BUDGET 2012 -13 HOW IT WILL EFFECT US Brahmachary Editor - Business
WHAT WILL WE KNOW FROM THIS PRESENTATIONProcess of preparingthe budgetUnderstanding thebudgetAnalysing thebudget
Budget in History ‘Budget System’ was introduced in India on 7th April, 1860. James Wilson the first Indian Finance Member delivered the budget speech expounding the Indian financial policy as an integral whole for the first time
Budgetin HistoryPost independence,the first budget waspresented onNovember 26, 1947by Indias first FinanceMinister Sri R.K.Shanmugham Chetty.
What is budgetingThe annual exercise of budgetingis a means for detailing theroadmap for efficient use ofpublic resources.
A statement of the estimated receipts and expenditure of the Government for that year. This statement known as theAlthough the Indian ‘Annual Financial Statement’Constitution does not mention is the main fiscal orthe term ‘Budget’, it provides budgetary document of thethat the President shall in Government.respect of every financial yearcause to be laid before boththe Houses of Parliament.
A government budget is definedas a legal document that ispassed by the legislature, andapproved by the chiefexecutive-or President.
The two basic elements of anybudget are theRevenues and expensesGovernment Budget is designed foroptimal allocation of resourcestaking into account largersocio-political considerations.
The Union Budget of India,also referred as theGeneral Budget,is presented each year on thelast working day of Februaryby the Finance Ministerof India to the Parliament.
Article 112 of theConstitution of Indiastipulates thatGovernment shouldlay before theParliament anAnnual FinancialStatement popularlyreferred to as‘BUDGET’.
Budget is prepared On Cash BasisWhatever is expected to beactually received or paidunder proper sanction duringa financial year (includingarrears of the past years)should be budgeted in thatyear.
Rule of LapseAll appropriations granted by theParliament expire at the end offinancial year and no deduction ofunspent budget can be appropriatedfor meeting the demands in the nextfinancial year. Thus, all unutilizedfunds within the year ‘lapse’ at theend of the financial year.
Realistic EstimationIt is essential that the provisions in the budgetshould be restricted to the amount requiredfor actual expenditure.The Finance Ministry is interested in seeingthat the Departments do not obtain more/lessmoney than what they really need.
CONSTITUTIONAL PROVISIONS RELATED TO BUDGET• Article 112- Annual Financial Statement It provides that in respect of every financial year the President shall cause to be laid before both the Houses of Parliament a statement of the estimated receipts and expenditure of the Government of India for that year, referred to as the “annual financial statement’’.
Article 113-Procedure in Parliament with respect to Estimates It provides that estimates relating to expenditure charged upon the Consolidated Fund of India shall not be submitted to the vote of Parliament, even though these can be discussed in either House of Parliament.
Article 114 Appropriation Bills After the passing of the demands under Article 113, Appropriation Bill is introduced in the Lok Sabha to provide for the appropriation out of the Consolidated Fund of India to meet the requirements relating to(a) the grants so made by the House of the People; and(b) the expenditure charged on the Consolidated Fund of India.
Article 115-Supplementary, Additional or Excess Grants.If the amount authorized through appropriationsfor a particular service is found to be insufficientfor the purposes of that year or when a need hasarisen during the current financial year forsupplementary or additional expenditure uponsome new service not contemplated in theannual financial statement for that year, asupplementary demands for grants proposal shallbe made before parliament.
Article 116Vote on account, Vote of credit and Exceptional Grant (a) Vote on Account- to make any grant in advance in respect of the estimated expenditure for a part of any financial year pending the completion of the parliamentary procedure.
Article 116Vote on account, Vote of credit and Exceptional Grant• (b) Vote of Credit- to make a grant for meeting an unexpected demand upon the resources of India when on account of the magnitude or the indefinite character of the service the demand cannot be stated with the details ordinarily given in an annual financial statement
Article 116Vote on account, Vote of credit and Exceptional Grant• Exceptional Grant- to make provision for an exceptional grant that does not form part of the current service of any financial year
Other CONSTITUTIONAL Provisions…..• Article 117- Special provisions as to Financial Bills.• Article 265- Taxes not to be imposed save by authority of law.• Article 266- Consolidated Funds and Public Accounts of India and of the States.• Article 267- Contingency Fund.• Article 275- Grants from the Union to certain States.• Article 280- Finance Commission.• Article 281- Recommendations of the Finance Commission.• Article 292- Borrowing by the Government of India.• Article 150- Form of accounts of the Union and of the States.• Article 151- Audit reports.• Article 109- Special procedure in respect of Money Bills.• Article 110- Definition of “Money Bills’’.
BUDGET DOCUMENTS(a) Annual Financial Statement(b) Demands for Grants(c) Receipts Budget(d) Expenditure Budget Volume -1(e) Expenditure Budget Volume- 2(f) Finance Bill(g) Memorandum Explaining the Provisions in the Finance Bill(h) Budget at a Glance(i) Highlights of Budget(j) Status of Implementation of Announcements made in Finance Minister’s Budget Speech(k) Fiscal Responsibility and Budget Management Act related documents:
BUDGET DOCUMENTSAnnual Financial Statement• The Annual Financial Statement of a year gives the budget estimate for that year, the budget estimate and the revised estimate for the preceding year and the figures of Accounts of the second preceding yearStatement I Consolidated Fund of India:Statement I-A Disbursements Charged on the Consolidated Fund of IndiaStatement II Contingency Fund of India:Statement III Public Account of IndiaStatement on Receipts and expenditure of Union Territories without Legislature:
BUDGET DOCUMENTSDemands for Grants The estimates of expenditure from the Consolidated Fund included in the Budget Statements and required to be voted by the Lok Sabha are submitted in the form of Demands for Grants. Normally a separate demand is required to be presented for each Department or the major services under the control of Ministry/ Department.
