossing $ 200 per barrel may come true this
year, looking at the precarious political
position of the Middle East. The Jasmine bloom
of Tunisia seems to have spread its fragrance
to Egypt and Jordan, and may spread its
fragrance to other oil producing countries in
the region and possibly, beyond. In this
politically sensitive and oil producing region,
such events may disrupt the production
schedules and delivery of oil across the world.
Such instability could drive up the oil prices.
Thus, India would have to factor that in and in
an already high inflationary economy.
The Finance Minister is likely to consider this
while evaluating the proposal to reduce the
excise and customs duties on crude and
petroleum. This, coupled with better than
expected revenue collection may lead to the
Finance Minister letting the oil companies
reduce their under recoveries on account of
subsidies, without increasing the retail price.
Lastly, it is expected that the Budget will contain a
specific road map about setting up of a Debt
management office. There is sufficient case for
the Budget to make it optional for the states to
join in initially, but participation of all borrowers
and lenders be sought over the medium and long
term so as to make the debt management office
not merely functional, but also effective.
Jatin Gajwani
AGRICULTURE
Agriculture is the dominant sector of Indian
economy, which determines the growth and
sustainability. About 65% of the population still
relies on agriculture for employment and
livelihood. It accounts for 14.6 percent of the
country’s gross domestic product in 2010-11 and
10.23 percent of the total exports (provisional).
India holds around 1% of the global trade-in agri-
commodities. With the ongoing trade negotiations
under the WTO, Indian Agriculture needs to
reorient its outlook and enhance competitiveness
to sustain growth from a demand side. For this
purpose, agricultural reforms are required.
According to the GDP data released by the Central
Statistical Organization (CSO) on November 30,
2010, the country's farm sector grew by 2.5 per
cent and 4.4 per cent each in the first two
quarters of the current fiscal, against 1.9 per cent
and 0.9 per cent, respectively, in the same period,
previous year.
An amount of US$ 19 billion has been allocated
for the Ministry of Agriculture during the Eleventh
Five Year Plan. India's agriculture and allied sector
grew by 3.8 per cent in the first six months of the
fiscal (2010-11), against one per cent in the year-
ago period on the back of better Kharif crop
output.
Capital investment in agriculture has increased
from US$ 1.2 billion in 2007-08 to US$ 3.26 billion
in 2010-11 (inclusive of State Plan Scheme
Rashtriya Krishi Vikas Yojana), as per a Ministry of
Agriculture press release dated August 3, 2010.
BUDGET 2010 - 2011
ANNOUNCEMENTS AND IMPACT
 Provision of US$ 86.9 million to extend the
green revolution to the eastern region of the
country comprising Bihar, Chattisgarh,
Jharkhand, Eastern Uttar Pradesh, West Bengal
and Orissa and a Provision of US$ 43.4 million
for sustaining the gains already made in the
green revolution areas through conservation
farming, which involves concurrent attention
to soil health, water conservation and
preservation of biodiversity. But only Rs 400
crore have been set apart for this initiative
 which seems too little for a task of such
magnitude, involving as many as six states.
 Provision to organize 60,000 pulses and oil-
seed villages in rain-fed areas in 2010-11; to
provide an integrated intervention for water
harvesting, watershed management and soil
health to improve productivity of the dry land
farming areas. Merely Rs 300 crore has been
earmarked in the Budget for this purpose.
 What needs to be realised is that most of the
interventions needed for stepping up the
productivity of pulses and oilseeds in non-
irrigated areas — such as water harvesting,
watershed management and soil health
improvement — are cost-intensive and need to
be taken up on a large scale.
 Under the Agricultural Debt Waiver and Debt
Relief Scheme (2008), time frame for the
repayment of the loan has been extended till
June 30, 2010 from six months up to December
31, 2009.
 In addition to the 10 mega food park projects
already being set up, the government has
decided to set up five more such parks.
External commercial borrowings are to be
available for cold storage or cold room facility,
including for farm level pre-cooling, for
preservation or storage of agricultural and
allied products, marine products and meat.
 The underlying objective of the four-pronged
strategy outlined in the Budget speech for
spurring agricultural growth is, obviously, to
address the supply side constraints that have
sent food prices soaring in recent months. The
plan has measures to
 Boost agricultural production;
 Reduce wastages in the food supply
chains right from the field to the market
and further on to the dining table;
 Lend adequate credit support to the
farmers for investing in raising farm
output; and
 Promote the food processing sector to
facilitate both waste reduction and value
addition of the farm produce.
 As a major initiative to tame food inflation,
Finance Minister Pranab Mukherjee has
indicated opening up of the retail chain to
introduce greater competition with the
ultimate goal of decreasing the considerable
difference between the farm gate prices,
wholesale prices and retail prices. But he failed
to list concrete measures that the government
proposes to take to bring about this much-
needed reform. However, it does propose a
measured step in this direction by offering
concessions on import tariff for mechanized
farm produce handling systems at mandi
levels; construction of cold storages and
facilities for chilling, and refrigerated
transportation of perishable farm produce
from farms to the mandis and retail outlets.
 The Budget proposes restoration of soil health
through conservation farming involving
minimum tillage and ecological balance
through biodiversity preservation. But, when it
comes to fund allocation, it has clubbed these
tasks with another even more ambitious
mission of imparting climate resilience to
agriculture and has provided a meagre Rs 200
crore for all of these.
EXPECTATIONS FROM BUDGET
2011 - 2012
 With inflation topping the government agenda,
particularly, the food products inflation, to
prevent the inflation from becoming broad-
based, the focus might be on policies to boost
agricultural productivity, irrigation and
improve agricultural marketing.
 The government’s biggest welfare program
could see an almost 60 per cent increase in
funding. The forthcoming Budget is likely to
make a provision of Rs 64,000 crore for the
Mahatma Gandhi National Rural Employment
Guarantee Scheme (MGNREGS) in 2011-12,
against Rs 40,100 crore in the current fiscal.
The huge increase in outlay will be mainly on
account of two factors: Linking wages under
the scheme with the consumer price index
(CPI) for agriculture labour; and a marginal
increase in the number of working days
guaranteed under the program.
 Even as the government tries hard to
rationalize its subsidy payout — and even
mulls direct cash transfers to targeted
beneficiaries — the subsidy bill on fertilizers is
likely to rise by 60 per cent for the current
financial year. This is despite the decontrol of
complex fertilizer prices under the nutrient-
based subsidy (NBS) regime from the beginning
of this fiscal. The subsidy bill is expected to rise
sharply due to a rise in demand and higher
prices. It is expected to stand somewhere
between Rs 80,000 crore and Rs 83,000 crore.
 Buoyed by its success in increasing pulses
production in India through effective
implementation of National Food Security
Mission (NFSM), the government is likely to
bring production of millet and fodder under
the mission’s ambit in the forthcoming Budget.
 The public and private sector investment in
agriculture should increase to about US$ 40
billion.
 The Planning Commission is working on an
ambitious action plan to boost secondary
agriculture, which includes value-addition to
farm products, in the 12th Five Year Plan
(2012-17). It could be worth more than US$
21.3 billion.
Aniket Dahasahasra
Nishtha Agarwal
BANKING &
FINANCIAL
SERVICES
The Indian Banking & Financial Services Sector,
the backbone of the economy, has gained
immense recognition for its strength, particularly
in the wake of the global financial crisis, which
pushed its global counterparts to the brink of
collapse. The industry played a key role in averting
the financial crisis from reaching disastrous
proportions in the country. It has played a crucial
role in the socio-economic development of the
country and is expected to continue to be
sensitive to the growth and development needs of
all the segments of the society.
INDUSTRY OUTLOOK & CURRENT
SCENARIO
Banking Industry
After a difficult FY09 Indian banks managed to
grow their balance sheets in FY10 albeit at a lower
average rate than that projected by the RBI. The
monetary stimuli i.e. reduction in repo rate, cash
reserve ratio (CRR) and statutory liquidity ratio
(SLR) offered to the banks by the RBI early in the
fiscal made it easier to sustain margins. Indian
banks grew their advances and deposits by 16.9%
YoY and 17.2% YoY respectively in FY10. The
growth was mainly driven by the expansion in low
cost deposits (CASA) and growth in agricultural
and large corporate credit.
Also, the Cabinet, on December 1, 2010 approved
to provide an additional amount of US$ 1.33
billion, in addition to the US$ 3.32 billion already
provided in the Budget 2010-11, to ensure Tier I
CRAR (Capital to Risk Weighted Assets) of all
Public Sector Banks (PSBs) at 7 per cent and also
to raise Government of India holding in all PSBs to
58 per cent. It also approved that the exact
amount, mode of capitalization and other terms
and conditions would be decided in consultation
with the banks at the time of infusion. The
proposed capital infusion would enhance the
lending capacity of the PSBs to meet the credit
requirement of the economy in order to maintain
and accelerate the economic growth momentum.
However, higher delinquency levels in retail
credit and debt restructuring are worrying factors.
Rating agency CARE has pegged Indian banking
sector’s gross non-performing assets (NPAs) at 3.5
per cent of gross advances by March 2011.
Further the macroeconomic scenario, rising
interest rate due to high inflation, will put
pressure on the profitability of banks.
Insurance Industry
The insurance sector plays a critical role in a
country’s economic development. It acts as a
mobilize of savings, a financial intermediary, a
promoter of investment activities, a stabilizer of
financial markets and a risk manager. The industry
was opened up for private players in 2000, and
has seen tremendous growth over the past
decade with the entry of global insurance majors.
The US$ 41-billion Indian life insurance industry is
currently the fifth largest life insurance market,
and is growing at a rapid pace of 32-34 per cent
annually. According to data released by the
Insurance Regulatory and Development Authority
(IRDA), Life insurance companies have witnessed a
70 per cent jump in new premium collection
during the first five months of the financial year.
The number of players during the decade has
increased from four and eight in life and non-life
insurance, respectively, in 2000 to 23 in life and
24 in non-life insurance (including 1 in
reinsurance) industry as in August 2010.
However, the recent guidelines for capping the
commission payable to agent, to bring in
transparency, may lead to reduction in growth of
insurance companies in the short-term.
BUDGET 2010 - 2011
ANNOUNCEMENTS AND IMPACT
 RBI is considering giving some additional
banking licenses to private sector players. Non
Banking Financial Companies could also be
considered, if they meet the RBI’s eligibility
criteria.
 Rs.16, 500 crore provided to ensure that the
Public Sector Banks are able to attain a
minimum 8 per cent Tier-I capital by March 31,
2011.
 Government to provide further capital to
strengthen the Regional Rural Banks (RRBs) so
that they have adequate capital base to
support increased lending to the rural
economy
 Appropriate Banking facilities to be provided
to habitations having population in excess of
2000 by March, 2012.
 Insurance and other services to be provided
using the Business Correspondent model. By
this arrangement, it is proposed to cover
60,000 habitations.
 Augmentation of Rs.100 crore each for the
Financial Inclusion Fund (FIF) and the
Financial Inclusion Technology Fund, which
shall be contributed by Government of India,
RBI and NABARD.
 The finance minister has made the acquisition
of intellectual property by Indian firms simpler
and easier by completely liberalizing the
pricing and payment of technology transfer
fee, trademark, and brand name and royalty
payments. These payments can now be made
under the automatic route.
 The establishment of the Financial Stability and
Development Council will help inter-regulatory
co-ordination while the Financial Sector
Legislative Reforms Council will provide an
outline for the expected reforms in this sector.
 Regulatory framework for the financial sector
to be strengthened: Apex level financial
stability & Development council to be set up.
 Increase in interest subvention from 1% to 2%
for the farmers who pay as per repayment
schedule, extension of debt waiver and debt
relief scheme for farmers extended by six
months to June 30, 2010.
EXPECTATIONS FROM BUDGET
2011 - 2012
 The formal and final guidelines regarding who
should be allowed to set up new banks and
what should be the terms and conditions
should be announced in the Budget speech.
 Guidelines for extending the geographic
coverage of banks and improving access to
 banking services should be unveiled in the current cumulative sub-ceiling on investments
budget. in corporate debt is $0.5 billion.
 Framework for minimum capital for new  The Government should increase the FDI limit
banks, the promoters’ contribution, minimum in insurance sector from 26% to 49%. It would
and maximum caps on the holding of help customers with better products, more
promoters and others, foreign shareholding, options and better service levels from
business model and whether industrial houses insurance players.
and NBFCs (non-banking financial companies) It would also help increase the much-needed
could be allowed to run banks should be penetration levels for insurance in the country.
presented.  The lapsed Pension Fund Regulatory and
 The limit for housing loan of Rs 250,000 (i.e. Rs Development Bill (PFRDA), earlier introduced
150,000 towards interest on loan and Rs in March 2004, can be reintroduced. The
100,000) towards principal repayment) should PFRDA Bill seeks to allow at least 26 per cent
be increased to at least Rs 500,000 i.e. Rs FDI in pension funds and would also let them
300,000 towards interest and Rs 200,000 invest overseas. More importantly, it would
towards principal loan repayment. Further this give a legal backing to the interim regulator —
limit of Rs 200,000 should be exclusively for the PFRDA.
repayment of principal on home loan as the  LIC Act amendment Bill, to increase the capital
present limit of Rs 100,000 u/s 80C, which base of public sector insurer LIC to Rs 100
includes principal home loan repayment is crore from the current Rs 5 crore, should be
already overcrowded with other categories. passed.
This will encourage the people to have a house  Securitization and Reconstruction of Financial
of their own. Assets and Enforcement of Security Interest
 A group to look into a possible amnesty (SARFAESI) Act can be tabled. It aims to allow
scheme to bring into the mainstream of the seizure of assets from defaulting borrowers to
economy black money stashed abroad should help banks reduce non-performing assets.
be setup.
 Foreign direct investment (FDI) norms for Amrita Diwan
convertible instruments, to encourage greater
private equity (PE) participation and venture
Amritansh Rastogi
capital deals in the country should be relaxed. Nishant Kumar
Under the present policy, the pricing of all the
capital instruments that are issued to foreign Tithi Mukherjee
investors must be decided upfront at the time
of issue. However, this would deprive
companies of getting a better valuation
afterwards in case of better performance.
 Roll back of Rs 1,500-crore export sops which
were set aside since the Budget 2009-10 as
additional incentives to exporters to help them
arrest the decline in overseas shipments. The
schemes which should be rolled back include
interest subvention scheme, status holder
incentive scheme and possibly the 2% bonus
given to select sectors under the focus product
scheme (FPS).
 Significant measures to deepen the corporate
bond market should be announced. Among the
several measures on the government’s agenda
is allowing banks to provide guarantees for
bonds issued by companies which could act as
a catalyst for corporate fund raising. The
DEFENCE
In the Union Budget of 2010-11, expenditure of
about USD 195 million had been earmarked for
civil aviation and about USD 32.04 billion for
national defence including research and
development. Of this, USD13.04 billion was to be
spent on acquisitions for new weapons systems
equipment and services. The defence budget
accounts for about 13.5% of the total Central
Government expenditure and about 2% of the
GDP. If the scope of national defence is enlarged
to national security, it would include expenses for
civil defence, security aspects of the Department
of Space, Atomic Energy, expenditure of the
Ministry of Home Affairs, which roughly account
for about 24% of total Government budget and
about 3.2% of GDP. India is likely to spend USD
120 billion in the next plan period (2012-17), the
latter coinciding with the last phase of India’s
ambitious military modernization plan. “India
plans to spend at least $30 billion until 2012 to
modernise the military with an immediate
purchase of 126 war jets costing $12 billion
followed by ships, submarines, artillery and other
hardware in coming years”.
Many of the assets India is acquiring are at the
leading edge of technology, including 180 Sukhoi
Su-30MKI aircrafts, Scorpene class submarines,
advanced Russian T-90 main battle tanks and
state-of-the art information and communication
systems. More than USD 42 billion in total
defence expenditure is targeted by 2015, of which
approximately USD 19.20 billion would be
expected to be spent on capital equipment for the
Defence Armed Forces.
The parallel challenge for India in meeting its
policy objectives will be expanding its indigenous
production capabilities at the same time as
meeting its ambitious acquisition agenda.
Historically, India has imported more than 70 per
cent of its defence assets, most notably from
Russia, on which it continues to have a strong
reliance. Over the past decade the Ministry of
Defence has implemented a series of reforms to
its procurement policy framework with the aim of
reversing this historical spending pattern,
including the introduction of offsets requirements
for designated equipment.
Discussions on increasing FDI cap has been going.
Recently, the Department of Industrial Policy and
Promotion had suggested FDI cap in defence
sector to be raised to 74 per cent saying 100 per
cent overseas investment would be desirable.
KEY DRIVERS AND CHALLENGES
The key drivers of Indian aerospace and defence
industry are high domestic demand, offset policy,
cost advantages, talent base and leveraging IT
competitiveness. There are challenges too, like
infrastructure, State Border entry permits,
customs clearance- required for both export and
import. The Indian defence industry also faces
export bans by countries limiting the transfer of
knowledge and technology to foreign countries.
As a consequence, reliance on imports is still
expected to continue, particularly where the
equipment has a high level of technology
sophistication.
REGULATORY MEASURES
India has been increasingly moving towards a
more open-market economy, reducing historic
controls on foreign trade and investment. Some
key regulatory measures which are expected to
undergo changes:
 To increase FDI limit in defence sector from
existing 26% to 49% and finally to 74%.
 To give soft credit lines which will encourage
the infusion of capital in this industry by
private players as this industry demands large
upfront investments and a longer gestation
period as there are greater opportunities for
Indian defence industry to work with
partnership or in collaboration with overseas
companies, thus enabling them to have
broader market access due to India’s ambitious
military plan.
BUDGET 2010 - 2011
ANNOUNCEMENTS AND IMPACT
The export of aerospace and defence goods
should be incentivized by giving tax exemption for
few years. Certain defence manufacturing areas
like Himachal Pradesh, Uttaranchal, and North
Eastern States should be exempted from tax on
profits. For domestic manufacturers supplying to
the defence establishment, the Government may
consider granting exemption from customs duty,
excise duty, State specific value added tax (‘VAT’)
central sales tax (‘CST’) and service tax on inputs/
capital goods/ input services and outputs.
Following key points to be noted in 2010:
 Transport of goods by rail – service tax
exemption to defence/ military equipments;
 To allow 100% FDI in defence special economic
zone units.
 Service tax is applicable on input services like
engineering, technical know-how etc whereas
export of services to foreign companies are not
subject to service tax (export of Services
criterion on ‘provided from India and used
outside India’ proposed to be deleted by
Finance Bill, 2010 but is still prevalent).
 Similarly India’s maintenance, repair and
overhaul (MRO) industry believe that the tax
regime should change in order to encourage
the opportunity available to India in
positioning itself as an MRO hub to the world.
 After the introduction of defence Offset Policy,
India is gradually becoming a key outsourcing
hub for the global defence industry, increasing
the offset provisions to 30%.
 The government is seeking to establish a new
class of domestic private enterprise, the
Raksha Udyog Ratnas (RURs), which would
enjoy the same tax treatments as incumbent
publicly owned firms (the Defence Public
Sector Undertakings).
EXPECTATIONS FROM BUDGET
2011 - 2012
Projected Expenditure
The fiscal deficit had been projected as 5.5
percent of GDP in 2010-11 against 6.9 per cent
during the preceding year. The rolling targets for
fiscal deficit are pegged at 4.8 per cent and 4.1
per cent for 2011-12 and 2012-13, respectively.
The expenditure on Defence comes under Non
Plan expenditure. The Thirteenth Finance
Commission has observed that there exists
considerable scope to improve the quality and
efficiency of defence expenditure through
increased private sector engagement, import
substitution and indigenization, improvements in
procedures and practices and better project
management, within the parameters of
Government of India’s policy. Efforts in this
direction will further expand the fiscal space
available for defence spending.
The Ministry of Finance had projected a growth
rate of 7 per cent per annum for defence revenue
expenditure. Capital expenditure is projected to
grow at 10 per cent per annum. The resultant
projection for overall annual growth rate of
defence expenditure works out to 8.33 per cent
The faster growth of revenue expenditure is
primarily due to the hefty increase in pay and
allowances flowing from the implementation of
Sixth Central Pay Commission (CPC). Following
measures are required to downsize the revenue
expenditure:
 Defence transformation through technological
improvements is the need of the hour. Further,
the three Services need to be integrated
through reorganisation of higher formations
and through joint training and joint
procedures, which will ensure coherence and
synergy.
 In the case of transportation, expenditure
could be reduced by making more use of
railways facilities instead of road transport.
 Defence should adopt Project Management
approach for inducting complete systems or
setting up facilities to enhance operational
readiness on a life cycle basis.
 The requirement of existing service logistics
and maintenance infrastructure could be
reduced by adopting performance based
logistics (PBL) strategy for system support,
already adopted in the USA as a result of which
the availability and reliability of systems had
improved. The PBL has been found to be a far
more cost effective solution than in-house
logistics and maintenance management.
Further, modern supply chain management
techniques need to be employed to reduce
storage echelons and inventory holding, by
making more use of ICT.
Table 1: Projected revenue expenditure by each service
division (USD million)
THREATS
Total India’s overall military strategy is shaped by a
2010 2011- 2012- 2013- 2014- 2011- range of ongoing and emerging issues in the
-11 12 13 14 15 2015
region. This includes conventional threats and
Revenue border disputes with China and Pakistan, growing
expenditure 18990 20319 21742 23264 24892 109207 concerns about terrorism from non-state and
Army (53%) 10065 10769 11523 12330 13193 57879 state-sponsored groups, and the ongoing Maoist
Naxal insurgency.
Navy (16%) 3038 3251 3479 3722 3983 17473

