Pranab Mukherjee in his Budget speech left customs duty on crude oil unchanged at 5% and that on petrol and diesel untouched at 7.5%. In fact, he refrained from mentioning the impact of rising crude oil prices on an economy which is 75% dependent on imported oil to meet its energy needs
Petrol and diesel prices look set to increase after finance minister Pranab Mukherjee ignored calls for its reduction in customs and excise duty to contain the impact of the spurt in global crude oil prices that have touched a two year high of $110 per barrel, reports PTI.
Mr Mukherjee in his Budget for 2011-12 left customs duty on crude oil unchanged at 5% and that on petrol and diesel untouched at 7.5%. Excise duty on petrol will remain at Rs14.35 a litre and diesel at Rs4.60 per litre.
In fact, he refrained from mentioning the impact of rising crude oil prices on an economy which is 75% dependent on imported oil to meet its energy needs.
State-owned firms—Indian Oil Corporation (IOC), Bharat Petroleum Corporation (BPCL) and Hindustan Petroleum Corporation (HPCL)—are currently losing about Rs2.25 a litre on petrol, a fuel that was freed from government control in June last year. Oil firms had refrained from raising petrol prices in anticipation of a cut in customs and excise duty in the Budget for 2011-12.
Similarly, the oil firms currently sell diesel at Rs10.74 per litre lower than imported cost and in absence of a duty cut, an increase in prices is the only option left to meet rise in cost of raw material (crude oil).
Oil minister S Jaipal Reddy had last week stated he would take the case for an auto fuel price hike to an Empowered Group of Ministers (EGoM) headed by Mukherjee after the budget.
The timing of the hike remains to be seen as the government may be jittery of raising prices when Parliament is in session. The Budget session of Parliament goes for a 3-4 week break from 18th March and there is a likelihood of rates being hiked then.
Besides petrol and diesel, the oil firms lose Rs21.60 a litre on PDS kerosene and Rs356.07 per 14.2-kg domestic LPG cylinder.
The only other way to avoid a fuel price hike would have been higher government subsidy. But Mr Mukherjee has provisioned only Rs23,640 crore in 2011-12 as oil subsidy, lower than Rs38,386 crore of current fiscal.
The budgetary provision for the purpose during 2011-12 will be less than one-fourth of the projected Rs1,05,000 crore revenue loss that state oil firms anticipate on selling diesel, domestic LPG and kerosene next fiscal.
The revenue loss projected for 2011-12 fiscal is higher than Rs1,03,292 crore under-recovery in 2008-09 when global crude oil prices had touched $147 per barrel.
Of this, the government had provided Rs71,292 crore in cash and to contain impact also lowered customs duty on crude to zero and that on products to 2.5%.
At current prices, the oil firms are projected to lose Rs76,559 crore in the current fiscal, half of which is to come from government by way of cash compensation. Further, one-third would be contributed by upstream firms like ONGC and the remaining absorbed by oil marketing firms.
Of the Rs46,963 crore revenue loss due to under-recovery during April-December 2010-11, Rs21,000 crore has come as cash assistance from the government while another Rs15,654 crore was provided by upstream firms like ONGC.
The remaining Rs10,309 crore has been absorbed by oil marketing companies (OMCs).
In 2009-10, Rs26,000 crore in cash assistance was provided by the government to make up for over 56% of the total Rs46,051 crore revenue loss.
Upstream firms provided Rs14,430 crore and the remaining Rs5,621 crore was absorbed by OMCs.
Petrol prices have risen Rs10.44 per litre this fiscal in eight instalments. Petrol on 1 April 2010 had cost Rs47.93 a litre while today it costs Rs58.37 per litre.
Diesel prices are, however, lower at Rs37.75 a litre as compared to Rs38.10 per litre on 1 April 2010.
Fuel consumption is projected to rise by 4.74% to 144.35 million tonnes in the current fiscal from 137.8 million tonnes in the previous year. During April-December, the consumption was 105.268 million tonnes.
The Sensex and Nifty have made higher highs and higher lows for two days. But that says nothing for now
The market opened in the green this morning and was range-bound till the time finance minister Pranab Mukherjee began his Budget speech. Early announcements about a strong economy and growth of 9% next fiscal, with the focus on bringing down inflation, drove the indices higher. However, a smaller-than-expected hike in the income-tax exemption limit for individuals and nothing heard on the burning issue of crude prices pushed the indices back to the day's lows.
