Budget 2013-14

Budget at a Glance
The Union Budget for FY13 is presented at a tme when the domestc economy is in the midst of a slowdown with the downturn in the global economic environment further impeding the growth momentum. The budget talks about: 1. Income 2. Expenditure 3. Capital market

Income
Hike in the excise duties and service tax . The increase in the tax limits though marginal, would ensure some savings to the middle income group which constitute the majority of the population, thereby boosting demand. The intention to implement the Advance Pricing Agreement which would significantly bring down tax litigation and provide tax certainty to foreign investors is a positive development.

Expenditure
Governments decision to stay away from allocating a major proportion of funds towards the social sector or new announcements is a welcome move as it would lead to divergence of funds towards other productive areas. The government has also emphasized the need to accelerate infrastructure development. Allowing irrigation terminal markets, common infrastructure in agriculture markets, soil testing laboratories and capital investment in fertilizer sector, Oil and Gas/LNG storage facilities and oil and gas pipelines, fixed network for telecommunication and telecommunication towers eligible for Viability Gap Funding (VGF) for support to Public Private Participation (PPP) projects would enhance financing.

Capital market
The focus of the government on capital market is a positive given it would accelerate capital generation and funding requirement for the Indian corporate thereby boosting investment. Besides, allowing External Commercial Borrowings (ECBs) to part finance Rupee debt of existing power projects, for capital expenditure on the maintenance and operations of toll systems for roads and highways and also for working capital requirements of the airline industry is commendable as it would ensure securing of funds by these sectors which are facing financing crunch.

Limitations of Budget
The biggest disappointment in the budget was that the government did not lay down a strong reform agenda. While it was highly expected that specific progressive policy action would be taken regarding subsidies, FDI, labour laws or land acquisitions, the budget failed to deliver on that front. Moreover, the government also did not set out effective timelines for implementation of the much anticipated Direct Tax Code (DTC) & Goods & Services Tax (GST). Nonetheless, governments efforts are expected to continue outside the Budget which is required to boost the growth momentum.

Fiscal Arithmetic for FY13

For FY13, total expenditure is budgeted to increase by 13.1% to 14,909.25 bn as compared to the revised estmates (RE) of ` 13,187.20 bn for FY12. The non-plan expenditure budgeted to increase by 8.7% to 9,699 bn Subsidy burden during FY13 though budgeted to decrease by 12.2% during FY13 from the revised estimates of FY12; it is budgeted to increase by over 32.0% over the budget estimate of FY12. Gross Tax Receipts are estmated to increase by 15.6% over FY12 (BE)

 Revenue from corporate tax is budgeted to increase only by 13.9% (RE). Increase in service tax from 10% to 12%, services tax is budgeted to increase by 30.5% by FY13. the Government plans to generate only 300.00 bn through disinvestments.

SECTORAL IMPACT
Sector Impact

Agriculture
Social Sector Infrastructure

Positive
Positive Positive

Services Manufacturing

Agriculture
The Budget FY13 is positive for agriculture and rural development. Raising the target for agricultural credit is a welcome step as it has played a critcal role in supporting agriculture production in India. Moreover, there were several gaps in the present institutional credit delivery system which the Budget has tried to address. One such measure being the setting up of a short- term RRB credit refinance fund which will facilitate provision of credit to small and marginal farmers. The extension of recapitalization scheme of weak RRBs is also a positive development as they extend credit mostly to small and marginal farmers, agricultural laborers and rural artisans operating in a few districts in a state. The tax proposals for cold chain facility are in line with the Governments policy shift towards incentivizing investments. However, the present strategy of pumping credit into agriculture will not, by itself, translate into commensurate increase in agricultural output. It needs to be accompanied by investments in other support services. The Budget has remained silent regarding the reforms in the APMC Act, which is critical for improving the quality and quantity of farm yield and better remuneration.

Social sector
The Budget has made significant effort to realise the dream of inclusive development despite the constraints being faced on the fiscal front. This time around, the Finance Minister has opted to focus on existing schemes by way of increased allocations. Additional budgetary resources, particularly towards RTE-SSA are likely to address the critical gaps in social infrastructure and could go a long way in meeting the needs of the rural poor. Besides, it is a welcome move that school education has been exempted from service tax. The weaker section has received a special attention in the Budget through proposals such as higher allocation towards National Social Assistance Programme and doubling of lumpsum grant. The Budget has rightly emphasised on actvities related to skill development, which are essential for improving the educational and economic conditions. The launch of credit guarantee fund and exempting vocational training institutions from service tax will make skills training affordable.

Infrastructure
Government strategy to increase investment in infrastructure through a combination of public investment and public private partnerships indicates an increased thrust on the sector. Over rise in budgetary allocation to the Ministry of Road Transport and Highway is expected to encourage the transportation and logistics sector in India. Also, a 27% increase in budgetary allocation for rural drinking water and sanitation and a 20% increase in PMGSY is expected to improve overall rural infrastructure and connectivity in the states. To boost infrastructure financing, the Budget provides various financing measures. Proposal to add certain sectors as eligible sectors for Viability Gap Funding is expected to provide support to PPP in infrastructure. Additionally, allowing for tax free bonds to the tune of ` 600 bn by various Government undertakings would further support infrastructure financing. Also reduction of withholding tax on interest payments on ECBs is expected to provide low-cost funding to stressed infrastructure sectors.