Air Force
Reports of the growing strategic relationship
(31%) 5887 6299 6740 7212 7717 33854 between China and Pakistan (for example, the
Chinese proposal to establish foreign military
(Assuming no hefty pay hike and %contribution of bases in Pakistan) are also a cause for concern.
army, navy and air force same as that of capital These issues are further complicated by the
expenditure of Table 1) ongoing relationship between Pakistan and the
United States, primarily due to the ongoing United
The Defence Service’s capital expenditure budget
States military presence in Afghanistan.
is expected to achieve a compound annual growth
of 10 per cent from 2011 to 2015 (as shown in Abhimanyu Garg
table 1). Taking account of inflation, however,
tempers the estimate of the overall opportunity; Amrish Agarwal
when accounting for India’s inflation rate, the real
growth in Defence Service capital expenditure is
expected to be marginal over the next two years
before increasing to a real growth rate of about
5.3 per cent from 2012 to 2015. This represents a
marginal slow down in budgeted expenditure
from the past decade (CAGR of budgeted
expenditure of 13.8 per cent from 2003-2010).

Given the fact that the modernisation programme

of the armed forces largely depends on capital
acquisitions, it boils down to how capital budget is
allocated.
Table 2: Projected capital expenditure by each Service
division-
wise

Table 3: Expenditure on defence by GOI (all figures are in USD

billions)
AUTOMOTIVE
Indian automobile market is one of the fastest
growing automobile markets in the world. It has
continuously been clocking an average growth
rate of about 25% y-o-y. It employs almost 10.7
million people (directly and indirectly) and is an
important sector for the economy. The
importance of the sector to the economy can be
gauged by the fact that the government had
implemented a focused Auto Mission Plan 2006-
16. It assumes special importance by the fact that
it is closely tied to heavy industries (read steel),
intellectual pool (read technological know-how
and R&D), infrastructure (read superior road
network) and growth in consumer purchasing
power (read growth in middle class and rural
markets).
BUDGET 2010 - 2011
ANNOUNCEMENTS
The Finance Minister in his Union Budget 2010
speech announced implementation of new tariffs
on cars and other vehicles. Below is the list of
Union Budget 2010 Automobiles sector
announcements:
 10% tariff imposed on small cars which until
now benefited from the 8% excise tariff.
 Excise duty on SUV and MUV vehicles
increased by 2% i.e. from 20% to 22%.
 Benefit of weighted deduction for
expenditure on in-house R&D is proposed to
be increased to 200% from existing 150% for
companies engaged in the business of
manufacture or production of automobiles
(including automobile components), helicopter
and aircraft
 Electric vehicles made eligible to excise duty
at 4% against the previous 8%.
 Full exemption from custom tax on electric
automobiles and on its components.
 Concessional tax on Solar power rickshaws
due to removal of excise tariff on solar panels.
 Truck refrigerated units for manufacture
would be exempt from excise duty.
 Small cars will continue to get excise duty
relief of 4%
 Excise duty on two-wheelers slashed from
10% to 8%
IMPACT
The following were the salient features in Budget-
2010 in relation with the auto sector:
 Increase in excise duty
Excise duty was increased from 8% to 10% for
small cars and 20% to 22% for SUVs and MUVs.
The automobile industry immediately passed
on the increase to the customers with
significant hikes in the prices. Buying and
maintaining a car or bike became costly with a
hike of 2% in the excise Duty which had
already led to an immediate and
corresponding increase in the prices of
automobiles and component.
 Increase in weighted deduction to 200% for
expenditure on in-house R&D
This increase in the weighted deduction from
150% resulted in giving a boost to domestic
companies that rely heavily on in-house R&D
and encouraged a lot of investment into the
technology development in India. This was one
of the important steps taken with a long-term
perspective.
 Relaxation of custom duty and tax on electric
automobiles and components
This was a relaxation of 4 % and helped the
companies that have eco-alternatives to their
petrol and diesel variants. This also opened
doors for variants from MNCs to be brought
into India.
 Continuation of excise duty relief on small
cars
The continuation of 4% excise relief for small
cars was in line with the expectations of the
growing segment in the domestic market. This
helped small car manufacturers keep the prices
low.
 Hike in excise duty on petrol and diesel
This hike made it dearer for the consumers to
operate automobiles, but did not see any
significant drop in the growth of the sector as
such.
 Hike in excise duty on steel by 2%
The increase in excise duty on steel made the
cost of raw-materials higher for producers.
This effect was not fully passed on to the
consumers till August 2010. September 2010
saw marginal hike in the prices as the raw-
material cost rose further.
 Increase in funds for infrastructure growth
The allotment of road transport was increased
to Rs.19, 894 crore against the previous Rs.17,
 520 crore. This is a long-term incentive for the
auto industry.
 Reduction in excise tariff on electric cars
The improvement in Excise tariff on electric
cars helped the manufactures to access
CENVAT credit and avail for tax exemptions on
customs tariff on electric cars components.
 Removal of central excise duty on Electric car
and vehicles
The Finance Minister had provided full
exemption from central excise duty for electric
car and vehicles which offer eco-friendly
alternative to petrol or diesel vehicles.
Companies who have launched their electric
car received high benefit from this. Maruti has
Eeco and Hyundai with i10 electric version got
the benefit of exemption of central excise
duty.
EXPECTATIONS FROM BUDGET
2011 - 2012
India is already the seventh largest vehicles
producing nation in the world. According to Ernst
& Young forecasts, Indian automotive market will
have the highest CAGR (at 14%) between 2009
and 2020. The industry is also looking at investing
US$ 17.12 billion in fresh capacity in the next four
years. India is already the second-largest small car
producing hub in the world.
All these can be continued and improved by giving
the following stimulus in the Budget of 2011:
 Supply related incentives
o Reduction in excise duty on steel
This will augur well for both the
infrastructure and automobile sectors. The
increase witnessed last year should be
rolled back by at least 1%.
o Continuation of tariff cuts to domestic
players
Domestic firms were given a tariff
reduction in 2010. This should be
continued as most of the low-cost auto
segment will be served by domestic
players like Mahindra & Mahindra and
Tata.
o Reduction in capital costs in terms of
setting-up plants
With a number of foreign players entering
India to setup production facilities, the
budget should provide for incentives in
terms of land-subsidies/ special economic
zones where such plants can be set-up.
o Increased weighted deduction on acquired
R&D
As foreign firms set shop in India with local
producers, it is important that such
deductions be increased to help in the
migration of technology.
 Demand related incentives
o Marginal reduction in excise duty on
vehicles
The increase of 2% in excise duty resulted
in sharp increase in prices. The duty should
be marginally reduced to encourage higher
consumption.
o Incentives for rural markets
As the rural market slowly becomes high-
demand center for small cars and vehicles
like tractors, the budget should decrease
duties on such vehicles. This will help spur
the demand.
o Incentives for switching to cleaner
technology
Bharat Stage-IV norms are already in-force
in 13 cities and Bharat Stage-III in the rest
of the country. Consumers should not face
steep increase in price if the market has to
keep up with the technology changes and
thus, this switch should be given due
importance.
o Easy financing terms
Automobile financing should be made
easier with lesser interest values and
higher loans amount slabs.
o Continued focus on infrastructure up
gradation
Allocation to roadways should be
maintained at current level and levels of
agricultural allocation and schemes like
NREGA should be increased to encourage
the high demand growth in tier-III and
rural areas.
Harshbir Singh
Kishore Shivtarkar
Mohit Sudan
EDUCATION
The size of the education sector is expected to
double to US$ 50 billion by 2015 with the rise in
government expenditure along with an increase in
middle-class income. The size of the education
sector currently is pegged at US$ 25 billion, with
higher education market estimated at US$ 15
billion. The government is planning to spend
about five per cent of gross domestic product
(GDP) in the next five years on education.
BUDGET 2010 - 2011
ANNOUNCEMENTS
 Following announcements were made in the
education sector:
 Planned allocation for school education
increased by 16 per cent from Rs.26,800 crore
in 2009-10 to Rs.31,036 crore in 2010-11.
 In addition, States will have access to Rs.3,675
crore for elementary education under the
Thirteenth Finance Commission grants for
2010-11.
 Integrated Child Development Services:
Government is committed to universalization
of the Integrated Child Development Services
(ICDS) Scheme. By March 2012, all services
under ICDS would be extended, with quality, to
every child under the age of six.
 Student Loans to Weaker Sections: To enable
students from economically weaker sections to
access higher education, a scheme to provide
them full interest subsidy during the period of
moratorium has been proposed. It will cover
loans taken by such students from scheduled
banks to pursue any of the approved courses
of study, in technical and professional streams,
from recognised institutions in India. It is
estimated that over 5 lakh students would
avail of this benefit.
 Aligarh Muslim University has decided to
establish its campuses at Murshidabad in West
Bengal and Malappuram in Kerala. Rs.25 crore
each have been allocated for these two
campuses.
 Female literacy: The low level of female
literacy continues to be a matter of grave
concern. It has, therefore, been decided to
launch a National Mission for Female Literacy,
with focus on minorities, SC, ST and other
marginalised groups. The aim will be to reduce
by half, the current level of female illiteracy, in
three years.
IMPACT
 E-Learning: Mr. Kapil Sibal has announced
government's plans to launch a scheme, which
would bring in information, communication
and technology (ICT) into elementary
education. The scheme would focus on the
development of e-contents which would be
used by students at primary and upper-primary
classes for learning purposes.
 One Laptop Per Child (OLCP): Mr. Kapil Sibal
has recently unveiled a US$ 35 low-cost
computer in an attempt to revolutionise
classroom education across the country. The
device allows students to write and store text,
browse the Internet and view videos, among
other regular features.
Bills introduced in Parliament:
 The National Accreditation Regulatory
Authority for Higher Educational Institutions
Bill, 2010 postulates that every higher
educational institution and every programme
conducted by it should require accreditation in
the manner provided in the proposed
legislation.
 The Educational Tribunals Bill, 2010 provides
for the establishment of the State Educational
Tribunals and the National Education Tribunal.
The National Education Tribunal would
exercise power and authority over any dispute
between a higher educational institution and
any appropriate statutory regulatory body and
all other matters pertaining to higher
education.
 The National Development Council has
approved setting up of 14 world-class
universities for innovation across the 11th and
12th plan periods on the public private
partnership model. The innovation universities
are part of the Ministry of Human Resource
Development's (MHRD) "brain gain" policy to
attract global talent and will be set up under
the eleventh plan (2007-12).
 Further, the Government has agreed to spend
US$ 675.90 million during the 11th Plan period
for setting up 13 new Central universities and
converting three existing State universities into
Central universities.
 Mr Kapil Sibal, Union Minister of Human
Resource Development, plans to create a
national vocational educational framework
within one year.
EXPECTATIONS FROM BUDGET
2011 - 2012
 Increase allocation towards general education.
Last year it was increased by 16% to INR
42,036 crores.
 Higher allocation of funds for Information and
Communication Technology (ICT) in schools
covering items that are not currently
supported, including use of multimedia-based
learning in classrooms.
 Make State governments more accountable for
deploying Sarva Shiksha Abhiyaan (SSA) and
impose penalty if they are found to lapse.
 Kendriya Vidyalaya Sangatan (KVS), Navodaya
Vidyalaya Samiti (NVS) and Madrasas to be
pushed towards educational and ICT based
improvements.
 Allow PPP model for growth in education
sector which also allows topline growth for
private sector companies in this sector.
 The DTC conceives of an income-tax levy at the
rate of 15 per cent on the surplus generated
from permitted welfare activities, such as
education. This is a retrograde step that must
be rolled back, given its apparent conflict with
the objective of enabling universal access to
quality education.
 Clear and express output and input service tax
exemptions to the entire education supply
chain are also fiscal measures that need
