Saturday, February 27, 2010

BUDGET WINE IN NEW BOTTLE

Month of February is the shortest month of the year and this shortest month gets the highest importance other than any month of the year. For Indian economy it is the month where all expectation and desires followed with wishes and prayers are expected to come true. For some it comes true and for some it remains negative or dull. We celebrate festivals but the dates or months or time changes but the festival of February is always fixed that is at the last week of February.
By the time I am writing this many of us have got the meaning of my words and also might have read a dozens of reports on budget and its impact. I have also the same story line but with few twist and tails not visible in common eyes. They are invisible analysis.
HIGHER TAX LIMITS
We all are glad to have the direct tax kitty designed with higher limits. It’s true that the higher limits will result to more savings and more enjoyable life.
But we Indians are now on the path of a different life style. A life style where old cinema house have been replaced by multiplex, road side shops replaced by malls and men’s jewelery are more than women.
• So with changing life style quality of consumption of goods also changes. In order to maintain that change one need to have spending power.

• This spending will help Indian economy to fight against falling exports. This will result to less dependence on us and Europe export.

• The new tax slab will enable to enhance the consumption and will increase the power of purchasing parity.

• India has followed the path of china. China has used its huge potential of population. India now is materializing on those steps.
Rolling back of sops was the biggest show named :THE FEAR FACTOR.
• Its true that the government cannot let the policy of easy money flow for ever.

• It have to roll back and it did but with much caution. It was just like a new born baby being handled in the same fashion the finance minister rolled back the sops the hike of excise duty by 2% will not affect the companies balance sheet since Indian demand wheel is rolling very fast.

• The higher amount of disposable income in the hands of consumers will automatically drive the demand wheel resulting consumption of goods even at hiked prices.

• So hike of the excise duty will not create much affect on the consumption and companies will not have much problem to maintain their balance sheet growth figure.

NBFC TO BANK : BLESSING OF RBI
The process of disinvestment will run smoothly in the comings days riding on the horse of RBI. The funds required for investments in the disinvestment process will be met from additional sources that will b created via RBI.
• This Budget has set aside Rs 16,500 crore towards recapitalization of PSU banks. This will enable the process of lending to be easier.

• The prime beneficiaries of this allocation will be capital-starved banks such as Allahabad Bank, UCO Bank, Dena and Syndicate Bank.

• Even under Basel II norms banks will be required to maintain higher margin of capital under their balance sheets .

• Even under the new law regime banks will have to follow the new system of pricing loans and at the same time that loan have to be backed up higher margin of capital.

• The budgets have also made RBI to go a head regarding giving license to NBFC to be converted into banks.

• This very process will enable financial inclusion.

• Presence of NBFC in rural India is higher. These NBFC provides loans but not in a well regulated manner.

• By enabling these NBFC to get converted into banks will reduce the threat of any mismanagement of funds.

• This will also help the RBI to form banks within very short time and reaching out to people at much faster pace.
INFRASTRUCTURE THE LADY OF FORTUNE.
The Indian infrastructures have been the prime agenda and the lady fortune for the Indian corporate growth.

• The Indian economic growth and Indian stock market rally happened due to the blessings of this LADY OF FORTUNE named infrastructure.

• Like the previous 5 years this year also the budget have made grand allocation for the lady of fortune. Rs1.73 lakh cr for infrastructure have granted in the budget for 2010-11.46% of the of the total Plan was allocated for infrastructure sector .

• For 2010-11, the allocation for road transport has been raised by over 13 per cent from Rs.17,520 crore to Rs.19,894 crore.

• The allocation for the Railways is up by Rs.950 crore to Rs. 16,752 crore in 2010-11 to help it expand its network.

• Funds will also be deployed for roads, ports, airports and railways.
The new financial year will bring huge growth for the sectors despite of hike in excise duty. Sectors like metals, cement, capital goods, and financial sectors will be the prime beneficiaries. We again will find the investors community chasing infrastructure stocks. Its true in the past 5 years we have made huge money out of our investments in infrastructure sector. Moreover to achieve the growth of 10% of GDP indian infrastructure have to be up to that mark.
In my next article I will bring forth the reflection of rest of the budget on Indian economy.

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