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  • Murugappa Group Reactions to the Union Budget 2011

    Published on March 1, 2011

    The overall budget looks very positive from the macroeconomic point of view in general and agricultural and infrastructure sectors in particular. We have to wait and see how the ambitions and intentions are translated into reality.

    Specifically, the Government’s intention to reduce the fiscal deficit from 5.1% in 2010-11 (Revised Estimate) to 4.6% in 2011-12, merits a close watch, especially from the angle of inflationary control. The strong impetus given to agriculture and infrastructure sectors is likely to have good cascading effect on the economy.

    It is heartening to see that the Budget has put in enablers for attaining 9% GDP growth in 2011-12 including retaining the indirect taxes at prevailing rates on Excise, Custom and Service tax. The other positive signal has been on the reforms front such as GST role out, FDI in select sectors, introducing insurance bill, BIFR bill etc.

    Introduction of national food security bill and higher allocation to social sector, education sector, health sector, and environment & Climate change speaks well of inclusive growth.

    The agriculture sector has received a great fillip in Budget 2011.  Raising farm credit by INR 100,000 crore from INR 375000 cr in the current year and Incentivizing timely repayment of short term farm loans by enhanced interest subvention from 2% to 3% will lead to increasing the cash in the hands of the farmers.

    By allocating INR 10,000 Crore for NABARD’s Short-term Rural Credit fund for 2011-12 and strengthening its capital base by INR 3,000 crore in phased manner, the Budget has gone a long way to strengthen the institution’s rural infrastructure initiatives.

    Long term initiatives like increased allocation for rural infrastructure towards easing production & distribution bottlenecks and inclusion of capital investment in fertilizer production as an infrastructure sub-sector will also impact the sector positively.

    However there appears to be a gross underestimation of the fertilizer subsidy required for the year 2011-12. Even without much growth in consumption, at current world prices it is estimated that the overall fertilizer subsidy allocation needs to be around

    INR 80,000 crore, which is INR 30,000 crore more than what has been earmarked.