statutory sanction to reduce the burden of
sunken indirect tax cost.
Gunjan Jhunjhunwala
Maitreyee Rishi
Shubhanga Prasad
PHARMACEUTICAL
Indian Pharmaceutical Industry is a classic
example of highly organised sector in India and
caters to 95% of the medical needs of Indians
indigenously. The Indian Patent Act (1970) had
given only process patents which encouraged
reverse engineering among Indian drug
manufacturers, while Drug Control Price Order
(1970) ensured affordability and availability of life
saving and necessary drugs to general public. The
Indian Pharmaceutical Industry has been growing
at a steady pace of 10% for the last few years and
it is expected to continue to grow. Total drug
production in India is done by over 20000 units
and this industry provides environment to slightly
more than 30 lakh people annually. Indian
pharmaceutical Industry is the fourth largest in
volume term as and 13th largest in value globally.
In 2005, as per WTO guidelines, India introduced
the product patent act. This coupled with low cost
production in India fuelled MNCs to increase their
equity stakes in their Indian Partners. This has
definitely affected the Indian reverse engineering
process but by now Indian producers have
adopted an increasing global view of their
operations by setting manufacturing and
marketing JVs internationally, strengthening
brand franchises, and building world class facilities
for world drug production. This has renewed the
focus on R and D and discovery of new molecules.
Since 2005 till India has filed for 15 product
patents. With the increase in disposable income
formulations drugs market is expected to rise to
25% by 2013.
BUDGET 2010 - 2011
ANNOUNCEMENTS
 Weighted tax deduction on expenditure
incurred in in-house research and
development activities to 200 per cent
 Rate of minimum alternate tax on book profits
increased from 15% to 18%.
 Increase in excise duty on APIs from 8 percent
to 10 percent
 Rationalization of the customs duty on
medical equipments.
 Import duty exemption on the specified inputs
for the manufacturing of orthopaedic
implants. Uniform concessional basic duty of 5
 percent, CVD of 4 percent with full exemption
from special additional duty on all medical
equipments and concessional basic duty of 5
percent on parts and accessories for the
manufacture of such equipment with
exemption from CVD and special additional
duty.
 The proposed Annual Health Survey which
would prepare the district health profile of all
districts is to be conducted in the year 2010-
2011. The plan allocation to Ministry of Health
and Family Welfare was increased to Rs
22,300 crore for 2010-11.
 Rashtriya Swasthya Bima Yojana, which is
health insurance for people below poverty
line, has been extended to more than 20
percent of the Indian population covered by
the NREGA (National Rural employment
Guarantee Act) program.
IMPACT
 Tax incentives were accepted as a welcome
change but the common sentiment was that
this was neutralised with the rise in MAT that
would impact the book profits.
 Increase in excise duty on APIs from 8 percent
to 10 percent, was a negative impact
formulators located in excise free zones as
they would have to buy these APIs at a higher
cost.
 Increase in proposed spending on social sector
would have an indirect effect especially
because of India’s strong presence in generic
drugs.
 Rationalization of the customs duty on
medical equipments will also provide a fillip to
this upcoming sector. Tax incentives for the
business of setting up and operating “Cold
Chain” infrastructure was a welcome sign as
this is an integral part of logistics for many
biotech products.
 Announcement on the import duty exemption
on the specified inputs for the manufacturing
of orthopaedic implants addressed the
industry issue of inverted duty structure in
case of orthopaedic implants and medical
equipments and is an impetus towards
indigenous production of these products and
making the Indian industry compete globally.
The entry of corporate into healthcare, the new
trend of forward integration by manufacturing
into retail is going to make the pharmaceutical
retail the fastest growing segment. With some of
the old product patents going to expire soon, the
rise of biotechnology and bio medical sector,
faster paced R and D and infusion of more skilled
manpower, proper infrastructure, and academic
collaboration becomes increasingly important.
The Indian drug and pharmaceuticals segment
received foreign direct investment to the tune of
US$ 1.43 billion from April 2000 to December
2008. Public spending on healthcare is likely to
raise from 7 per cent of GDP in 2007 to 13 per
cent of GDP by 2015. Due to the low cost of R&D,
the Indian pharmaceutical off-shoring industry is
designated to turn out to be a US$ 2.5 billion
opportunity by 2012.
The future of the industry will be determined by
how well it markets its products to several regions
and distributes risks, its forward and backward
integration capabilities, its R&D, its consolidation
through mergers and acquisitions, co-marketing
and licensing agreements.
For the above reasons there are higher
expectations from the investors, manufacturers
and even end consumers from the government
for this industry.
EXPECTATIONS FROM BUDGET
2011 - 2012
 The industry is in need of greater SOPS, where
a deduction of 200 percent will not suffice.
 Tax break for investors to make investments.
 Tax deductions to units engaged in Contract
Research and development (R&D).
 Full exemption on medical equipments will
help manufacturers make it available for end
users at a better price.
 Increase in healthcare infrastructure, with
creation of focused SEZs, and tax holiday on
exports.
 The proposed rollout of GST in April 2011 and
allocation of funds for the purpose of
expeditious regime of GST is also a good step
for states. Levy of multiple taxes, loss of credit
of tax paid, compliance and litigation cost
associated with the present tax set up are
causing problems to the Industry.
 Government should consider anti-dumping
duty on Chinese Bulk Drug (API) imports and
also provide special incentives for local
production of API in the SME sector. It should
increase duty drawback to encourage use of
 local APIs than imports from China, the
Chinese manufacturers are heavily subsidized
and is proven to be a disadvantage for Indian
Manufacturers.
 The recent takeovers of Indian pharmaceutical
companies by their foreign counterparts, has
raised concerns in the Ministry of Health and
Welfare that the research work which is
funded by government institutions would go
waste or be used for producing more
sophisticated drugs that would fetch higher
prices in the global market. Government
institutions share their R&D for the
development of low cost drugs for diseases
afflicting the poor. Also, in the case of a public
emergency, they may not be available to apply
for compulsory licence and work at a
reasonable cost. Hence the ministry is
requesting a change of FDI policy. Currently
foreign companies can directly purchase 100%
equity in local companies without the consent
of Foreign Investment Promotion Board and
Indian companies taken over by MNCs had
been receiving state grants and tax
concessions.
Samira Vemparala
INFORMATION
TECHNOLOGY &
INFORMATION
TECHNOLOGY
ENABLED SERVICES
The IT sector is a very significant sector as regards
the economic growth of India. The sector from
2009 onwards has totally revamped itself by
adopting cost effective techniques, diversification
into new markets, verticals, businesses; and has
thereby presented itself to its clients as a sector
with one of the best value propositions as
compared to competitors all around the world.
Indian IT-BPO industry continues to dominate the
global market place with 51% market share. It
accounts for over 10% of the total FDI in the last
decade. In 2010-11, annual revenues from IT-
BPO sector is estimated to have grown
over US$76 billion compared to China with $35.76
billion and Philippines with $8.85 billion.
BUDGET 2010 - 2011
ANNOUNCEMENTS
 Minimum Alternate Tax (MAT) rate increased
from 15% to 18%.
 Calculation of tax exemption for SEZs under
the revised formula was made effective.
 The excise duty / Counter Veiling Duty (CVD)
exemption in relation to “transfer of right to
use” canned or packaged software, was
extended to all “transfer of right to use”
including transactions where such right to use
is not for commercial exploitation.
 Packaged or canned software intended for
single use was exempted from service tax.
 Certain capital goods and raw materials for
manufacture of electronic hardware were
exempted from all customs duties.
 Significant increase in plan allocation for school
education.
 Process of refund of accumulated credit for
service tax was made easy for exporters of IT
and BPO services.
 Expenditure incurred on approved in-house
R&D, was proposed to be increased to 200%,
from the existing 150%.
 An increase in the peak rate of excise duty by
2% (i.e. from 8% to 10%) was proposed.
However, the merit rates of customs duty and
service tax were kept unchanged.
 Exemption from excise duty which was
available to goods meant for external use with
computer / laptop as a plug in device was
withdrawn and an excise duty of 4% was
imposed on them.
IMPACT
 Minimum Alternate Tax (MAT) rate increased
from 15% to 18%: MAT is imposed on profit
making companies, which do not fall under the
tax net because of various exemptions, and
most IT companies fall under category. Thus an
increase in MAT is a dampener for IT
companies, more so for medium and small
sized entities. Small IT and BPO companies that
typically have tighter cash flows, now have to
pay a minimum of 18% service tax.
 Calculation of tax exemption for SEZs under
the revised formula was made effective :
o 100% income tax exemption for first 5
years.
o 50% income tax exemption for next 5
years.
o Income tax exemption for next 5 years to
the extent of profits reinvested
(Maximum 50%).
o This has had a positive impact for large
software companies due to their material
SEZ presence.
o Extension of excise duty/ CVD exemption
on canned/ packaged software: This
amendment, covering duty exemption on
canned / packaged software, will be
beneficial to end-users of such software.
o Packaged or canned software intended for
single use were exempted from service
tax: This would eliminate dual levy of
excise duty / customs duty and service tax
on such software related transactions and
therefore is a positive for product
companies.
o Certain capital goods and raw materials
for manufacture of electronic hardware
were exempted from all customs duties:
This should provide added incentive to
the IT / Electronic hardware industry.
 Significant increase in plan allocation for
school education: This was a welcome change
for education companies such as Educomp,
Everonn, Aptech, etc.
 Process of refund of accumulated credit for
service tax was made easy for exporters of IT
and BPO services: This would benefit those IT
and BPO companies which have significant
international business.
 Expenditure incurred on approved in-house
R&D, was proposed to be increased to 200%,
from the existing 150%: This would provide
added incentives for companies to maintain
investments in innovation and is also expected
to add impetus to further R&D activity.
 Increase in the peak rate of excise duty by 2%
(i.e. from 8% to 10%) was proposed: This
increase in the rate of excise duty has resulted
in a corresponding increase in import duty (in
lieu of Counter Veiling Duty). As a result of
such increase in CVD, the duty rate on import
of software has now increased from 8% to
10%, thus, bringing this on par with service tax
applicable on e-downloads. This amendment
will result in additional cash outflows to
importers of software.
 Exemption from excise duty which was
available to goods meant for external use with
computer / laptop as a plug in device has been
withdrawn and an excise duty of 4% was
imposed levied on them: This would increase
the duty burden on such computer peripherals
/ accessories.
EXPECTATIONS FROM BUDGET
2011 – 2012
 Excise & Service Tax cut: A higher excise duty
or service tax means a higher outflow of funds
from the IT companies. Thus a reduction in
these will be beneficial to them.
 Extension of tax exemption for the Software
Technology Parks (STPs): THE STPI Scheme is
lauded as one of the most effective schemes
for the promotion of exports of IT and ITES.
 Apart from exemption from customs duty
available for capital goods (with a few
exemptions) there are also exemptions from
service tax, excise duty, and rebate for
payment of Central Sales Tax. But the most
important incentive available is 100%
exemption from Income Tax of export profits,
which has been extended till 31st March 2011.
A further extension of this was expected in the
last budget but was not announced. It’s
expected in this Financial Budget as well.
 Reduction in MAT: In the last budget as
against people’s expectations the MAT was
further increased. The increase in MAT
resulted in a dampener for the industry
especially the smaller companies and resulted
in tighter cash flows. Thus a reduction in MAT
is expected at least this year.
Meera Mohandas
Shinoy Xavier
TELECOM
Indian mobile market has undergone
revolutionary change during the past few years to
become one of the leading mobile markets on the
global map. The number of mobile subscribers
stands at 752.19 million in December 2010. This
sector has become hyper competitive market with
~12-13 players. India has lowest Average revenue
per user (ARPU) of $3/user/month with highest
minutes if usage in the world. The two main
technological revolutions that powered telecom
sector in 2010 were the auction of 3G spectrum
