BUDGET 2006-07

February 28, 2006

 Annual
Financial
Statement

Consolidated Contingency Public

Fund Fund Account
Revenues raised,
money borrowed Rs. 500-crore fund Government merely
receipts from loans disposal of the President acts as a banker
ECONOMIC INDICATORS
 Growth rate at 8.1%, one of the highest
growth rates globally.
 Agriculture(2.3%), industrial (9%)

service sectors(9.8%)
Saving rate 29.1% of GDP.
 Inflation (4.02%) - restricted
 Stock market rewarded lifetime

high return of 40%

 FI flows revenue - increased.
GDP Composition Undergoing a Drastic
Change
PERSONAL INCOME TAX

Current tax slabs:

 Upto Rs. 1 lac – NIL
 1 lac to 1.5 lacs – 10%
 1.5 lacs to 2.5 lacs – 20%
 Above 2.5 lacs – 30% (10% surcharge on
income above 10 lacs).
 2% education cess chargeable.

Proposals:
 No change proposed in these slabs
Service Tax

 Service tax increased from 10% to 12%

 Service tax extended to 15 new categories

of services (Registrar & share transfer
services, ATM operations, recovery agent,
advertisement space other than print
media, business support services, etc)
Customs Duty
 Peak rate - non-agr. products reduced
from 15% to 12.5%
 Additional duty of 4% extended to all
imported goods
 Additional Customs duty is modvatable
against excise on manufactured goods
 duty-various food processing items - NIL
 duty on ready-to-eat packaged food and
instant food mixes reduced -16% to 8%
 Tax incentive on housing loans:
Tax incentive - housing loans - propelled
incremental credit offtake - mortgage
loans segment
mortgage loan to GDP ratio- 3% from the
erstwhile 2%
 Higher risk weightage:

The risk weightage on mortgage loans has

been increased to 125%, - additional
burden - capital adequacy ratio of HFCs
Tax benefits to FIs

Amendments in the tax laws - offer tax

breaks to FIs merging with banks (with
retrospective effect). This was beneficial to
FIs that have got converted to banks
(IDBI and the like).
 Conversion into banking entity:
 The NBFCs - track record & net worth over Rs
2 bn - convert into a commercial bank.
 Enable the FIs to access low cost deposits
and improve their margins.

90 day NPA norm:

 HFC’s have shifted to the 90 day norm of
accounting for NPAs - brought their risk
appraisal system –as per banks.
 Issues Pre Budget Expectations Post Budget Impact

Allow the Amendmen Positive for

Issue of Banks not
issuance t Sector, for
preference allowed to
of perpetual to the state-owned
share capital issue preference BRA tabled banks.
under the
shares before the
BRA, 1949
Parliament

Exemption Include Positive for

for savings Currently
savings bank FD’s with SBI, PNB,
deposit u/s 80 not part of deposits for maturity of Bank of India
investments
exemption u/s more than (BoI) and
80 five years Canara Bank
allowed
S/10(23G) Negative for
income from Exempt
No change Exemption IDFC
investment in expected withdrawn (earnings to
infrastructure drop by
company 15%), IDBI
and ICICI
INFRASTRUCTURE

 Larger budgetary support (54% increase) to

BHARAT NIRMAN programme.

 Golden Quadrilateral project and planned 1000 Km

of access controlled Expressways

 Provision of Rs.1,500 cr telecom industry & financial

support to infrastructure for cellular telephony
in rural areas.
Cascading Effect
 More demand for steel, cement industry

 Golden quadrilateral - boost demand –

Commercial vehicle

 Higher disposable income in rural India – boost

consumption of consumer products
COAL MINISTRY UPSET-
DERESERVATION PLAN

 De-block coal reserves of 20 bn tonnes in

favour of power projects after reserving
the blocks for CIL upto 2012

 Coal production - taken up from 350 to

782 million tonne by 2025
BUDGET CRITICS
 Silent on further reforms in more difficult
areas - FDI, PSU disinvestment, cutting
subsidies, labour market reforms
 Pharmaceuticals and healthcare sector.
 Nothing in the Budget to promote R&D
despite specific demand from the industry
 FINANCIAL SECTOR

 Net capital support to banking sector-

Rs. 22,808 cr
 Capital Market:
 Limit on FII inv. in Govt sec increased to
$2 bn from $1.75 bn;
 In corporate debt - $1.5 bn from $0.5 bn
 Ceiling on aggregate investment by MF’s
in OSI’s - raised to $2 bn from $1 bn
 Sensex zooms past 10500
 Benchmark indices surged nearly 2%-highest
ever closing levels
 Gains in auto, cement, metal, and tech shares.
 The budget’s focus on rural economy, infra &
power sector - controlling the fiscal deficit,
pegged at 3.8 per cent of GDP.
 BSE Sensex ended at 10565.47, up 195.23 points
 Nifty ended at 3123.10, up 48.40 points
 Maruti Udyog and TaMo –
new 52-week highs.
THANK YOU!!!