Budget Analysis - 2012-13

Budget Analysis 2012-13

17th March 2012

Budget Analysis - 2012-13

BUDGET ANALYSIS

RR View
The budget aims to sustain economic growth, strengthen infrastructure, moderate the price rise, particularly of agricultural produce and reduce social imbalances through inclusive development. Finance Minister Pranab Mukherjee today unveils the federal budget, which is expected to combine measures to narrow the fiscal deficit while seeking to boost the countrys slowing economic growth. Indias Gross Domestic Product (GDP) to grow by 6.9 per cent in 2011-12, after having grown at the rate of 8.4 per cent in each of the two preceding years. The annual budget for the next financial year starting April 1 came against a backdrop of political infighting over a proposed hike in rail fares that has highlighted the increasingly dysfunctional nature of the ruling coalition. Finance Minister Pranab Mukherjee said he would target a fiscal deficit in 2012/13 of 5.1 percent of gross domestic product (GDP), higher than expected but less that the projected 5.9 percent in the current year. The government plans to raise Rs 30,000 crore through disinvestment, assuring the House that at least 51 per cent control remains with the government. He has not made any significant announcement on the implementation schedule of both DTC and GST. The idea of introducing the two was to widen the tax base and boost growth. After a setback from the Railway budget, FM chooses to stay safe & not to roll out a very aggressive budget. The budget presented by the finance minister is a balance budget considering various constraints faced by him politically as well as economically. Though, this was the fear of many economists too that the numbers will be juggled only & satisfy the fiscal consolidation target. This being a pragmatic budget the numbers looks achievable and credible. Some of the provisions like reduction in STT on delivery based capital market turnover, Rajeev Gandhi tax exemption under Rajiv Gandhi equity scheme, increase in raising the limit of tax free bonds to Rs 60,000 crore, increase in the personal taxation exemption limit by Rs.20, 000 are some very welcome steps which will leave more disposable income in the hands of investors increase their participation and boost the capital market. Raising revenue by increasing service and excise tax, while excluding personal and corporate tax, despite the fact that increasing taxes, import and custom duties is seen negatively, this is an honest attempt to control the fiscal balance that deteriorated in FY12, a target of 5.1% for the fiscal deficit vs. 5.9% of GDP is a difficult keeping the past performance in mind but surely an achievable one. MAJOR ANNOUNCEMENTS Exemption limit for the general category of individual taxpayers enhanced to Rs 2,00,000 Service tax rate raised from 10% to 12% Standard rate of excise duty to be raised from 10% to 12% No change proposed in the peak rate of customs duty of 10 per cent on nonagricultural goods. For 2012-13, Rs. 30,000 crore to be raised through disinvestment Service tax rate raised from 10 per cent to 12 per cent Exemption limit for the general category of individual taxpayers proposed to be enhanced from Rs 1,80,000 to Rs 2,00,000 Raise customs duty on some vehicle imports to 75% from 50% Branded silver jewellery exempt from excise duty 10% advalorem duty on cigarettes Doubled custom duty on refined gold Customs duty on non std gold raised to 10% from 5%

Budget Analysis - 2012-13

Customs duty on std gold raised from 2% to 4% Duty reduced on energy saving lamps Duty on bicycles and bicycle parts reduced Titanium dioxide customs duty cut to 7.5% from 10% Automated shuttle looms exempted from customs duty Full exemption on imported equipments for road construction projects Thermal power co exempted from customs duty for 2 yrs

Taxes
Exemption limit for the general category of individual taxpayers proposed to be enhanced from Rs 1,80,000 to Rs 2,00,000 giving tax relief of Rs 2,000. Upper limit of 20 per cent tax slab proposed to be raised from Rs 8 lakh to Rs 10 lakh. Proposal to allow individual tax payers, a deduction of upto Rs 10,000 for interest from savings bank accounts. Proposal to continue to allow repatriation of dividends from foreign subsidiaries of Indian companies at a lower tax rate of 15 per cent upto 31.3.2013. Reduction in securities transaction tax by 20 per cent on cash delivery transactions. Proposal to extend the levy of Alternate Minimum Tax to all persons, other than companies, claiming profit linked deductions. Proposal to tax all services except those in the negative list comprising of 17 heads. Raise service tax rate from 10 per cent to 12 per cent, with corresponding changes in rates for individual services. No change proposed in the peak rate of customs duty of 10 per cent on nonagricultural goods.

Fiscal Deficit
Fiscal deficit of 5.9 per cent of GDP in the Revised Estimates for 2011-12 Fiscal Deficit of 5.1% of GDP in the Revised Estimates for 2012-13 Current account deficit at 3.6 per cent of GDP for 2011-12 and reduced net capital inflow in the 2nd and 3rd quarters put pressure on exchange rate.

Revenues
Gross Tax receipts at Rs 1077612 cr Non Tax Receipts are Rs 164614 cr

Spending
The total expenditure for 2012-13 is budgeted at Rs 14,90,925 crore The Plan Expenditure for 2012-13 is Rs 5,21,025 crore, which is 18 per cent up.

Growth, Inflation Expectations

GDP growth estimated at 6.9 per cent in real terms in 2011-12. Headline inflation expected to moderate further in next few months and remain stable thereafter. Indias GDP growth in 2012-13 expected to be 7.6 per cent +/- 0.25 per cent.

Budget Analysis - 2012-13

Disinvestment
Disinvestment in 2012-13 is seen to be Rs 30,000 crore to be raised through disinvestment.

Borrowing
The net market borrowings for 2012-13 through dated securities to finance this deficit is Rs 4.79 lakh crore.