and the Mobile number portability (MNP).
The 3G/BWA (Broadband wireless auctions)
auctions held this year helped the government
raise $16 billion and boosted its fiscal situation. At
the same time a huge can of worms involving the
2G sector scam which caused the exchequer a loss
of 1.76 lakh crores which could have reduced the
fiscal deficit of India to half has marred the
telecom sector. Till date there have already been
17 million customers who have submitted
requests for number porting. The already cut
throat competition is going to further intensify
with ARPU expected to fall further. While
established players have the most to lose given
their large customer bases, they also have strong
propositions and can benefit from lessons learned
from global markets that have already
transitioned to MNP. India has very high churn
rates already. While MNP may have a one-time
impact, it is likely that the winners will be those
who are already winning the net acquisition
battle.
The latest announcement has been that of the
delinking of the spectrum from the licenses. This
will lead to the operators paying market
determined prices for the additional spectrum.
This may cause swelling in the telecom tariffs. This
step has come in the aftermath of the 2G
spectrum scam.
Recent regulator recommendation has stimulated
some uncertainty in the sector, especially with
regards to recent 2G pricing and license renewal
fees. However, increasing rural penetration and
data services offers immense potential going
forward.
BUDGET 2010 - 2011
ANNOUNCEMENTS AND IMPACT
 Rate of Minimum Alternate Tax (MAT)
increased from the current rate of 15% to 18%
of book profits. Negative. Increase in tax
burden.
 Outright exemption from special additional
duty provided to mobile phones imported for
retail Sale Positive for handset distributors.
 Exemptions from basic, CVD and special
additional duties are now being extended to
parts of battery chargers and hands-free
headphones. Also, the validity of the
exemption from special additional duty is
being extended till March 31, 2011.
 Outright exemption from special additional
duty on goods imported in a pre-packaged
form for retail sale which would also cover
mobile phones even when they are not
imported in pre-packaged form.
EXPECTATIONS FROM BUDGET
2011 – 2012
 Impose import duty on imported mobile
handsets
 Relaxation in the taxation norms to telecom
service providers and telecom infrastructure
companies, given the capital intensive nature
of the sector is expected. The government is
expected to impose import duty on imported
mobile handsets to encourage the domestic
production.
 Tax treatment of spectrum charges
There is no clarity as regards the treatment to
be adopted for corporate tax purposes in
respect of massive upfront spectrum fee
payment, interest costs on account of
borrowed capital and deductibility/ taxability
of foreign exchange fluctuations in respect of
overseas borrowings. The Government should
therefore, bring out specific amendments in
the Income tax law, so as to provide for
depreciation claim on the upfront spectrum
fee payment, allow deduction of interest paid
on capital borrowed for acquisition of
spectrum.
 Tax holiday benefits on consolidation
Hyper-competition in the sector and reduced
tariffs are forcing telecom companies to
streamline operations. To combat these
challenges, a consolidation phase would be
experienced in the near future. However, the
restrictive provisions in Section 80IA(12A) of
the I-T Act denying tax holiday to undertakings
which undertake bona fide restructuring would
be detrimental to such consolidations in the
telecom sector and hence, these provisions
should be deleted.
 Re-introduction of tax holiday
Tax holiday for network roll-outs in rural areas
would also speed up the process significantly.
Further, providing tax breaks to telecom
infrastructure service providers would
immensely help in cutting down costs, thereby
assisting in deeper rural penetration.
 Indirect Tax
The key areas that need urgent rationalization
include availability of input tax credit of duties
paid on telecom infrastructure, explicit
confirmation that telecom service provided to
foreign telecom operators should qualify as
export of service reinstate export incentives as
are available to other service sectors. The
sector expectation is to have clarity and
rationalization of the tax regime which will so
long way in promoting the much needed
investment in the sector.
Though no respite was provided to the telecom
sector by Union budget 2010, the telecom sector
is hopeful that this time round the Union budget
would bring with it a bag of goodies, so as to
provide some relief to the high investment driven
sector.
Krishna Bajaj
Manoj Jaju
Vaibhav Pathak
RETAIL
Retail, one of India’s largest industries, has
presently emerged as one of the most dynamic
and fast paced industries of our times with several
players entering the market. Accounting for over
10 per cent of the country’s GDP and around eight
per cent of the employment retailing in India is
gradually inching its way toward becoming the
next boom industry.
The trends that are driving the growth of the retail
sector in India are
• Low share of organized retailing
• Increase in disposable income and customer
aspiration
• Increase in expenditure for luxury items
• Young population spending patterns
FACTS AND FIGURES
• Number of shopping malls is expected to
increase at a CAGR of more than 18.9% till 2015.
• Apparel, along with food and grocery, will lead
the organized retailing in India.
• Rural market is projected to dominate the retail
industry landscape in India by 2012 with total
market share of above 50%
• Driven by the expanding retail market, third
party logistic market is forecasted to reach US$ 20
Billion by 2011.
RECENT DEVELOPMENTS
• Mukesh Ambani’s Reliance Brands has reported
acquired 49 percent stake in Ermenegildo Zegna
group’s mono brand retail operations in India. The
subsidiary of Reliance Retail is expected to buy
the stake in the Indian unit of Zegna South Asia
Private Ltd.
• Stanley, a genuine leather upholstery Indian
brand announced its retail expansion plan in India
with the launch of its exclusive flagship store
Mumbai.
BUDGET 2010 - 2011
ANNOUNCEMENTS
• Individual tax payers have been given the
benefit of lower tax slabs and higher exemption
limits.
• Surcharge on domestic companies reduced to
7.5% from 10%
• Increase in the rate of Minimum Alternate Tax
from 15% to 18% of book profits
• Customs duty on gold ores and concentrates for
use in manufacture of gold is being fully
exempted. These goods will, however, be levied
concessional CVD at the rate of Rs 140 per 10 gm
of gold content.
• Custom duty on precious metals indexed as
follows- on gold and platinum from Rs 200 per gm
to Rs 300 per gm. In case of silver the hike has
been of Rs 500 to Rs 1,500 per kg.
IMPACT
• Increase in disposable income in the hands of
the people resulted in increase in consumption.
Thus, in general increase in spending power
boosted the growth of the retail.
• Retailers like Pantaloon Retail, Shopper's Stop,
Trent and Titan and many others gained with
increase in disposable income.
• Abolition of excise duty on branded articles,
increase in customs duty in case of gold bars,
coins and ornaments is a positive move for the
organised jewellery retailers. Titan Industries can
utilise this competitive advantage.
• Many Foreign entrants pouring in the Indian
Market, with reforms expected and newer growth
avenues being explored.
EXPECTATIONS FROM BUDGET
2011 - 2012
Industry experts will carefully watch the sessions
of Union Budget 2011-12, with anticipation of
announcements that will facilitate fund flow,
resource availability and reforms within the sector
creating opportunities for expansion and growth.
Recognition to the industry
 The retail industry is on the growth path and is
eagerly awaiting for aggressive expansion, with
many foreign giants already at the doorstep.
• The government should offer the required
impetus for it to reach greater escalations. The
retail sector needs to get its deserving
recognition. It can be achieved by required
reforms.
• Strengthening the Retail supply chain, may bring
about controlled inflation.
TECHNOLOGICAL IMPROVEMENTS
Budget must emphasize on needs of retail sector
of technological development. Technology highly
drives up the efficiency and productivity of sector.
Thus policies must ensure that investment led
growth opportunities must arise, in turn boosting
the technological requirements and sector itself.
Relaxation of FDI
FDI is an issue that has been long debated topic in
retail. India presently has the largest retail
industry in the world and the easing of the FDI
would only help it achieve greater heights.
However, it is still an unresolved issue. Following
points must be considered.
• Currently, India does not allow FDI in multi –
brand retailing while in single brand retail there is
a 51 per cent limit on FDI.
• For wholesale cash-and-carry model 100 per
cent FDI is permitted.
• Allowing FDI in multi brand retail will bring in
greater efficiencies and effectively help lower
prices, improve product quality and improve the
variety of products as desired by the end
consumer.
• The government also needs to bring in
transparency on applicability of press notes 2, 3
and 4 of 2009 for the retail industry. These notes
deal with the calculation of FDI in step down
subsidiary of an Indian Investing company having
FDI.
• The retail market in the country is expected to
grow to $590 billion by 2012. FDI in retail can have
some positive results on the economy, triggering a
series of reactions that in the long run can lead to
greater efficiency and improvement of living
standards, apart from greater integration into the
global economy.
Neeraj Patki
ENERGY &
PETROLEUM
PETROLEUM
Oil accounts for about 31 percent of India’s total
energy consumption, with its share of the mix
having fallen from 35 percent earlier this decade.
The crude oil production was 24.812 MMT during
the period April-Nov 2010 against the planned
output of 24.888. This was an increase of 10.32%
over the same period in 2009-2010. The crude
throughput by OMCs was 106.53 MMT during the
period April-Nov 2010 against the planned output
of 104.37. This was a marginal increase of 0.8%
over the same period in 2009-2010. The LNG
production was 35293.1 MCM during the period
April-Nov 2010 against the planned output of
35789.5 MCM. This was an increase of 19.77%
over the same period in 2009-2010.
BUDGET 2010 - 2011
ANNOUNCEMENTS AND IMPACT
An expert group under Mr. Kirit Parikh has
submitted its recommendations with respect to
pricing of petroleum products. The decisions on
the same will be taken in due course.
As per the recommendations of Kirit Parikh
committee, the petrol prices were deregulated
since June 2010. The public sector oil companies
have raised the price of petrol by over Rs10 a liter
in eight instalments during the current financial
year.
CURRENT SCENARIO
The imposition of 5% import duty on crude oil and
7.5% excise duty on petrol and diesel has
contributed to the increasing fuel prices. The
mechanical completion of strategic oil reserves at
Vishakhapatnam by Nov’2011 and subsequent
involvement operations is expected to bring some
relief against rising pressures. India, with its
current capacity of around 180 million tons per
annum (mtpa) is poised to emerge as a major
refining hub; the proven CBM reserves in India are
equivalent to the Oil and Natural gas reserves in
India. At USD 4.2/mmbtu it translates to a USD
130 billion opportunity. As far as the taxation is
concerned, we are not sure whether petroleum
products would be included in GST ambit which is
supposed to be rolled out from 1st April 2011. The
government plans to launch the first round
bidding for shale gas in mid 2011.
The Indian Govt. is still to hit its disinvestment
proceed targets of Rs 25000 Crores for the current
fiscal. The Public offer by the companies such as
IOC, ONGC is still to be completed. The
uncertainty in the market with respect to fuel
price inflation has forced a restraint in the
disinvestment process.
EXPECTATIONS FROM BUDGET
2011 - 2012
 The government may prefer oil bonds this time
rather than cash due to widening budget
deficit. Although the government had allotted
Rs 1 L crores as subsidies, it was not able to
disburse the entire amount on account of
other considerations.
 The disinvestment proposals of OMC are
supposed to be accelerated this time and a
higher target is supposed to be allocated this
time.
 We do not expect any revision in the excise
duty of the petroleum products due to
inflationary expectations.
 The customs duty on imported fuels may be
increased so as to provide a protection to the
OMC which are bleeding now due to under
recoveries.
 Since the direct tax code is to be implemented
from 1st April 2011, no new tax holidays is
expected to be announced as the provision
for the same is not provided in DTC.
RENEWABLE ENERGY
 India has abundant, untapped renewable
energy resources including a large land mass
that receives the highest solar irradiance of 5
trillion kWh/yr, a large coastline of 7500 Kms
for realizing on-shore & offshore wind
potential, significant annual production of
biomass, and numerous rivers and waterways
having immense potential for developing
hydropower.
BUDGET 2010 - 2011
ANNOUNCEMENTS AND IMPACT
 The Mega Power Policy has been modified and
is now consistent with the National Electricity
Policy, 2005 and Tariff Policy, 2006. It will help
in lowering the cost of generation and the cost
of power purchased by distribution utilities.
 Double the plan allocation for power sector
from Rs.2, 230 crores in 2009-10 to Rs.5, 130
crores in 2010-11.
