Union Budget 2010-2011 - Engine for growth

(Non-agricultural)

The Union Budget 2010-11 has mainly focused on broad-based growth for the country and priority has been given to food security. The budget has incorporated measures covering the investment scenario, fiscal consolidation and infrastructure. Initiatives have been introduced for sustained and inclusive growth. The main focus of the Finance Ministry is now to revert to the high GDP growth, remove weakness at different levels of governance, improve public delivery mechanism and ensure better management of supply-demand imbalance.

Import duty on Silver has been raised from Rs1,000/kg to Rs1,500/kg and this move could affect the demand pattern of the white metal. Precious metal prices have risen sharply in the last year and this has affected demand for these commodities in India. If cost pressures on the commodity continue to rise then demand could be affected further.

Customs duty on Gold and Platinum has also been raised from Rs200 per 10 grams to Rs300 per 10 grams. This rise in customs duty is negative for the gems and jewelry sector in India. The move will make gold and platinum costlier commodities, thereby hurting demand and imports will come down. But one aspect for gold demand from the Indian perspective is that demand for jewelry can never die out as gold has a traditional value attached in India. The country has held its position as the world's largest gold consuming nation in 2009 as consumer demand boosted in the fourth-quarter.

Basic customs duty on Gold Ore and Concentrates reduced from 2% ad valorem to a specific duty of Rs140 per 10 grams of gold content with full exemption from special additional duty. Further, excise duty on refined gold made from such ore or concentrate reduced from 8% to a specific duty of Rs280 per 10 grams. This move will help to boost domestic gold refining capacity in India.

Petrol and diesel prices will now be levied with excise duty of Re 1/litre. This will lead to inflationary pressures as currently oil prices are as it is hovering around $80/bbl and further addition of this excise duty will lead to a rise in prices. India's current inflation condition is also on priority but this move of rise in excise duty of petrol and diesel may add to the inflationary pressures. This move by the Finance Minister has raised the opposition party who has termed this as an inflationary budget.

But the budget has overall tried to incorporate measures for each sector. This gives the country scope for further improvement in GDP growth. Special emphasis is placed on infrastructure growth which could help to boost demand for steel. The budget provides Rs173,552cr for infrastructure and this accounts for more than 46% of the total plan allocation. Though no specific mention has been made with regard to Steel, growth in infrastructure will obviously translate into growth for the steel sector as well. The Finance Ministry has also decided to formally give a symbol to the Indian Rupee. This will help to give a stand to India's currency especially as India has now ventured into currency futures.

For the metals sector as well, the budget could prove beneficial as 46% has been allocated for the infrastructure space. This could lead to demand for steel and other metals. But the rise in excise duty for petrol and diesel could lead to inflationary pressures. Markets may perceive this as negative but we have to understand that petrol prices in India are mainly rising because of the sharp rise in international oil prices which are above $80/bbl. This rise in excise duty may not be the only contributing factor to the rise in inflation. Hence, we welcome the move by the Finance Ministry and call this a well-balanced and healthy budget for the Indian economy.