UNION BUDGET 2012-2013 HIGHLIGHTS Chaahat Khattar
OPPORTUNITIES To promote domestic demand-driven growth, create conditions for rapid revival of high growth in private investment; ease supply bottlenecks in agriculture, energy and transport sectors, particularly in coal, power, national highways, railways and civil aviation; Eliminating malnutrition; improving delivery systems, governance, and transparency; and addressing the problem of black money and corruption in public life. Above all, increasing the GDP levels of the economy.
CHALLENGES Tackling inflation. In quest of reducing budget deficit, how will this budget tackle with rising deficit on an individual’s pocket. Fiscal experts will denounce this strategy of depending less on direct taxes and raising more through indirect taxes. Moreover, if producers and retailers pass these taxes down to consumers, it would add to inflationary pressures. Concern still pertains to external economic management. The deficit on India’s current account has shot up to 3.6 per cent of national income. Tackling with various parties involved- Gold and Petroleum specifically
OVERVIEW OF THE ECONOMY Gross Domestic Product (GDP) estimated to have grown at 6.9 per cent in 2011-12 in real terms; had to battle double digit inflation for two years. Inflation seems structural, driven largely by agricultural constraints. Exports have grown by 23 per cent, while imports have recorded a growth of 29 per cent during April to January 2011-12 over the corresponding period last year.
SUSTAINING GROWTHTax Reforms Direct Taxes Code (DTC) to be finalised for enactment during 2012-13. DTC rates introduced for personal income tax with exemption limit being raised to INR 2,00,000 p.a and 20% tax bracket extending till INR 10,00,000 p.a. GST (Goods and Service Tax) to be implemented in August 2012. The GSTN will implement common PAN-based registration, returns filing and payments processing for all States on a shared platform. The use of PAN as a common identifier in both direct and indirect taxes, will enhance transparency and check tax evasion.
SubsidiesThe Government has decided that from 2012-13 subsidiesrelated to food and for administering the Food Security Actwill be fully provided for. All other subsidies would befunded to the extent that they can be borne by theeconomy without any adverse implications. It would be myendeavour to restrict the expenditure on Central subsidiesto under 2 per cent of GDP in 2012-13. effort now will bedirected towards better targeting and leakage proof deliveryof the subsidies.
People’s ownership of PSUs In 2011-12, as against a target of 40,000 crore, the Government will raise about 14,000 crore from disinvestment. For 2012-13, the government will raise 30,000 crore through disinvestment. Government committed to retain at least 51 per cent ownership and management control of the Central Public Sector Undertakings.
Public Sector Bank Capitalisation Rs 15,888 crore to be provided during 2012-13 to enable public sector banks to maintain a minimum of Tier I CRAR of 8 per cent.Recapitalisation of Regional Rural Banks Allocated 10,000 crore to NABARD for refinancing the RRBs through this fund. extended the scheme of capitalisation of weak RRBs by another 2 years to enable all the States to contribute their share.
Micro Finance Institutions Introduction of The Micro Finance Institutions (Development and Regulation) Bill, 2012; Proposed to provide 200 crore to enlarge the corpus to 300 crore of Womens SHGs Development Fund. This Fund will also support the objectives of Aajeevika i.e. the National Rural Livelihood Mission. It will empower women SHGs to access bank credit. I propose to provide interest subvention to Women SHGs to avail loans up to 3 lakh at 7 per cent per annum. Women SHGs that repay loans in time will get additional 3 per cent subvention, reducing the effective rate to 4 per cent.
Micro Small and Medium Enterprises 5,000 crore to set up India Opportunities Venture Fundwith SIDBI. To encourage micro enterprises, a credit linked subsidyprogramme namely Prime Ministers EmploymentGeneration Programme (PMEGP) is being implementedthrough KVIC. The allocation for this programme hasbeen increased by 23 per cent from 1,037 crore in 2011-12 to `1,276 crore in 2012-13. With the objective of promoting market access of Microand Small Enterprises, Government has approved apolicy which requires Ministries and CPSEs to make aminimum of 20 per cent of their annual purchases fromMSEs. Of this, 4 per cent will be earmarked forprocurement from MSEs owned by SC/STentrepreneurs.
Housing Sector Finance Permitting External Commercial Borrowing for low cost affordable housing projects. Extend the scheme of interest subvention of 1 per cent on housing loan up to `15 lakh where the cost of the house does not exceed `25 lakh for another year; and enhance the limit of indirect finance under priority sector from 5 lakh to 10 lakh. Allocating 5,000 crore for National Housing Bank and enhancing provisions under Rural Housing Fund from 3000 crore to 4000 crore.