The market gained 550 points to the day's high and the Nifty was up 127 points as the FM concluded his speech. But the gains were short-lived, as profit-booking dragged the indices lower, and they closed around the opening levels.
The Sensex and Nifty closed in the positive today, but this hides the massive intraday volatility. The benchmarks opened with a positive gap at 17,811 and 5,330 respectively. During the budget speech, the Sensex fell to 17,750 while Nifty hit 5,312. After the budget speech was over, the indices climbed to their intra-day highs of 18,297 on the Sensex and 5,477 on the Nifty, and then collapsed again to their intra-day lows, though these were well above the Friday's lows. Finally, the Sensex ended 122 points up at 17,823 and the Nifty was up 30 points at 5,333. The advance-decline ratio on the National Stock Exchange was 934:795.
The market breadth on the key benchmarks was in favour of the gainers. The Sensex settled with 16 gainers and 14 losers, while the Nifty had 27 advancing stocks, 22 declining stocks and one stock remained unchanged. The broader markets also ended on a positive note, but lagged the Sensex. The BSE Mid-cap index gained 0.31% and the BSE Small-cap index rose 0.36%.
In the sectoral space, the BSE Fast Moving Consumer Goods index (up 4.47%) was the top gainer. This was followed by BSE PSU (up 2%) and BSE Realty (up 1.30%). The BSE Healthcare index (down 0.04%) was the lone loser, while the BSE IT ended flat.
The top gainers on the Sensex were ITC (up 8.23%), Mahindra & Mahindra (up 3.19%), Maruti Suzuki (up 3.07%), ONGC (up 2.93%) and Sterlite Industries (up 2.38%). The top losers were Reliance Infrastructure (down 4.46%), Jaiprakash Associates (down 2.88%), Hero Honda (down 2.36%), Tata Motors (down 2.11%) and Tata Power (down 1.79%).
Describing the budget as 'positive' and 'growth-oriented', the Indian industry welcomed the proposals announced by the finance minister. They said the measures to strengthen the farm sector and the move to reduce the fiscal deficit to 4.6% were steps in the right direction. The industry also hailed the move to make the foreign direct investment policy more 'user-friendly'.
Markets in Asia recovered from early losses to settle mostly higher, as the spike in oil prices boosted energy stocks. However, profit-booking kept a tab on the gains. A decline in the value of the yen pushed up Japanese stocks. The South Korean market suffered a deep cut, following threats by North Korea to attack South Korea and the US as the two allies planned joint military drills.
The Shanghai Composite gained 0.93%, the Hang Seng surged 1.42%, the Jakarta Composite rose 0.78%, the KLSE Composite added 0.13% and the Nikkei 225 advanced 0.92%. On the other hand, the Straits Times fell 0.48% and the Seoul Composite declined 1.23%.
Back home, outflows by foreign institutional investors (FIIs) on Friday were offset by domestic institutional investors (DIIs). While FIIs were net sellers of stocks worth Rs561.46 crore, DIIs were net buyers at Rs555.29 crore.
Coal India (up 12.42%) has decided to revise product prices with effect from 25 February 2011. The move would generate additional revenue of around Rs650 crore in 2010-11 and Rs6,200 crore in 2011-12, the company said.
Reliance Industries (RIL) (down 0.10%) is in talks with Japan's Orix Corporation to buy its 23.87% stake in Infrastructure Leasing & Finance Company (IL&FS), one of India's leading infrastructure developers and financiers, for around $1.2 billion. If the deal fructifies, it will make RIL the second largest investor in IL&FS after Life Insurance Corporation of India and will pave the way for its entry into the financial services business.
Sharon Bio-Medicine (up 5%) has signed a memorandum of understanding with Uzpharmsanoat, the state-joint stock concern of the Republic of Uzbekistan for setting up a pharmaceutical plant in Navoi Free Industrial Economic Zone in Uzbekistan. As per the agreement, Sharon Bio-Medicine will provide necessary technology to the new company and make investments along with the Uzbek government in the proposed company.