 An ambitious target of 20,000 MW of solar
power by the year 2022 has been set under the
Jawaharlal Nehru National Solar Mission.
 Proposal to increase the plan outlay for the
Ministry of New and Renewable Energy by 61
per cent from Rs.620 crores in 2009-10 to Rs.1,
000 crores in 2010-11.
 The Ladakh region of Jammu and Kashmir faces
an extremely harsh climate and suffers from
energy deficiency. To address this problem, it
is proposed to set up solar, small hydro and
micro power projects at a cost of about Rs.500
crores.
 Proposal to establish a National Clean Energy
Fund for funding research and innovative
projects in clean energy technologies.
 Exempt a few more specified inputs required
for the manufacture of rotor blades for wind
energy generators from central excise duty.
IMPACT
 For the purpose of NCEF, the Minister has
proposed to levy a clean energy cess on coal
produced in India at a nominal rate of Rs.50
per tonne, which will also be applicable to
imported coal.
 The Jawaharlal Nehru National Solar Mission
was launched on 11th January, 2010.
CURRENT SCENARIO
 In its third quarter, Indian utility NTPC Vidyut
Vyapar Nigam Ltd issued a call for tenders for
the development of 650MW of solar power
capacity, marking the start of the first 1GW
phase of the Jawaharlal Nehru National Solar
Mission, which aims to connect 20GW of solar
capacity by 2022. More recently, the states of
Rajasthan and Madhya Pradesh released their
draft solar policies, likely to be finalized
 shortly. Rajasthan has one of the highest solar
potentials in India, and its 2010 draft solar
policy targets a solar power capacity of 10GW-
12GW over the next 10-12 years.
 Figures released by the Ministry of New and
Renewable Energy (MNRE) indicate that India
is likely to miss its new wind power capacity
targets for the third year in a row. Only
205MW was installed in the first financial
quarter (April-June) compared with the annual
target of 2,000MW.
 In September, India’s National Load Despatch
Centre conducted a final set of trials before
starting a program to issue and trade RECs. It is
reported that seven states have already
finalized regulations for the trading of these
RECs, while nine others have prepared draft
regulations, indicating that the country is one
step closer to implementing its much-awaited
renewable energy incentive scheme. Each REC
will represent 1MWh of electricity from
renewable sources, with a fixed floor price of
INR 12, 000 (€200, US $265) for solar RECs and
INR 1, 500 (€24, US $33) for non-solar.
EXPECTATIONS FROM BUDGET
2011 - 2012
 According to the World Bank reports 68,000
MW of wind, hydro and biomass energy can be
harnessed at less than Rs 6 per unit. Therefore
this budget should look to tackle this potential.
 Small hydropower, one of the least expensive
and most attractive forms of renewable
energy, lies largely untapped. The 2011 budget
should focus of this as well.
 The Union Budget 2011 needs to allocate over
Rs 474 crores for the development of new and
renewable energy projects in Leh and Kargil
districts.
Aby John
Aesha Maru
POWER
The Indian power sector has the fifth largest
electricity generation capacity in the world at
more than 167,000 megawatt and the world's
third largest transmission and distribution
network, according to a report by KPMG. The
power generation capacity has grown from 152
GW in 2009 to 167 GW in 2010. The Ministry of
Power plans to establish an integrated National
Power Grid in the country by 2012 with close to
200,000 MW generation capacities and 37,700
MW of inter-regional power transfer capacity.
The power sector in India supplies the world's 6th
largest energy consumer, accounting for 3.4% of
global energy consumption by more than 17% of
global population. The Energy policy of India is
predominantly controlled by the Government of
India's, Ministry of Power, Ministry of
Coal and Ministry of New Renewable Energy and
administered locally by Public Sector
Undertakings (PSUs).
About 70% of the electricity consumed in India is
generated by thermal power plants, 21%
by hydroelectric power plants and 4% by nuclear
power plants. More than 50% of India's
commercial energy demand is met through the
country's vast coal reserves.
The Indian government has set a modest target to
add approximately 78,000 MW of installed
generation capacity by 2012 which it is likely to
miss. The total demand for electricity in India is
expected to cross 950,000 MW by 2030.
According to a research report published by
Citigroup Global Markets, India is expected to add
up to 113 GW of installed capacity by 2017.
A target known as ‘POWER for All by 2012’ has
also been set which would mean achieving the
target of 1000 KwH (Units) of per capita
consumption of electricity by this period. In 2007,
the APDRP (Accelerated Power Development &
Reforms Program 2002 - 2012) has seen an
addition of around 22,000 MW during the
previous five years and a capacity addition of over
78,000 MW was planned to be setup by 2012. This
has resulted in massive addition plans being
proposed in the sub sectors of Generation
Transmission and Distribution. During the period
2007-12 average economic growth rate has been
projected at 9% per annum. To sustain this
economic growth power sector has also to grow
by 9%.
The scope for investment in the power sector over
the next few years is well over $300 billion
according to the Power Minister of India. The
confidence of investors in the power sector is
reflected in the fact that the initial public offer of
public sector undertakings under the ministry of
power over the last 5 to 6 years have been over-
subscribed between 13 to 77 times. There is a
peaking shortage of almost 12 percent and an
energy shortage of 9 to 10 percent in the
electricity sector alone. The country is targeting a
capacity addition of 62,000 megawatt in the 11th
five year plan during the 2012-2017. The
percentage of private generation capacity
ownership is projected to rise from around 27 per
cent to 63 per cent by the end of the next Five-
Year Plan.
CURRENT PRODUCTION
Grand Total Installed Capacity (as on 30-09-2010)
is 164,835.80 MW.
THERMAL POWER
Current installed capacity of Thermal Power (as of
30-11-2010) is 108362.98MW which is 64.6% of
total installed capacity.
 Current installed base of Coal Based Thermal
Power is 89,778.38 MW which comes to
53.3% of total installed base.
 Current installed base of Gas Based Thermal
Power is 17,374.85 MW which is 10.5% of
total installed capacity.
 Current installed base of Oil Based Thermal
Power is 1,199.75 MW which is 0.9% of total
installed capacity.
HYDRO POWER
India was one of the pioneering countries in
establishing hydro-electric power plants. The
installed capacity as of 30-9-2010 was
approximately 37,328.40 MW. The public sector
has a predominant share of 97% in this sector.
NUCLEAR POWER
Currently, twenty nuclear power reactors
produce 4,780 MW.
BUDGET 2010 - 2011
ANNOUNCEMENTS
 Plan allocation for power sector excluding Rajiv
Gandhi Grameen Vidyutikaran Yojana (RGGVY)
doubled from Rs 22.30 bn in FY10 to Rs 51.30
bn in FY11.
 Government proposes to introduce a
competitive bidding process for allocating coal
blocks for captive mining to ensure greater
transparency and increased participation in
production from these blocks.
 “Coal Regulatory Authority” is proposed to be
set up to create a level playing field in the coal
sector. This would facilitate resolution of issues
like economic pricing of coal and
benchmarking of standards of performance.
 Plan outlay for the Ministry of New and
Renewable Energy increased by 61% from Rs
6.20 bn in FY10 to Rs 10.00 bn in FY11.
 Solar, small hydro and micro power projects at
a cost of about Rs 5.00 bn to be set up in the
Ladakh region of Jammu and Kashmir.
 National Clean Energy Fund for funding
research and innovative projects in clean
energy technologies to be established. To build
the corpus of the National Clean Energy Fund,
clean energy cess on coal produced in India at
a nominal rate of Rs 50 per tonne to be levied.
This cess will also apply to imported coal.
 Provide a concessional customs duty of 5% on
machinery, instruments, equipment and
appliances etc. required for the initial setting
up of photovoltaic and solar thermal power
generating units and also exempt them from
central excise duty. Ground source heat pumps
used to tap geo-thermal energy to be
exempted from basic customs duty and special
additional duty.
 Exempt a few more specified inputs required
for the manufacture of rotor blades for wind
energy generators from central excise duty.
 Transmission of electricity was exempted from
levy of service tax.
 Excise duty on LED lights was reduced from 8%
to 4%.
 IMPACT
 Coal is the mainstay of India's energy sector
and 75 per cent of the power generation is
currently coal based. The introduction of
competitive bidding process were in direction
of its efforts to ensure that bottlenecks for
acquiring coal for thermal power generation is
mitigated (as 75% of the power generation is
currently coal based) by introducing a
competitive bidding process for allocating coal
blocks for captive mining. Further, setting up of
a Coal Regulatory Authority has created a
transparent and competitive environment in
the coal sector which has lead to economic
pricing of coal.
 The two fold hike in the plan allocation for the
power sector is has resulted in increased
capacity addition in the power sector and
address the power shortage faced in different
parts of the country.
 The enhanced allocation for new and
renewable energy sector, establishment of
National Clean Energy Fund coupled with
concessions in machineries required for the
initial setting up of photovoltaic and solar
thermal power generating units has
contributed to the government’s effort to
augment the alternative source of energy and
achieve its target of establishing 20,000 MW of
solar power by the year 2022 under the
Jawaharlal Nehru National Solar Mission. This
has also contributed towards the efforts to
ameliorate the negative environmental
consequences and increased pollution levels
associated with industrialization and rapid
urbanization.
 Also the increase in the Minimum Alternative
Tax (MAT) from 15% to 18% has affected the
profitability of the power generation and
distribution companies.
EXPECTATIONS FROM BUDGET
2011 - 2012
 India’s power sector, which is already
struggling with funding shortfalls, will need
$400 billion (around Rs18 trillion today) of
investment during the 12th Plan (2012-17). The
government is worried about the funding
scarcity facing the power sector, which
threatens to worsen an energy deficit that’s
seen as a key bottleneck in efforts to sustain
and boost economic growth.
 India currently has a power generation
capacity of 169,748MW. The 11th Plan had set
a target of adding 78,577MW of generation
capacity, requiring, at current estimates, some
Rs10.31 trillion of investment. The power
ministry estimates a Rs4.51 trillion funding
shortfall. The target has since been revised to
62,374MW.
 The power sector may get a boost in the
forthcoming budget as withholding tax on
overseas investment in the sector may be
removed to attract investments which will
accelerate overseas lending to the Indian
power sector. These recommendations are
driven by the funding needs of the sector. The
effective withholding tax is around 22%
currently.
 Generally, a power project has Rs70 of debt for
every Rs100 invested. India requires a long-
term debt for infrastructure. During president
Obama’s visit, this idea gained support and
popularity and it was called USD 11 billion debt
funds. So, firstly this idea is expected to get
rolled out. The need for funds is enormous
with the requirement pecked at Rs 12,73,557
crore in FY11 and FY12. Of this, Rs 7,07,764
crores are expected from debt and equity.
 If the government wants to fund bottlenecks
for the infrastructure sector, it not only has to
involve the creation of dedicated debt funds, it
would also mean a regulatory framework for
developing a deep and robust bond market.
 The Union Cabinet is likely to take up the issue
of imposition of customs duty, special
additional duty (SAD) and countervailing duty
on import of power equipment for mega
power projects to protect the domestic
industry. The Power Ministry has circulated a
draft Cabinet note in this regard with the
backing of the Heavy Industries Ministry and
domestic players such as BHEL, Bharat Forge,
L&T, which are badly impacted by cheap
import of power equipment from China, under
the consideration of the Finance Ministry. The
draft Cabinet note includes imposing 10 per
cent customs duty, 4 per cent special
additional duty and 5 per cent countervailing
duty on import of power equipment.
 Power is used as an intermediate input. The
overall impact of present taxation regime at
both central and state level is compounding
cascading effect. This effect hikes the price of
power generation and distribution. Industries
in India got badly affected by this expensive
power consumption. The introduction of GST
regime should resolve the aforesaid issues in
the power sector so that the target of the
seamless flow of input tax credit can be
achieved. The thirteenth finance commission
has given some valuable suggestion in this
area. They are as under:
 The electricity duty levied by the states
should be subsumed in the GST.
 The power sector must form an integral
comprehensive GST base over which both
the central and state governments would
have concurrent jurisdiction.
Amrita Patnaik
Mankhush Jagawat
Prashant Petkar
Pratik Shah
INFRASTRUCTURE
Infrastructure development and maintenance is a
major input to economic development and
sustained growth in an economy. However, there
is a big gap in infrastructure targets and