AGRICULTURE Agriculture will continue to be a priority for theGovernment. The total plan outlay for the Department ofAgriculture and Cooperation is being increased by 18 percent from ` 17,123 crore in 2011-12 to ` 20,208 crore in2012-13. Allocation under Rashtriya Krishi Vikas Yojana (RKVY)increased from Rs 7,860 crore in 2011-12 to Rs 9,217crore in 2012-13.
Agriculture Credit Credit flow for farmers raised from Rs 4,75,000 crore to Rs 5,75,000 crore in 2012-13. Kisan Credit Card (KCC) scheme will be modified to make KCC a smart card which could be used at ATMs.
Infrastructure and Industry During the Twelfth Plan period, infrastructureinvestment will go up to ` 50 lakh crore. About half of thisis expected to come from private sector. This year it has been decided to make irrigation(including dams, channels and embankments), terminalmarkets, common infrastructure in agriculture markets,soil testing laboratories and capital investment infertiliser sector eligible for Viability Gap Funding (VGF)under this scheme. Oil and Gas/LNG storage facilitiesand oil and gas pipelines, fixed network fortelecommunication and telecommunication towers willalso be made eligible sectors for VGF. For the year 2011-12, tax-free bonds for 30,000 crorewere announced for financing infrastructure projects.Government will double it to raise 60,000 crore in 2012-13.
National Manufacturing Policy The Government has announced a National Manufacturing Policy on October 25, 2011 with the objective of raising, within a decade, the share of manufacturing in GDP to 25 per cent and creation of 10 crore jobs. The Policy encourages the setting-up of National Investment and Manufacturing Zones (NIMZs) across the country.
Exports A new scheme that will simplify refunds withoutresorting to voluminous documentation or verification. Asan added incentive, such refunds will also be admissiblefor taxes on taxable services that have been exempted. India has successfully achieved diversification of exportand import markets. The share of Asia, includingASEAN, in total trade increased from 33.3 per cent in2000-2001 to 57.3 per cent in the first half of 2011-12.
BLACK MONEY Double Taxation Avoidance Agreements (DTAA) and17 Tax Information Exchange Agreements (TIEA) havebeen finalised and information regarding bank accountsand assets held by Indians abroad has started flowing in.In some cases prosecution will be initiated. Proposal to lay on the table of the House a white paperon Black Money in the current session of Parliament.
EducationSarva Shiksha Abhiyan Rs 25,555 crore allocated, which is 21.7 per cent higher than Budget for 2011-12. Allocation of Rs 3,124 crore for Rashtriya Madhyamik Shiksha Abhiyan (RMSA) which is nearly 29 per cent higher than the allocation in 2011-12. A scheme for education loans is being implemented by banks. To ensure better flow of credit to deserving students, a Credit Guarantee Fund for this purpose will be set up.
The restriction on Venture Capital Funds to invest onlyin nine specified sectors is proposed to be removed. It isfurther proposed to remove the cascading effect ofDividend Distribution Tax (DDT) in a multi-tier corporatestructure. To promote investment in research and development, itis proposed to extend the weighted deduction of 200 percent for R&D expenditure in an in-house facility beyondMarch 31, 2012 for a further period of five years. Proposal to tax all services except those in thenegative list. The list comprises 17 heads and has beencarefully drawn up, keeping in view the federal nature ofour polity, the best international practices and our socio-economic requirements.
Skill Development Additional Rs 750 crore proposed to be provided for National Skill Development Fund during the next year. For 2012-13, proposal to allocate 1000 crore to National Skill Development Fund (NSDF). In order to improve the flow of institutional credit for skill development, proposal to set up separate Credit Guarantee Fund. This will benefit youth in acquiring market oriented skills.
Improving Governance The enrolments into the Aadhaar system have crossed20 crore and the Aadhaar numbers generated upto datehave crossed 14 crore. Aiming at completing 40 croreenrollments starting April 1, 2012. Dedicated exchange of information cell for speedyexchange of tax information with treaty countries is fullyfunctional in The Central Board of Direct Taxes (CBDT).Directorate of Income Tax Criminal Investigation hasbeen established in CBDT.
Corruption Prevention of Money Laundering (Amendment) Bill, 2011 introduced in Parliament with a view to bring certain provisions of the Act in line with global standards. Benami Transactions (Prohibition) Bill, 2011 is currently being examined by the Standing Committee on Finance. It would replace the Benami Transactions(Prohibition) Act,1988 and National Drugs and Psychotropic Substances (Amendment) Bill, 2011 introduced in Parliament with a view to strengthen legal provisions for implementation of the national policy on Narcotic Drugs and Psychotropic Substances.