 Ratonalisaton of Dividend Distributon Tax to remove its cascading efect is expected to make investment in infrastructure sector more atractve. Given the increased plan outlay for road transport and highway and for rural infrastructure, combined with increased thrust on plugging the gap in infrastructure fnancing, the Budget is expected to be positve for the infrastructure sector.

Services
1. Banking The Budget is expected to have a positve impact on the banking industry. A number of measures have been announced towards enabling beter fow of credit to various sectors, including agriculture, housing, educaton and MSMEs which is expected to encourage overall credit growth in FY13. The guidelines on priority sector lending are expected to be issued in FY13. In additon, the Budget has emphasised on the fnancial strengthening of PSBs, RRBs and other fnancial insttutons. The allocatons made towards capital infusion in PSBs and RRBs is expected to bring more stability to the sector. The Government aims to keep all the PSBs adequately capitalised so that the growth momentum of the economy is sustained. This will help maintain their minimum ter - I capital. In turn, lenders can expand their asset base maintaining the growth momentum. Banks would be able to manage their asset-liability beter on the back of availability of long-term funds for infrastructure lending. Further, credit schemes and interest subventon on loans to small farmers would enhance their ability to pay interest on tme thereby helping PSBs to contain their NPAs and helping recovery eforts of banks. Overall, the Budget is likely to have a positve impact on the banking industry by boostng credit growth and supportng capital base of banks.

2. Finance The Budget has few announcements having a marginally positve impact on the fnance sector. Individuals will beneft marginally from increased exempton limit. However, the rise in service tax will result in high service charges.

3. IT & ITeS Provision regarding implementaton of APAs to be introduced in Finance Bill 2012 will help in addressing concerns over the certainty of transfer pricing arrangements. Proposal to improve service tax refunds process as well as enhance the scope for input credits for service tax will beneft the IT-ITeS sector since substantal amount of cash fow is ted up in refund claims. The central plan outlay for DIT growing by 86.7%, allocaton of funds for modernising signaling system of railways and creatng a NIU for computerisaton of PDS will have a positve impact on the IT sector. The industry was expectng to see the revival of tax benefts under the STPI scheme. However, there was no menton in respect of extension of this clause. Thus, the overall Budget has a marginally positve impact on the sector.

4. Real Estate and Constructon The Budgets focus on providing low-cost and afordable housing is laudable. The extension of enhanced limit for interest subventon and increase in the priority sector lending limit are expected to beneft buyers in ter-II, III cites and towns. The accessibility of ECBs and ease in withholding tax on interest payments may encourage private developers to invest in afordable housing projects. The incentves given to the constructon sector are likely to have a multplier efect on the economy via growth in downstream sectors and increase in employment. Overall the Budget is positve for the sector.

Manufacturing
1. Capital and Engineering Goods Several positve measures focusing on the agricultural and related sectors were announced, including reduced customs duty on specifed agricultural machinery and processing equipment. Apart from this, equipment imported for road constructon and fertlizer projects also received a whole bunch of duty exemptons. However, increase in standard rate of excise duty from 10% to has partally ofset the signifcant positve impact of reducton or exempton in import and customs dutes to some extent on the capital and engineering goods sector. The Union Budget FY13 also outlines the importance of the infrastructure sector with greater emphasis on capital investment required in constructon of natonal highways and encouraging PPP projects. Demand for constructon equipment is likely to be boosted owing to several positve proposals in the infrastructure sector. Allocaton of ` 795.79 bn for capital expenditure made in the defence services will also provide a boost to the capital and engineering goods industry in FY13. Overall, the Budget is antcipated to have a positve impact on the capital and engineering goods sector

2. Gems & Jewellery Driven by the high spending on gold consumpton, the customs duty on standard and non-standard gold has been doubled in order to curb imports of gold and other precious metals. To minimise its impact on small artsans and goldsmiths and simplify operatons, certain measures are proposed to be taken. The overall additonal tax burden is expected to have a negatve impact on the gems and jewellery sector, as it will make gold and jewellery more expensive. However, exemptng silver jewellery from the levy of excise duty is a positve move.

3. MSMEs The biggest announcement for the SME sector has been an allocation of ` 50 bn to SIDBI for venture fund. This is expected to enhance availability of equity to MSMEs, as credit crunch continues to remain a major challenge for SMEs. The hike in turnover limit for compulsory tax audit of accounts would also bring some relief to the SMEs. To a small extent, the announcement of exemption of capital gains tax on sale of residential property could also enhance credit availability to the SMEs. Measures announced for SME-centric sectors such as leather, handloom, power loom, matches, food processing, textiles etc are beneficial for the SME sectors prospects.

Thank