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Mr. India is still getting short on social welfare spending and spending on education. Since FY2009. Mukherjee has announced the budget to inoculate the economy from the external shocks and he wanted to maintain the economic growth of over and above 7 percent. which contributes over 57 percent. Research Published on: 18th Mar. Mr. While.000) to Rs25 lakhs ($55. VMW is going into details of the agriculture sector of the country and will give you an important perspective. Although. India’s Finance Minister Pranab Mukherjee. Mukherjee's speech was primarily buoyant. the implementation of the budget’s proposal over the past couple of years could be palpable and the government is trying to reinforce the rural participation in the economic growth. has addressed all the sectors and laid down the policies to support the industries by making user-friendly policies for foreign direct investments (apparently trying to attract FDI in certain sectors). 9%).e. current account deficit and shocking oil prices.000) and strong focus on the rural side with the commitment of giving out cash subsidy on kerosene. UNIDOW Financial Intelligence Services | unidow. LPG and fertilizers via Aadhaar. Going back to the previous year budgets is important since the solid material growth of the Indian economy is largely supported by the expansion of service sector.VMW Research & Analysis India Budget 2011 Review: Finance Minister Is Quite Optimistic On The Indian Economy But Fails To Energize The Important Sector. VMW sees the Budget 2011 as an introduction to reforms apart from a speech of the government accounts. However. this time around. sustainable economic expansion with moderate inflation and fiscal deficit. Last year’s budget has primarily addressed to put the Indian economy back on track to the pre-crisis growth rate (i. Apart from focusing on the economy and businesses. most interestingly. and the one time credit waived-off to the farmers could not support in the long run. and he's quite confident about the consolidated growth of the economy. Overall.com . Union Budget In Brief – “What The FM Has Unfolded For A Common Denizen” If we compare the budget speech for India in the given fiscal year. the government’s focus on the agriculture sector is blemishing. government framed the union budget to confront the challenges from the global economic downturn. over the past two years. 2011 Tone of Mr.6 percent in FY2011 amid concerns of high inflation rate. announcing the budget for fiscal year 2011-12. Mukherjee has also addressed the social welfare spending by revising the priority housing mortgage from Rs20 lakhs ($44. Furthermore. uncomfortable interest rates. which lacked the economic reforms but contained relief package for several sectors to stimulate the economy. It is quite interesting to know that the Indian economy is expected to expand further by 8. Now.

Another nerve-racking point is. we can observe the level of prompt attention.com . indigent farmers are still away from the credit facility due to inefficiency of banks or financial institutions. however its importance is much beyond from this contribution. we found nothing attractive which can lift this sector up. © 2011 VMW. However. From the budget speech. Mr. the agriculture growth has been in decline phase. Although. threatening the rural banks to sustain in the business to extend credit facility. the agriculture sector needs at this point. UNIDOW Financial Intelligence Services | unidow. Starting with the Agricultural Sector and rural side of the country. Over the past few years. India’s agriculture sector’s contribution to the Indian economy is consistently declining. Perhaps.000 Crores ($105 billion). Over the past decade. since they are having a high level of nonperforming assets (average NPA of 3 percent on their books) amid extremely thin margins and under this condition rural banks could not even afford the single basis point rise in bad debts. high cost of credit and high risk associated with lending to agriculture sector. India has a good rural financial institution network. In the above figure. VMW analyzed India’s agricultural growth at 3 per cent.000 Crores ($82 billion) to 475. in the rural part of the country. or generally known as Regional Rural Banks (RRBs) set-up by nationalized banks. which is almost half of the manufacturing growth rate and one-third of the service sector growth.Budget 2011 in Detail Discussion Topic I : Agriculture Sector Let’s discuss the Union Budget for the fiscal year 2011. All Rights Reserved. Source: VMW Analytic Services. Read Copyright Policy. India’s agriculture sector accounts for over 15 percent to the economy. Mukherjee gave attention to the credit facility by revising the credit flow to farmers from Rs375.

several states in India are still lacking the access to the modern day agricultural technology. extension of credit flow alone could not prop-up sector’s growth. telecom. non-access to markets due to inadequate key infrastructure such as road. severe land regulations discouraging the private investments in rural parts of the country. available with VMW. JNNURM has great scope of mission to facilitate the states with funds to invest in the existing urban cities in their key social infrastructure such as water supply. According to the latest data. transportation system. more than 28 per cent of India’s population living in urban areas and out of this. promoting the non-farm sector by investing in Horticulture and Cattle . "Agricultural reforms are the cornerstone of the country’s economic expansion and for a country like India.5 billion) of investments in urban sector. when people from smaller towns and villages are shifting towards the urbanized parts of the country in search of an economic opportunity. It is more important to make India’s agriculture sector internationally competitive and increase productivity by focusing on research by investing in agricultural biotechnology to meet the sector’s challenges and proliferating demand in the 21st century. As proposed. health.com . roads. maximum investments will be done in 35 cities with over 1-4 million population. India should strongly focus on the land regulations to encourage private investments by enhancing the land access policy to the landless farmers. sewerage. Madhya Pradesh. Currently. housing crisis along with other key social infrastructure is a problem. Bihar. which includes part of Uttar Pradesh. Stringent land regulation. To alleviate the urban poverty. government is improving the key infrastructure by setting up "Jawaharlal Nehru National Urban Renewal Mission" (JNNURM) in which the government is signing up the agreement with the states to fund in their projects and to facilitate the state governments to improve their housing situation (since 1/4th of the urban population living in slums). storage management. UNIDOW Financial Intelligence Services | unidow." Discussion Topic II : Infrastructure Sector Infrastructure development is the key to the economic growth and to make India a competitive global marketplace in today’s globalize world. focusing on social housing and special attention to slum dwellers.Thus. ultimately losing the productivity and since there is no water management or slow execution of water management projects are causing the severe floods. since its objective is limited to existing urban areas. where the resources are ample. government has projected over Rs120. Over the next seven years (from 2005-06). and public transportation. it could not be able to urbanize the rural parts of India. Jharkhand and Orissa.536 Crores ($26. However. which ultimately reduces the food security. Furthermore to this. (even absence of road connectivity in several villages) electricity -leading to poor supply chain management.