Miscellaneous• Lower GDP, expansive subsidy spending (55% more than budgeted), widened budget deficit and worsening fiscal position will definitely affect India’s credit rating.• Individuals can now invest the long-term capital gains in a small or medium manufacturing enterprise.• Cinema Industry and branded Silver Jewellery has been exempted from service tax and excise duty respectively.• Five laudable objectives — to promote domestic demand-driven growth, create conditions for rapid revival of high growth in private investment; ease supply bottlenecks in agriculture, energy and transport sectors, particularly in coal, power, national highways, railways and civil aviation; eliminate malnutrition; improve delivery systems, governance, and transparency; and address the problem of black money and corruption in public life.
BUDGET ESTIMATES 2011-12 Gross Tax receipts are estimated at Rs10,77,612 crore. Non-tax revenue receipts estimated at Rs1,64,614 crore. Total expenditure proposed at Rs 114,90,925crore. Fiscal Deficit kept at 5.9 per cent of GDP for2012-13.
BUDGET ESTIMATES 2011-12 Fiscal Deficit to be progressively reduced to 3in long run. “Effective Revenue Deficit” estimated at1,85,752 crore which is 1.8 per cent of GDP.
PART B TAX PROPOSALS Direct Taxes Exemption limit for the general category of individualtaxpayers enhanced from Rs 1,80,000 to Rs 2,00,000giving uniform tax relief of Rs 2,000. Exemption limit enhanced and qualifying age reducedfor senior citizens. Allowing individual taxpayers, a deduction of upto Rs10,000 for interest from savings bank accounts. Allowing a deduction of upto Rs 5,000 for preventivehealth check-up under existing limit for deductionallowed for health insurance. Senior citizens who do not have any income frombusiness are proposed to be exempted from thepayment of advance tax.
Direct Taxes Surcharge on domestic companies stand at 5% only. levy of Alternate Minimum Tax (AMT) extended to allpersons other than companies, claiming profit linkeddeductions. Introduction of a General Anti Avoidance Rule (GAAR)in order to counter aggressive tax avoidance schemes,while ensuring that it is used only in appropriate cases,by enabling a review by a GAAR panel.
Indirect Taxes Central Excise Duty increased from 10% to 12% giventhe imperative for fiscal correction. The merit rate increased from 5 per cent to 6 per cent,and the lower merit rate from 1 per cent to 2 per cent.However, the lower merit rate for coal, fertilisers, mobilephones and precious metal jewellery is being retained at1 per cent.
Agriculture and Related Sectors Under RKVY, proposal to allocate Rs 300 crore toVidarbha Intensified Irrigation Development Programme.This Scheme seeks to bring in more farming areas underprotective irrigation. To maximise the flow of benefits from investments inirrigation projects, structural changes in AcceleratedIrrigation Benefit Programme (AIBP) are being made.The allocation for AIBP in 2012-13 is being stepped upby 13 per cent to Rs 14,242 crore. A flood management project for Kandi sub-division ofMurshidabad District has been approved by the GangaFlood Control Commission at a cost of ` 439 crore, to betaken up for funding under the Flood ManagementProgramme.
Environment Full exemption of plant and equipment etc. for the initialsetting up of such projects from special CVD. Full exemption of a coating chemical used for compactfluorescent lamps, from basic customs duty. Excise dutyon LED lamps is also being reduced to 6 per cent. Specified parts required for the manufacture of hybridvehicles enjoy full exemption from basic customs dutyand special CVD with concessional excise duty/ CVD of6 per cent.
Service Tax Increasing the service tax rate from 10 per cent to 12per cent, with consequential changes in rates forservices that have individual tax rates. Service tax are expected to yield an additional revenueof Rs 18,660 crore, keeping in mind that the share ofservices in GDP is 59 per cent. Service Tax law is complex and sometimes avoidablydifferent from Central Excise. Need to bring the two asclose as possible in the light of eventual goal oftransition to GST.
Service Tax The important inclusions in the negative list compriseall services provided by the government or localauthorities, except a few specified services where theycompete with private sector. The list also includes pre-school and school education, recognised education athigher levels and approved vocational education,renting of residential dwellings, entertainment andamusement services and a large part of publictransportation including inland waterways, urbanrailways and metered cabs. Exempting the film industry from service tax oncopyrights relating to recording of cinematographicfilms.