achievements with progress slow in several
sectors. The three key reasons for this are
shortfalls in awarding projects, time and cost
overruns in construction phase and potential
funding shortfalls. The need for funds is enormous
with the requirement pecked at Rs 12, 73,557
crores in FY11 and FY12. Of this, Rs 7, 07,764
crores are expected from debt and equity.
BUDGET 2010 - 2011
ANNOUNCEMENTS
 An allocation of Rs 1,735.52 billion provided
for infrastructure development, which
accounts for over 46% of the total plan
allocation.
 An allocation of Rs 167.52 billion provided for
Railways, which is about Rs 9.50 billion more
than last year.
 Mono Rail Projects for urban transport are
being granted project imports status under
heading No. 9801 and would accordingly
attract concessional rate of 5% basic customs
duty.
 Deduction of an additional amount of Rs
20,000 allowed, over and above the existing
limit of Rs 0.1 million on tax savings, for
investment in long-term infrastructure bonds
as notified by the Central Government.
IMPACT
 Tax deduction provided for investment in
long-term infrastructure bonds notified by the
Central Government promoted savings and
direct resources towards infrastructure
development.
EXPECTATIONS FROM BUDGET
2011 - 2012
 Develop a huge amount of long-term corpus
towards infrastructure development through
dedicated debt funds (the most recent
example being tax-saving infra bonds). Thus
providing a concrete framework and taking
 affirmative actions in this area of creation of
long-term debt fund for financing India’s
infrastructure projects.
 Channelizing retail saving through infra NBFCs
into the infrastructure debt market
 Effective incentives, fairer taxation and
market friendly policies will be essential to
encourage private sector to contribute
towards nation building activities.
TRANSPORTATION
Outlook and Expectations
Transport infrastructure is one the most
important drivers of the Indian economy. While
the budget provided significant support to the rail
and the road sector, and continues to provide
measured support to the ports and shipping
sector the same cannot be said for the aviation
sector.
Aviation
 Expectation from budget includes opening up
of aviation sector further as capital is a major
source of concern.
 In addition to this industry expects declared
goods status to be given to ATF, focus on
modernisation of air traffic control and
modernising the airport infrastructure.
Rail
 A thrust on the Public Private Partnership
model for attracting investments in
infrastructure will certainly boost the scale
and pace of development.
 Downward revision of freight service rates is
expected.
 An improvement in the overall railway
operations including a technology upgrade for
rail systems, an improved interface between
railways and suppliers and a much needed
improvement in customer relations will
certainly benefit the industry and image of the
rail sector.
Road
 Improvement of rural connectivity should be
the key focus.
Ports and Shipping
 Focus on improving the port connectivity as
this is the major bottleneck causing capacity
constraints.
 Focus on developing inland water
transportation. As a sub-sector, this holds a lot
of promise. The industry expects the
government to boost development in this
sector.
HIGHLIGHTS FROM BUDGET 2010:
FOCUS ON ROADS AND RAILWAYS
 Allocation for road transport increased by
over 13% from Rs 175.20 billion to Rs 198.94
billion.
 An allocation of Rs 7 billion for development
of National Highways under Border Roads
Organisation.
 Specified road construction machinery items
are presently fully exempt from customs duty
subject to specified conditions. Sale or
disposal of such machinery items at
depreciated value is being allowed on
payment of customs duties on depreciated
value at the rates applicable at the time of
import subject to specified conditions.
 An allocation of Rs 17.50 billion for Special
Accelerated Road Development Project in the
North Eastern Region.
 An allocation of Rs 94.72 billion for National
Highway Authority of India.
 An allocation of Rs 2.30 billion for Inter-State
and Economically Important Roads in different
States and UTs.
 An allocation of Rs 45.75 billion for
Development of National Highways.
HIGHLIGHTS FROM BUDGET 2010:
RURAL INFRASTRUCTURE
 Rs 661 billion provided for Rural Development.
 An amount of Rs 480 billion allocated for rural
infrastructure programmes under Bharat
Nirman.
 Unit cost under Indira Awas Yojana increased
to Rs 45,000 in the plain areas and to Rs
48,500 in the hilly areas. Allocation for this
scheme increased to Rs 100 billion.
 An allocation of Rs 100 billion for providing
assistance to rural BPL households for
 construction of houses (and up gradation of
Kutcha houses) under Indira Awaas Yojana.
 An allocation of Rs 120 billion for providing
connectivity to eligible unconnected rural
habitations through good all-weather roads.
Outlook and Expectations
Investment required for rural roads is provided by
the central government, and the operation and
maintenance expenditure is incurred by the state
government. The investment made in the past ten
years at 2000-01 prices is Rs. 21,327 crores
whereas the investment required for full coverage
is Rs. 15,643 crores. At this rate full coverage
would take eight years to achieve. Operation and
maintenance of the expanding road network will
be another problem as state governments spend
95% of their road budget in paying staff salaries
and only 5% is available for operation and
maintenance expenditure. The government has a
limited budget for the rural road network. Ranking
rural road projects on the basis of economic
benefits generated and social equity helps the
government to identify the relative importance of
projects. The budget can then be allocated on the
basis of the relative importance of road projects in
the form of loans, subsidies and transfers.
URBAN INFRASTRUCTURE
 Allocation for urban development increased
by more than 75% from Rs 30.60 billion to Rs
54 billion in 2010-11.
 Allocation for Housing and Urban Poverty
Alleviation rose from Rs 8.50 billion to Rs 10
billion in 2010-11.
 Allocation of Rs 12.70 billion for Rajiv Awas
Yojana as compared to Rs 1.50 billion last
year.
 An allocation of Rs 9.95 billion for Equity
Investment towards Infrastructure
development of ‘Mass Rapid Transit System’.
 An allocation of Rs 2 billion for development
of Satellite Cites/Counter Magnet Cites.
Outlook and Expectations
With 30% urban population, where one in every
four persons live in slums, significant government
intervention and funding is most certainly
required, to develop and expand the city
infrastructure to house the burgeoning urban
population.
More allocation is expected towards JNNURM
and urban transport sectors.
Effective incentives, fairer taxation and market
friendly policies will be essential to encourage
private sector to contribute towards Urban
Infrastructure Projects.
REAL ESTATE SECTOR
Almost five per cent of the country's GDP is
contributed to by the housing sector. In the next
five years, this contribution to the GDP is
expected to rise to 6 per cent. Indian realty sector
has seen an unprecedented boom in the last few
years. This was ignited and fuelled by two main
forces. First, the expanding industrial sector has
created a surge in demand for office-buildings and
dwellings. Second, the liberalization policies of
Government have decreased the need for
permissions and licenses before taking up mega
construction projects. Opening the doors to
foreign investments is a further step in this
direction. The Government has allowed FDI in the
real estate sector since 2002. According to the
data released by the DIPP, the housing and real
estate sector, including cineplexes, multiplexes,
integrated townships and commercial complexes,
attracted a cumulative FDI worth $8.4 billion from
April 2000 to March 2010 wherein the real estate
and the housing sector witnessed FDI amounting
$2.8 billion in the fiscal 2009-10.FDI in the real
estate sector expected to witness a US$ 21 billion
increase in the next 10 years.
HIGHLIGHTS OF BUDGET 2010 -
2011
 The 1 percent interest subvention on housing
loans up to Rs.10 lakhs where the cost of the
house does not exceed Rs.20 lakhs has been
extended for another year – up to 31 March,
2011.
 The Rajiv Awas Yojana for slum dwellers and
urban poor announced last year has received
an increased allocation of over 700 percent,
from Rs.150 crores last year to Rs. 1,270 crore
this year.
 Increase in the standard rate of excise duties
to 10% on cement, which is a major input for
real estate construction.
 Construction of real estate complexes brought
under the ambit of service tax, unless the
entire consideration for the property is paid
 after the completion of construction on
obtaining the occupation certificate from the
concerned authorities.
IMPACT
 The interest subvention along with increase in
the tax slab rates for individuals provided the
necessary demand boost for low-cost housing
which is of utmost importance.
 The relaxations regarding commercial
establishments in the housing projects
enabled basic facilities for the residents and
helped developers and real estate companies
to make their projects more viable.
 Service Tax on construction and hike in excise
duty led to an overall increase in Real Estate
prices.
EXPECTATIONS FROM BUDGET
2011-2012
 Special Residential Zones (SRZs) should be
taken off the drawing board and finally
implemented, and developers who focus on
ultra-low-cost housing, either through SRZs or
otherwise, should be given more sops.
 Income tax benefits for home loans under Sec
24(b) of the Income Tax Act, 1961 should be
increased and extended.
 Simplify and Rationalize taxation in the Real
Estate sector
 Budget 2011 should make provisions to include
the Real Estate sector under the ambit of the
single tax regime of Goods & Services Tax it
plans to implement. This will simplify
transaction costs which currently include
stamp duty and give developers a set-off or
credit on the taxes paid on construction
material and services.
 Relax the deadlines proposed under Revised
DTC for Special Economic Zones (SEZs)
 Under the revised DTC, SEZs have to be
notified before March 2012 and become
operational before March 2014 to be able to
avail of the tax benefits. The Union Budget
should consider a relaxation of this
requirement to provide greater impetus to the
demand for commercial real estate from the IT
and manufacturing industries.
Ayush
Bhagat
Omkar Sadhu
CEMENT
India is the second largest producer of cement in
the world. The Indian cement industry has
outpaced the growth rates of other prominent
industries in the country on the back of growing
demand from the housing sector, increased
activity in infrastructure development and exports
recovery.
Cement production increased 10.8% year-on-year
in 2009-10. Moreover, it is anticipated that
industry players will continue to increase their
annual cement output in coming years and the
country’s total cement production will grow at a
rate of around 10.5% during 2011-12.
Recent industry developments and government
supportive policies are attracting global cement
giants and sparking off a spate of mergers and
acquisitions to spur growth.
BUDGET 2010 - 2011
ANNOUNCEMENTS AND IMPACT
 Increase in rural infrastructure spending 
Positive as this will lead to higher
consumption.
 Increase in IT slabs leading to surge in
disposable income  Beneficial as this will
lead to higher private housing demand
resulting into higher cement consumption.
 Upward revision in excise rate on cements and
clinker  Negative for the Sector as this will
increase cost for company.
 Levy of Rs100/ton on coal mined in India 
Negative for the cement players as coal is the
raw material for the sector.
 Increased infrastructure spending has been a
key focus area. In the Union Budget 2010-11,
US$ 37.4 billion has been provided for
infrastructure development. This will lead to
higher consumption in the cement industry.
 Service tax on Railway freight is levied Will
increase the transport cost for the companies.
Negative for the sector.
FUTURE EXPECTATIONS
 The government might bring the value-added
tax (VAT) on cement on a par with other
building materials likes steel in the Budget.
 While steel attracts 4 % VAT, for cement it is as
high as 12.5%. Industry players argue that
since both the materials are used for
construction, cement should be given a level
playing field to that of steel.
 Cement industry currently faces multiple
challenges both internal and external. On one
hand, demand is moderating especially in the
North region and muted to negative growth in
Southern region, industry is also facing higher
input and fuel costs. The situation is also
aggravated due to hike in diesel prices, making
transport cost (freight) dearer. With low
demand in over supply regime, industry is
unable to pass on the higher costs to end user
thereby keeping their margin under pressure
or voluntarily opt to keep volume low. Given
the backdrop of Government thrust to
accelerate economic growth, industry
expectations are high to reduce excise duty on
cement. So Government might reduce excise
duty.
 Government should scrap import duty on coal,
pet coke, gypsum and other fuels. The cement
industry is heavily dependent on imported Coal
and Pet Coke due to short supply of indigenous
coal.
 With country's GDP pegged to grow ~8%+
annually going forward, cement industry is
likely to grow in double digit over long term
and outlook for demand remains positive. With
a view to have inclusive growth of all sectors,
emphasis would be to create demand for real
estate sector with focus on affordable housing,
Govt. led higher infra spending in the form of
