India Budget Estimates Lower Deficit; Q3 GDP Growth at 8.2%

Devan Biswas
28 Feb, 2011
New York City

Stocks in Mumbai trading closed higher after Finance Minister proposed a budget that included 17% increase in social spending and lowered corporate tax surcharge and provided incentives to infrastructure investment. The increase in GDP growth in the quarter to December fell to 8.2%.

[R]4:30 PM Mumbai – Stocks in Mumbai trading closed higher after Finance Minister proposed a budget that included 17% increase in social spending and lowered corporate tax surcharge and provided incentives to infrastructure investment but relied on higher economic growth to pay for increased expenses.[/R]

Stocks in Mumbai trading closed higher after the release of Union Budget 2011 and the release of the economic growth for the quarter to December. The government plans to sell stakes in public sector companies by Rs 40,000 crore or nearly $9 billion.

Gross domestic product in the last quarter increased at 8.2% compared to 8.9% increase in the previous quarter to September.

Finance Minister Pranab Mukherjee focused on the latest budget that balanced between needs of rural development and corporate incentives.

The budget also provided more avenues for foreign investors to invest in infrastructure development of the nation and also attract foreign investors through India based mutual funds listed overseas.

Mukherjee estimated the budget deficit in the next fiscal year to drop to 4.6% from 5.1% in the current fiscal year and spending to increase 13.4%.

The finance ministry estimated higher revenues from disinvestments and lower spending growth and more proceeds from stake sales in government controlled companies will lower the deficit in the next two years.

The latest budget of Rs 12, 580 abaj or $273 billion is 3.5% larger than the previous year budget.

Mukherjee targeted the government borrowing in the next fiscal year to Rs 3,430 abaj or 3.43 trillion compared to 3,350 abaj or 3.35 trillion. The lower than expected government borrowing lifted market sentiment and government bond in trading.

Finance minister lifted the social spending that includes development of rural areas and subsidies to farmers by 17% and lowered surcharge on corporate tax to 5% from 7.5%. The budget also includes minimum alternative tax to 18.5% from 18% and economic zones will be included in the AMT regime.

The government plans to introduce Goods and Services Tax bill in the latest parliament session with the target implementation date April 1, 2012 and also set up a public debt management office.

Prime Minister Manmohan Singh in an interview with the state controlled Delhi Doordarshan TV that better compliance and simplified tax structure will allow finance ministry to increase tax revenues by 25% without increasing the tax rate.

The Sensex index increased 122.49 to 17,823.40 and the Nifty index added 29.70 to 5,333.25.

The rupee closed at 45.22 to a dollar.

Stock Movers

Real estate stocks traded higher after the latest budget offered 1% rebate on home loans of as much as Rs 15 lakhs. Unitech, Indiabulls Real Estate and DLF gained more than 2%.

Automobile makers traded higher after government did not increase taxes on auto sales and offered special incentives for hybrid vehicles made in India.

Mahindra & Mahindra increased 7.6%, Maruti Suzuki and Bajaj Auto rose more than 2%.

Hotel stocks declined after government proposed service tax on room rates more than Rs 1,500.

Reliance Industries declined from the earlier gains to an increase of 1.6% after the government increased alternative minimum tax to 18.5% from 18%.

ITC, the largest cigarette maker soared after 8% after finance minister left excise duty on cigarettes unchanged.

ONGC closed higher 2% after finance ministry officials proposed that divestment stake in the oil explorer is possible before the end of March.