Borrowings of states likely to go up: ICRA

“Given the low anticipated inflow of National Small Savings Fund and the likely moderation in tax revenues in the current fiscal year relative to the Budget Estimate for 2011-12, it is likely that the states may borrow substantial funds through SDLs in February-March 2012,” credit ratings agency ICRA said in a report

New Delhi: State governments are likely to go for additional borrowings during the remaining two months of this fiscal on account of low inflows from small savings and moderation in tax revenue, reports PTI quoting credit ratings agency ICRA.

In a report on debt burden of states released on Monday, ICRA added that borrowings through State Development Loan (SDL are likely to remain substantial even in 2012-13.

“As compared to a gross SDL of around Rs1,03,000 crore in 2010-11, the 28 Indian states have already raised SDL of around Rs1,22,600 crore in 2011-12.

“Given the low anticipated inflow of National Small Savings Fund (NSSF) and the likely moderation in tax revenues in the current fiscal year relative to the Budget Estimate (BE) for 2011-12, it is likely that the states may borrow substantial funds through SDLs in February-March 2012,” the report said.

ICRA’s report is based on samples from six states—Andhra Pradesh, Gujarat, Karnataka, Maharashtra, Punjab and Tamil Nadu. These are the states in which ICRA has rated the debt instruments of a number of government entities.

According to the report, in 2012-13 the anticipated easing of policy rates would result in an easing of bank deposit rates as well as the yields at which fresh SDL are contracted.

This may also result in an upswing in NSSF inflows if the rates of various schemes remain unchanged. However, this will not be enough to reduce the borrowings.

“However, with the planned reduction in the minimum share of states in the net small savings collections to 50% from 80%, the magnitude of funds to be raised by the state governments through SDL is likely to remain significant in 2012-13,” it added.

The report said that though there will be an improvement in various indicators like proportion of debt as percentage of total of revenue receipts, states’ own tax revenues, gross state domestic product (GSDP) and interest payments as a proportion of revenue receipt in the current fiscal, the situation in some states is unlikely to improve much.

“Notwithstanding some improvement in certain leverage indicators, Gujarat and Punjab are likely to remain more indebted than other states in the ICRA sample. Nevertheless, the magnitude of their debt stock at an absolute level is likely to remain smaller than other states, particularly Maharashtra and Andhra Pradesh,” it said.

 

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Budget may increase tax exemption limit to Rs2 lakh

DTC, which is currently being scrutinised by the Parliamentary Standing Committee, has suggested that the income tax exemption limit be hiked to Rs2 lakh from Rs1.8 lakh at present. It also proposes that the highest personal income tax rate of 30% should apply to annual income above Rs10 lakh, as against Rs8 lakh

New Delhi: The government is likely to provide some relief to individual income tax payers in the forthcoming Budget by raising the exemption limit to Rs2 lakh, as provided in the Direct Taxes Code (DTC), and hiking the slabs for different tax brackets, reports PTI.

The possibility of lowering the tax rates, however, is remote in view of the fiscal constraints being faced by the government, sources said, adding that the government will take on board some of the key recommendations of the DTC.

DTC, which is currently being scrutinised by the Parliamentary Standing Committee, has suggested that the income tax exemption limit be hiked to Rs2 lakh from Rs1.8 lakh at present.

It also proposes that the highest personal income tax rate of 30% should apply to annual income above Rs10 lakh, as against Rs8 lakh.

Finance minister Pranab Mukherjee will be unveiling the Budget proposals for 2012-13 sometime around mid-March.

The industry, too, is demanding that in view of high inflation, the income tax slab should be increased although the government may retain the existing tax rates.

CII director general Chandrajit Banerjee suggested that basic exemption limit should be increased from Rs1.8 lakh to Rs2.5 lakh for individuals.

“We have suggested that the income in the range of Rs2.5 lakh to Rs6 lakh should be taxed at the rate of 10%, whereas that in the next slab up to Rs10 lakh can be taxed at the rate of 20%. Above Rs10 lakh, it should be taxed at 30%,” Mr Banerjee said.

Ficci secretary general Rajiv Kumar said the government should incentivise people to come into tax bracket.

“Given the revenue constraints, the income tax rates for individuals may not be reduced. It is, however, imperative that the peak rate of 30% for such assesses be made applicable over an income of Rs10 lakh, against Rs8 lakh at present,” Mr Kumar said.

Assocham president Dilip Modi said the Budget should provide basic exemption limit of Rs2 lakh and the tax rate of 10% should apply to persons having income above Rs2 lakh and up to Rs5 lakh.

Calling for raising the tax exemption limit, PHD Chamber secretary general Sushmita Shekhar argued that it is necessary to increase disposable income and boost demand in the economy.

“India is a consumption-led economy. Role of private sector consumption in boosting the overall economic growth is immense,” she said.

 

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Risk factors may shift towards negative on India rating: S&P

“India has been grappling with a political gridlock and the government’s ability to implement measures to improve economic growth and fiscal prudence will be vital to boosting confidence,” S&P credit analyst Takahira Ogawa said

New Delhi: Global rating agency Standard and Poor’s (S&P) Monday warned that “the balance of risk factors” for India’s sovereign credit rating could tilt towards ‘negative’ zone this year, given the headwinds being faced by the country on domestic and global fronts, reports PTI. 

However, S&P maintained that it does not expect to downgrade or revise its ‘stable’ outlook on the investment grade ‘BBB-’ long-term sovereign credit rating on India in the near future.

At the same time, S&P said, India is battling with high inflation, a weak government fiscal position, and slower economic growth on domestic front, while European sovereign debt problems could add to the pressures for the country.

“Like many countries, India is facing some challenges on a few fronts, and the balance of risk factors for the sovereign credit rating may be shifting slightly toward the negative,” S&P Ratings Services said in a report.

“Standard & Poor’s doesn’t expect to downgrade or revise the outlook on the long-term rating in the near future.

However, the negative factors, combined with the government’s weak policy formulation and implementation, may lead us to a tipping point,” S&P credit analyst Takahira Ogawa said.

“India has been grappling with a political gridlock and the government’s ability to implement measures to improve economic growth and fiscal prudence will be vital to boosting confidence,” Mr Ogawa said.

As per the report titled “Several Factors Could Weigh On India’s Current Stable Sovereign Rating In 2012”, high inflation, a weak government fiscal position, and slower economic growth have hurt investor confidence in the rupee, triggered a capital outflow, and weighed on the stable sovereign outlook on India in 2012.

“Our stable outlook on the ‘BBB-’ long-term rating on India currently reflects our expectation of strong economic growth in the medium term and gradually improving fiscal performances,” Mr Ogawa said.

He further noted that S&P has “factored in inflation and political uncertainty, which may lead to higher government subsidies and stalled reform efforts.”

At the recently held World Economic Forum (WEF) annual meeting in Davos, S&P president Douglas Peterson had said they have an investment grade rating with a stable outlook on India and the country is more likely to improve further on this.

Brushing aside the concerns of slow reforms and the perceived notion of ‘policy-paralysis’, Mr Peterson had said, “In a democracy, the policies are made after a prolonged dialogue and that is indeed a healthy practise.”

Apparently, impressed with the positive discussions about India, Mr Peterson went on to say that it was quite a refreshing change that the talks have moved away from the European crisis to India at Davos.

 

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