higher fund allocation and incentive for public
private partnership (PPP) to keep robust
demand for cement.
Krishna K Bajaj
Manoj Jaju
COAL & MINING
SECTOR OVERVIEW
India is the world's third largest coal consuming
nation after China and the USA.
India's lignite reserves are estimated at 6.5 billion
tons. In January 2004, the Indian Government
reduced the import duty on coal from 20% to
15%. Although India is a major producer of coal, it
produces only limited quantities of coking coal
needed by its steel plants. As a result, it is a large
importer of coking coal, mostly from Australia.
The reduction in import duty on coal will assist the
steel producers and improve their
competitiveness.
70% of India's coal production is used for power
generation, with the remainder being used by
heavy industry and public use. Domestic supplies
satisfy most of India's coal demand. Unfortunately
most of India's coal is characterised by high ash
content, but the quality has other useful qualities
such as low sulphur content (generally 0.5%), low
iron content in ash, low refractory nature of ash,
low chlorine content and low trace element
concentration.
About 88% of the total coal production in the
country is produced by various subsidiaries (a
total of 390 mines) of Coal India Ltd. which is the
largest supplier of coal (and one of the largest
taxpayers) in the country. Although Coal India is
currently State controlled, efforts are being made
to open the industry to Indian private investors.
At present all private mines are allowed to
operate only if they are producing coal to supply a
specific industry (e.g. power station, industry).
The year 2010 was significant in the area of coal
production, a number of significant steps taken up
in the sector which include competitive bidding of
coal blocks, expansion of coal production capacity,
offering of 10 per cent share of Coal India Ltd. to
the public and highest ever lignite production.
With a view to bringing in greater transparency
and demonstrable objectively in the allocation of
coal and lignite blocks for captive mining, process
of selection through competitive bidding initiated
during the year. Accordingly, the Mines and
Minerals (Development & Regulation) Act, 1957
was amended and enacted in September 2010.
The Amendment provides for grant of
reconnaissance permit, prospecting licence or
mining lease in respect of an area containing coal
and lignite through auction by competitive
bidding. The Government is now examining the
modalities for preparation of the guidelines/legal
framework for conducting the competitive bidding
of coal and lignite blocks.
During the year more coal linkages granted for
increased generation of power. Till October 2010,
the Standing Linkage Committee (Long Term) for
Power recommended grant for 104 Thermal
Power Plants/IPPs/CPPs for 26824 MWs of power.
Improved coal stock position was recorded during
the year and it was 11.854 MT as on
2nd November 2010 at the thermal power stations
as against 9.289 MT as on 2ndNovember 2009.
Union Minister of State for Petroleum and Natural
Gas Dinsha Patel said India’s natural gas
production is likely to increase to 55.03 billion
cubic metres (BCM) by 2010-11 and to 63.23 BCM
by 2011-12.
In a bid to break the public sector monopoly over
coal, the government is seeking to introduce
legislative changes allowing for private mining,
whilst liberalising norms for the allocation of
captive blocks permitting trading of coal. The
government is contemplating the allocation of
captive blocks for setting up washeries in the
private sector. Captive block holders would also
be permitted to sell their coal on the open
market. As many as 143 blocks could be allocated,
containing total estimated reserves of 30,000 Mt.
The current legislative requirements permit
private-sector investment only for the limited
purpose of setting up coal washeries and captive
mining for specified end-uses, including setting up
power plants, fertiliser and steel units.
BUDGET 2010 - 2011
ANNOUNCEMENTS AND IMPACT
 Increase in infrastructure spending: Positive
for the sector as this will lead to higher
domestic consumption.
 Increase in excise duty by 2%: Companies will
not be able to pass on the complete rise in
cost, marginally negative for steel
manufacturing companies.
 Increase in MAT from 15% to 18%: Will be
negative for companies like JSPL and Sterlite as
tax rate for their power subsidiaries would
increase.
 Levy of Rs100/ton as clean energy cess on coal
mined and imported into India: Negative for
the metals companies as this would increase
the cost of coal consumed.
 Decrease in surcharge on domestic companies
from 10% to 7.5%: Positive for all the
companies, will lead to lower tax outgo.
The net sales of the sector for the first half year
2010-11 stands at Rs 2208.63 crores as compared
to Rs 1765.85 crores in the previous year 2009-10.
Neyveli Lignite Corporation’s profit before tax
stands at Rs 859.84 crores for the first half year
2010-11 as compared to Rs 748.82 crores in the
same period of previous year.The CIL also initiated
the process of integrated environment
management system (ISO: 14001) along with
quality management system (ISO: 9001). 53
projects, including one coal beneficiation, plants
have been accredited with ISO: 14001certification.
EXPECTATIONS FROM BUDGET
2011 - 2012
 Removal of customs duty on steel products:
Positive for steel manufacturers, as the
difference in domestic and international prices
will not reduce
 Increase in export duty on iron ore: Positive for
Sesa Goa as exports constitute 93% of total
revenue, marginally negative for steel
manufacturers who don’t have captive mines.
Akshay Lad
Arun Kumar
Prashant Petkar
STEEL
India is the fourth largest producer of crude steel
in 2010 and is expected to become the second
largest producer by 2015. India is the top
producer of direct reduced iron (DRI) or sponge
iron. Due to a strong demand from engineering
services and automobile industry, the domestic
steel demand is expected to be robust during
2011( Moody’s sectoral report ).
PRODUCTION
 As per the report by Steel Association (WSA),
during January–September 2010 India was
producing about 50.1 million tonnes (MT)
crude steel.
 Crude steel production grew at 8.4 per cent
annually from 46.46 MT in 2005-06 to 64.88
MT in 2009-10. The estimates suggest that the
crude steel capacity is likely to reach to 120 MT
by 2012.
 The production for sale of finished steel in
April-October 2010-11 was 35.595 MT which is
4.4% higher than the corresponding period of
the previous year.
 SAIL envisages increasing its crude steel
production from existing 12.84 Mt to 21.40 MT
per annum in Phase-I to be completed by
2012-13 at an approximate estimated cost of
US$ 15.23 billion including cost of mine
development.
 RINL and NMDC Ltd are investing US$ 26.60
million and US$ 33.78 million as a part of
capacity expansion.
 Tata Steel registered sales of 5.9 MT during the
third quarter ended December 2010, while
Steel Authority of India Ltd (SAIL) sold 3.25 MT
steel in Q3 FY'11, registering a growth of 10.7
per cent over Q3 FY'10. Meanwhile, JSW
Steel’s production during the quarter grew by
11 per cent to 1.636 MT.
 The expected steel capacity for India is likely to
be nearly 293 million tonnes by 2020.
CONSUMPTION
With India’s GDP growing at 8.5% this year and
strong demand for industrial products, the
domestic steel consumption grew by 9.8 per cent
to 29.82 MT during April-September 2010 due to
steady demand from sectors like automobile and
consumer durables. The consumption of the steel
during was approximately 27.15 MT the previous
year. In September 2010 steel consumption rose
to almost 4.1%.
 It has been estimated by Credit Suisse that,
India’s steel consumption will continue to grow
at nearly 16% rate annually, till 2012, fuelled
by demand for construction projects worth
US$ 1 trillion.
 The per capita steel consumption is only 40 kg
– compared to 150 kg across the world and
250 kg in China.
 The National Steel Policy has envisaged steel
production to reach 110 million tonnes by
2019-20.
 But by the assessment of the current ongoing
projects, both in Greenfield and Brownfield,
Ministry of Steel has projected that the steel
capacity in the county is likely to be 124.06
million tonnes by 2011-12.
BUDGET 2010-2011
ANNOUNCEMENTS
The impact of the Union budget 2010-2011 was
neutral for the steel industry. The following are
the highlights of the Union budget for the steel
industry:
 But by the assessment of the current ongoing
projects, both in Greenfield and Brownfield,
Ministry of Steel has projected that the steel
capacity in the county is likely to be 124.06
million tonnes by 2011-12.
 The budget proposed to introduce a Coal
Regulatory Authority and competitive bidding
process for allocating coal blocks which lead to
the development of the domestic coal sector,
which in turn benefitted the steel industry, for
which coal is a key input.
 The Rs. 50 per tone cess on coal and the excise
duty hike by 2% had adversely impacted the
profitability of steel companies.
 The Central excise duty increased from 8 per
cent to 10 per cent lead to rise in prices for
steel products by Rs 500-750 per tonne.
 The Minimum Alternate Tax (MAT) increased
to 18% from 15% which also impacted
profitability.
 There was no announcement on cutting import
duty on steel.
 There was no duty hike on export of iron ore.
 5% import duty on steel was left untouched as
a part of the budget.
 In the budget the government had allocated
US$ 37.4 billion to the infrastructure sector
and had increased the allocation for road
 transport by 13 per cent to US$ 4.3 billion
which further promoted the steel industry.
IMPACT
 The increase in central excise duty lead to an
increase in metal prices.
 The Metal companies witnessed marginal
production increase of 0.2% to 1% because of
the coal cess.
 The increase of 3% in MAT was expected to
lower earnings per share of companies by
almost 3-5%.
 The duty for iron ore was fixed at 5%, hence
companies will be benefited.
 Companies were affected marginally as excise
duty has been increased by 2%.
 Increase in coal cess had most likely impacted
Sponge iron producers such as Jindal Steel and
Power, JSL, Essar Steel, Vikram Ispat and Ispat
Industries.
 The production cost for aluminium increased
marginally for the companies such as Sterlite
and Hindalco, and JSW Steel, Jindal Steel and
Power, and SAIL.
 The 3% increment in MAT was likely to result in
lower earning by the Companies such as Tata
Steel, JSW Steel, Steel Authority of India,
Hindalco and Sterlite Industries.
EXPECTATIONS FROM BUDGET
2010-2012
Due to recent inflationary pressures and reduction
in demand of realty sector, it has become
impervious for steel firms to consolidate and thus
focus on measures to reduce costs and sustain in
the green zone.
Companies like Ispat have been sold to JSW steel.
It is fairly evident that only the fittest would
survive.
Other firms like Tata steel have raised FPO which
signals the growth in long term demand of the
product. However the short term inflationary
pressures indicate that the steel prices need some
regularization and hence support from the
government. Reduction in custom duties on steel
and cement and rationalization of stamp duties
across all the states will also bring down the
overall project cost. Domestic Automobile
demands and exports of steel have provided
impetus but spiraling costs of production have
deterred the growth which can be cured by
following measures through Union Budget 2011-
2012:
 Zero Import Duty on Steel Alloys: The industry
expects a zero import duty on steel alloys
which accounts for 60% of the raw material
costs in the auto component sector. This duty
reduction would mitigate the inverted duty
structure caused by FTAs and would also help
Indian auto industry to access markets at low
prices.
 No interest on differential duty
 100% CENVAT Credit on Capital Goods: The
CENVAT Credit Rules were announced in 2004
and but till now only 50% of CENVAT credit on
capital goods in year of purchase is used,
balance 50% can be availed in subsequent
year. It is expected that CENVAT credit Rules
could be amended to permit availing 100% of
CENVAT credit immediately on receipt of
goods.
 Increase import duty on HR coils :ASSOCHAM
in has stressed upon raising the import duty on
Hot Rolled Coils (HR Coils) from prevalent 5%
to minimum 10% to encourage the growth of
domestic steel industry.
 There is proposal of 20% increase in export
duty on iron ore
 Decrease in MAT from 18% to 10%: The
increase in MAT by 3% last year has hugely
affected the profitability of the steel firms. The
steel industry is expecting the reduction n the
MAT to original value to provide competitive
field for the Indian firms in International
markets.
 Tax incentives for R&D: It is expected that to
promote R&D in the sector the tax incentives
under Section 35 (2AB) of the Income Tax Act
(which allows 200% weighted deduction on
expenses incurred on in-house scientific
research to select sectors) could be
implemented for next 10 years.
Sitanshu Mishra
Sumit Dawra
ABOUT FINANCE CLUB
The Centre of Excellence Finance is designed to provide students with advanced skills in applied finance
required in today's competitive financial environment. The programme provides a strong foundation in
economics and teaches quantitative and analytical skills employed in investment structuring, pricing, and risk
management of financial instruments, in the development of trading strategies, and in the utilization of
financial products by end-users. This curriculum has been developed in consultation with leading industry
professionals and incorporates an extensive use of industry software.