Many infrastructure projects are stuck in mid-way and taking a longer time to execute the project due to insufficient access to credit. plentiful of challenges are making to achieve the target more strenuous such as lack of creditworthiness of the local municipal bodies to support the government’s desire of infrastructure development and to renew the existing one. Until now. Discussion Topic III : Taxes The main source of revenue to the government is Tax. will improve the poor practices of evading tax. Mukherjee has introduced Direct Taxes Code or DTC in Aug last year.com . the disappointment is. However. India has a long way to go further improve the taxation system in the country and to get maximum revenue out of the direct taxes. which is still very low in comparing to what exactly proposed to invest up to 9 per cent of the country’s GDP. the annual capital investments by the central government in this union budget are 4.6 percent of total GDP. which is a discouraging signs. the DTC has also brought men and women taxpayers under the same tax net (or same exemption limit for all). Moreover. Better and simplified tax reforms have a greater importance to simplify the laws and compliance. stalling the execution of projects. which is the main source of income to the government. UNIDOW Financial Intelligence Services | unidow. To improve the tax governance and to simplify the process. The harmful tax practices were adopted backed by lack of effective exchange of information and the TIEA with several other island nations. To achieve a double digit economic growth or at least consistently achieve a 9 per cent growth rate. In its 11th plan. Most importantly in DTC. Nevertheless. Not only this. This will equip India and allows both countries to exchange the information on individuals. the Indian government has signed an agreement of Tax Information Exchange Agreements (TIEAS) with two countries named as The Bahamas (signed on 11th Feb 2011) and Bermuda (signed on 7th Oct 2010). Mr. By enhancing the investments by foreign investors. which could deter the government’s target to achieve it. publicly traded companies and many other entities. Moreover. Finance Minister has proposed to enhance the flow of funds to the infrastructure sector by increasing the investment limit of FIIs in corporate bonds from $20 billion to $25 billion. cost of capital has also risen significantly in the past few months. the application of DTC has further been extended to fiscal year 2012. companies. For an infrastructure development across India and to serene the flow of credit. which are considered as a tax heaven. India should need to meet the target of 11th five year plan and to reduce the infrastructure deficit. On the other side. Further to our analysis on the infrastructure sector. India made an investment target of $498 billion in the infrastructure sector alone. On account of tax evasion. India should strongly focus on the money laundering issue by empowering the independent investigative organization such as Enforcement Directorate (ED) to give complete autonomy to make them stronger to contain the issue. and it will bring a greater compliance in terms of several heads of income. it will attract their participation in the infrastructural development and credit flow to the sector. surcharge on income tax and the education cess on tax has been abolished. there is a wall-to-wall financing gap of $40 billion.

Finance Minister has proposed to make a favorable FDI policy and to review the investment guidelines every six months. UNIDOW Financial Intelligence Services | unidow. RBI has been unable to contain inflation and now the tight liquidity situation is threatening the robust economic growth. National Income & Liquidity The current nasty problem this year is Inflation. © 2011 VMW. however the political uncertainty in the country would make the foreign inflows a challenge to finance the trade deficit.Discussion Topic IV: Price. However. Source: VMW Analytic Services. Even the 9 per cent of economic growth is looking unachievable under this kind of policy environment and hawkish tone of the central bank. Foreign Direct Investments (FDI) remains robust and expected to outpace the previous year’s record. All Rights Reserved.com . Inflation is expected to come down in the next few months. so far. So far this year. Further to our discussion on foreign investments. India’s central bank. VMW believes. Read Copyright Policy. As discussed in our research on the Indian Economy 2011. persisting tightness in the liquidity and further increase in interest rates will eventually lead India to lose the ground of modest economic growth. VMW seeing the current account deficit as a major cause of concern. Reserve Bank of India has revised its policy rate several times this fiscal year to bring the inflation levels back to its comfortable zone. itself is in a dilemma to contain inflation (surging due to demand side) alongside a task of maintaining the current pace of economic growth. RBI. since the inflows via portfolio investments or investments by the Foreign Institutional Investors (FIIs) are the major source of capital account and Indian equity markets are expected to remain range bound due to several economic and political challenges.

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