More reports on: Economy - general
Enhanced GDP growth to boost social sector news
Jyothi Prasad, investment banking, Asit C Mehta Investment Interrmediates Ltd
28 February 2011

The optimistic view of GDP growth sets the tone for enhanced spending on the social sector. The FM stayed away on any big ticket reform. No surprises on FDI as expected, such as FDI on multi-brand retail.

There is a stated intention to continue the disinvestment programme target of which is Rs.40,000 crores. This is welcome only if implementation is more imaginative as compared to the last round.

Emphasis on infrastructure continues, with focus on improving agri supply chain infrastructure ,such as storage and cold chains etc, which will be classified as an infra sub sector. But actual allocations were not large; Rs30,000 crores allocated to PSUs and government agencies  such as IRFC, HUDCO etc, for allowing them to raise tax-free bonds is for strengthening infrastructure. Slow and clumsy implementation is a very real fear.

Strengthening of the banking sector through capital infusion of Rs. 20,000 crores is welcome and will boost credit growth. Issue of new banking licenses has been discussed and so this will improve sentiment and provided transparency and strong eligibility norms are in place for such licenses, the banking sector will widen and deepen with more players coming in. Corpus of Rs100 crore as equity support for micro finance sector will boost the small MFIs.
 
Along with encouraging the continued engagement of foreign investors in the Indian market like FIIs, allowing individuals to invest in mutual funds is a new initiative. Whether it will actually attract individual foreign investors would depend on how this is marketed overseas. But this could be significant in the coming years. Similarly size for participation  by FIIs in debt market has been increased.

Nothing exciting happened in the individual income tax in terms of any significant changes in slabs and no change in rates. This is likely to be a sentiment spoiler for the average middle class salaried person. Therefore this was not as populist as was expected.

Keeping the Government net borrowing at Rs.3.43 lakh crores with a fiscal deficit at 4.6% estimated for FY 12  sends the right signals about better fiscal management and in the hope that it will be achieved , the market was positively assured. However the road map to achieve this looks uncertain.

It was expected that the FM may increase the service tax rate but it was retained at 10% though a few more additions to the categories got included; service tax on health check ups was not proper.





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Enhanced GDP growth to boost social sector