The Finance Club functions as an interface between the student community and the financial world. Its
objective is to enable prolific interactions among the student community, coupled with valuable inputs from
the faculty, the academia and representatives from the industry.

The Finance Club organised SCMHRD’s First Academic Summit on Valuation and Financial Modeling graced
by keynote speaker, Dr. Prasanna Chandra and other eminent experts from the industry.

Publications:
Finalyst - A bimonthly magazine in-depth analysis of emerging trends in the area of finance

Knowledge Series - A fortnightly series that explains financial topics in layman's terms

Lakshya - A half yearly research journal which contains research articles from students and researchers
across the globe.

Pre-budget Analysis and Post-budget Analysis

Members
Jaidip Kumar Abhishek Maheshwari

Ojasvi Ghosal Abhishek Malik

Piyush Sahewala Anshul Sood

Ritika Khetawat Charul Mahajan

Sameer Kakkar Ghoutham Umapathy

Shreya Ghorawat Neeraj Patki

Samira Vemparala

Contact: financeclub@scmhrd.edu, finance.scmhrd.edu, +91 98908 69996, +91 99754 09996

ABOUT SCMHRD

Leadership-Entrepreneurship B-School

SCMHRD was established in 1993. Ever since its inception, SCMHRD has strived to bring Indian ethos,
Management concepts and technological advances together in an effort to redefine the management
paradigm in the new age.

SCMHRD has successfully pioneered the implementation of Kaizen on campus. The practice helps in keeping
the campus clean and gives the students a feeling of ownership, inculcating in them a feeling of belonging
and camaraderie. The SCMHRD culture provides the students an environment that allows them to think and
reflect, to explore and express.

MISSION

To become a Centre of Excellence for Global leadership and entrepreneurship, the standards of which others
are measured by.

VISION

To create leaders and entrepreneurs of tomorrow, their dedication to excellence, absolute.