The finance minister has allocated Rs52,057 crore for education, an increase of 24% over the current year. Education experts have welcomed the increase. But CRY points out that while the increase is mostly from the education cess collected, the government’s own allocation has actually dropped to Rs7,096 crore from Rs7,769 crore
The education sector has received considerable attention in the Budget as finance minister Pranab Mukherjee increased allocation for education by 24% in the Budget.
Mr Mukherjee has allocated Rs52,057 crore for education, an increase of 24% over the current year. Education experts have welcomed the outlay for education.
“The education sector has got a good allocation with a rise of 24% to Rs 52,057 crore over the last year. This is a positive sign for the education sector. Even though the focus was mainly on agriculture and the infrastructure sectors, the education sector has got a fair share in the Union Budget,” said Prof KV Iyer, dean, United World School of Business, Hyderabad.
“Our ‘demographic dividend’ of a relatively younger population compared to developed countries is as much of an opportunity as it is a challenge. Over 70% of Indians will be of working age in 2025. In this context, universalising access to secondary education, increasing the percentage of our scholars in higher education and providing skill training is necessary,” the Finance Minister said.
He said the existing operational norms of the Sarva Shiksha Abhiyan have been revised to implement the right of children to free and compulsory education, which has come into force with effect from 1 April 2010. The finance minister has proposed to allocate Rs21,000 crore, which is 40% higher than last year allocation, for the Sarva Shiksha Abhiyan, for FY2011-12.
Child Rights and You (CRY), however, have expressed disappointment over the allocations for children in the Union Budget 2011-2012. “The allocations on elementary education have been increased to Rs29,129.55 crore, an increase of 16.21% over the last year. So, the Finance Minister’s claim of a 24% increase in allocations for education is not applicable for elementary education. As for the Sarva Shiksha Abhiyan, the allocation in 2011-12 is Rs20,999.78 crore, over last year’s revised estimate Rs8999.10 crore. Thus, it is an increase of only 10.53% as against Finance Minister’s claim of a 40% increase. Another thing to note in this increase is coming from the Prarambhik Shiksha Kosh (from the education cess) while the government’s own allocation for education has gone down from Rs7,769.10 crore (Revised Estimate 2010-11) to Rs7,096.15 crore (Budget Estimate 2011-12),” said CRY in a statement.
The government will also implement a revised Centrally sponsored scheme ‘Vocationalisation of Secondary Education’ from 2011-12 to enhance the employability of youth.
“The allocation for the Sarva Shiksha Abhiyan of Rs21,000 crore will give the much needed boost to the education sector,” P Kishore, managing director, Everonn Education, India’s second largest listed education company, told Moneylife.
“With the increase in the Sarva Shiksha Abhiyan budget of 40% to Rs 21,000 crore, we definitely see a much larger role for the private sector in K-12 and Teacher Training space built around the PPP (public-private-partnership) model,” Sanjeev Mansotra, chairman and MD, Core Projects & Technologies, told Moneylife.
The finance minister has also proposed to introduce a scholarship scheme for the Scheduled Castes and Scheduled Tribes studying in classes ninth and tenth in FY2011-12.
“Mr Mukherjee’s step to introduce a scholarship scheme is praiseworthy as it would benefit about 40 lakh students,” added Mr Kishore.
The proposed National Knowledge Network (NKN), which will link 1,500 institutes of higher learning and research in India, will connect 190 institutes by March this year, while the rest will be connected to the network by March 2012.
“The NKN initiative shows the government’s inclination to reach quality education to the students irrespective of their geographies,” said Mr Kishore.
For FY2011-12, the government has proposed to provide special grants to recognise excellence in universities and academic institutions.
He has proposed to allocate Rs50 crore each to the upcoming centres of the Aligarh Muslim University at Murshidabad in West Bengal and Malappuram in Kerala, Rs100 crore as a one-time grant to the Kerala Veterinary and Animal Sciences University at Pookode, Kerala; and Rs200 crore as a one-time grant to IIT, Kharagpur.
Mr Mukherjee has also proposed to allocate Rs20 crore for the Rajiv Gandhi National Institute of Youth Development, Sriperumbudur, Tamil Nadu, and Rs200 crore for the Maulana Azad Education Foundation.
“This is indeed a great encouragement for universities and institutes to continuously innovate or update their facilities,” said Mr Iyer.