Policy Reforms
GST network to be set up as a National Information Utility and to become operational by August 2012. Drafting of model legislation for the Centre and State GST in concert with States is under progress. DTC Bill to be enacted at the earliest after expeditious examination of the report of the Parliamentary Standing Committee.

On Governance
Enrolment of 20 crore persons completed under UID mission. Adequate funds to be allocated to complete enrolment of another 40 crore persons. Proposal to lay a White Paper on Black Money in current session of Parliament. Bill regarding Public Procurement Legislation to be introduced in the Budget Session of the Parliament. Legislative measures for strengthening anti-corruption framework are at various stages of enactment.

Aam Aadmi Impact

For the aam aadmi, there is some reason to smile with personal tax exemptions, but in the raising of service tax and excise duty there lurk higher prices. Mr Mukherjee has raised the income tax exemption limit to Rs 2 lakhs for all individual tax payers. This will result in savings of a minimum Rs 22,000 for all tax payers. Also, the upper limit for the 20% tax slab has been raised - from incomes up to 8 lakhs to incomes up to 10 lakhs.

Sectoral Announcements and Impacts Announcements

Agriculture
Basic customs duty reduced for certain agricultural equipment and their parts Full exemption from basic customs duty for import of equipment for expansion or setting up of fertiliser projects upto March 31, 2015. Target for agricultural credit raised by Rs 1,00,000 crore to Rs 5,75,000 crore in 2012-13. A sum of Rs 200 crore set aside for incentivizing research with rewards. Rs 2,242 crore project launched with World Bank assistance to improve productivity in the dairy sector. Rs 500 crore provided to broaden scope of production of fish to coastal aquaculture. Government has taken steps to finalize pricing and investment policies for urea to reduce Indias import dependence in urea. Deduction for CAPEX enhanced to 150% for Fertilizer Sector

Airline
Direct import of Aviation Turbine Fuel permitted for Indian Carriers as actual users. ECB to be permitted for working capital requirement of airline industry for a period of one year, subject to a total ceiling of US $ 1 billion. Proposal to allow foreign airlines to participate upto 49 per cent in the equity of an air transport undertaking under active consideration of the government. Import of aircraft parts exempt from basic customs duty

Health

Budget Analysis - 2012-13

Basic customs duty and excise duty reduced on Soya products to address protein deficiency among women and children. Allocation for NRHM proposed to be increased from Rs 18,115 crore in 2011-12 to Rs 20,822 crore in 2012-13. Existing vaccine units to be modernized and new integrated vaccine unit to be set up in Chennai. National Urban Health Mission is being launched.

Banking and Financial Sector

Propose Rs 15888 cr for PSU capitalization STT reduced by 20% A central Know Your Customer depository to be developed in 2012-13 to avoid multiplicity of registration and data upkeep.

Infrastructure
Tax free bonds of Rs 60,000 crore to be allowed for financing infrastructure projects To provide low cost funds to stressed infrastructure sectors, rate of withholding tax on interest payment on ECBs proposed to be reduced from 20 per cent to 5 per cent for 3 years for certain sectors. Government has approved guidelines for establishing joint venture companies by defense PSUs in PPP mode. During Twelfth Plan period, investment in infrastructure to go up to Rs 50 lakh crore with half of this, expected from private sector.

Power & Coal

External Commercial Borrowings (ECB) to be allowed to part finance Rupee debt of existing power projects. Full exemption from basic duty provided to certain fuels for power generation Basic custom duty proposed to be reduced for machinery and instruments needed for surveying and prospecting for minerals.

Housing
Various proposals to address the shortage of housing for low income groups in major cities and towns including allowing ECB for low cost housing projects and setting up of a credit guarantee trust fund etc.

Textiles
Announced a financial package of `3,884 crore for waiver of loans of handloom weavers and their cooperative societies. Rs 5,000 crore India Opportunities Venture Fund to be set up with SIDBI.

Education
6,000 schools proposed to be set up at block level as model schools in Twelfth Plan. Rs 3,124 crore provided for Rashtriya Madhyamik Shiksha Abhiyan (RMSA) representing an increase of 29 per cent over BE 2011-12.

Impacts
Auto Sector Excise duty increased on large cars from 22% to 24%. Negative for M&M, Maruti Suzuki, Hind Motors. Power Sector Allowed ECB funding. Coal exempt from custom duty for coal mining projects and Thermal power plants. Positive for Powergrid, Coal Infrastructure Sector The FM has proposed to allow tax free bonds from Rs.30,000 cr to Rs.60,000 cr. Highly positive for infra sector. Sunset clause of Section 80IA extended for one more year. Positive for NHPC,GMR, IFCI,IDFC. Fertiliser Sector Budget proposed a full exemption of customs duty on import duty on import of equipment for

Budget Analysis - 2012-13

fertiliser plant for three years. Also the government likely to increase the subsidy to Rs.60,974 for the next year from the earlier estimate of 49,997 cr. Positive for Nag Fert, Chambal Fert Airlines Sector ECB for working capital needs allowed. Positive for Jet, Spicejet. But FDI in airlines kept status quo. Oil & Gas Sector Oil cess on domestic crude increased from Rs 2500/mt to Rs 4500/mt Mildly negative for ONGC & highly negative for Cairn. Capital Market STT reduced by meager 20% in delivery transactions. Rajiv Gandhi Equity scheme to be introduced. Service Tax increased from 10% to 12%. IPO equity offer above Rs.100mn to be made electronically. Banking sector Banks are in for serious trouble in the year 2012-13 considering the fact that due to high government borrowing programme the interest rates are expected to remain high. Also the recapitalization target of 15,887 crore is too less than needed. Negative for PSU banks.

Budget Analysis - 2012-13

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Budget Analysis - 2012-13

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Budget Analysis - 2012-13

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