BUDGET DOCUMENTSReceipts Budget Estimates of receipts included in the “Annual Financial Statement” are further explained and analyzed in the “Receipts Budget”. The document gives details of revenue receipts and capital receipts and explains the estimates. Trends of revenue receipts and capital receipts over the years and details of External Assistance received are also included.
BUDGET DOCUMENTSRevenue Receipts: The estimates of Revenue receipts, both tax revenue and non-tax revenue are explained in this part.The Tax revenue section includes statements on Corporation tax, Taxes on Income other than Corporation tax, Wealth tax, Customs, Union Excise Duties, Service tax and taxes of Union Territories.The Non-tax revenue details include statements on Interest receipts, Dividends and Profits, Other Non Tax Revenue and Non Tax Revenue of Union Territories.
BUDGET DOCUMENTSCapital Receipts: In this part, the details ofcapital receipts which include market loans,external assistance, small savings, Governmentprovident funds, accretions to various depositaccounts, depreciations and reserve funds ofdepartments like Railways, Telecom etc. aregiven.
BUDGET DOCUMENTSExpenditure Budget Volume -1 deals with the revenue and capital disbursements and gives the estimates in respect of “Plan” and “Non-Plan” and explains the variations in the estimates of both. It also gives analysis of various types of expenditure.
BUDGET DOCUMENTSExpenditure Budget Volume- 2• the Expenditure Budget Volume- II incorporates the Notes on Demands for Grants also with the net provisions for the scheme/programme.
BUDGET DOCUMENTSFinance BillThe Finance Bill is presented in fulfillment ofthe requirement under Article 110 (1) (a) of theConstitution, detailing the imposition, abolition,remission, alteration or regulation of taxes proposedin the Budget. It is accompanied by a Memorandum explaining the provisions included in it.
BUDGET DOCUMENTS(g) Memorandum Explaining the Provisions in the Finance Bill The purpose of this document is to facilitate understanding of the taxation proposals made in the Finance Bill, with the provisions and their implications explained.
BUDGET DOCUMENTSBudget at a Glance This document shows in brief, receipts and disbursements along with broad details of tax/non-tax revenues and other receipts and Plan and Non-Plan expenditure, including allocation of Plan outlays by sectors as well as by Ministries/Departments and details of resources transferred by the Central Government to State and Union Territory Governments. This document also shows the revenue deficit, the gross primary deficit and the gross fiscal deficit of the Central Government.
BUDGET DOCUMENTSHighlights of Budget The key features of the Budget indicates, inter alia, the prominent achievements in various sectors of the economy, new initiatives announced in the Budget, allocation of funds made in important areas, and a summary of tax proposals.
BUDGET DOCUMENTSStatus of Implementation of Announcementsmade in Finance Minister’s Budget Speech This document indicates the action taken and action in progress on the announcements made in the last budget. The position reflected is updated to first week of February of the reporting year.
BUDGET DOCUMENTSFiscal Responsibility and Budget Management Act related documents:(i) Macro-economic Framework Statement;(ii) Medium Term Fiscal Policy Statement(iii) Fiscal Policy Strategy Statement
OTHER IMPORTANT BUDGET RELATED DOCUMENTSDetailed Demands for Grants: The Detailed Demands for Grants are prepared by the Ministries/Departments on the basis of the provisions made in the Demands for Grants. The Detailed Demands for Grants are laid on the Table of the Lok Sabha, after the presentation of the Budget but before discussion on Demands for Grants commences. These Detailed Demands show further break-up by objects of expenditure, provisions of programmes/organizations for which the provision is rupees one lakh or more individually.
Economic SurveyEconomic Survey of any year gives a detailedanalysis of the economic situation of the countryand is presented to Parliament a few days beforepresentation of the Annual Budget for the ensuingyear.analysis of the economic situation of the country,detailed analysis is given of the trends in thecurrent year in agriculture, industry, infrastructure,employment, money supply, imports, exports,prices, foreign exchange reserves, balance ofpayment etc as compared to selected earlier years
Parliamentary proceduresPRESIDENT’S APPROVAL According to Article 204(1) of Rules of Procedure and Conduct of Business in Lok Sabha, the Budget is presented to the Parliament on such date as is fixed by the President. According to parliamentary custom, the Budget is presented at 11.00 am (Earlier it was 5.00 pm.) on the last working day of February i.e. about a month before the commencement of the financial year except in the year when General Elections to Lok Sabha are held. In an election year, the Budget may be presented twice, first to secure a Vote on Account for a few months and later in full.
SUMMARY FOR THE PRESIDENTBefore presentation of the Budget,President’s recommendation is obtained under Article 117(1) and 117 (3) for introduction and consideration inLok Sabha of the :(a) Appropriation Bill (General)(b) Finance Bill (along with recommendation under Article 274)President’s approval for the Budget is obtained through“Summary for the President” along with the documents on(i) Annual Financial Statement,(ii) Finance Bill,(iii) Demands for Grants and(iv) Statements required under the FRBM Act. 15
SUMMARY FOR THE PRESIDENTThe ‘Summary for the President’ also includesthe direct and indirect tax proposals andmiscellaneous financial provisions as proposedthrough the Finance Bill.The summary note is approved by the FinanceMinister and Prime Minister before beingtaken for the president’s approval, normallyon the morning of the Budget Day itself.
SUMMARY FOR THE CABINETImmediately before the presentation of theBudget in the Parliament, the Finance Ministerbriefs the Cabinet on the budget proposals andthe Finance Bill. Budget Division prepares a‘Summary For The Cabinet’ outlining in brief theRevised Estimates proposals, the Budgetproposals for the ensuing year including the Planand Non Plan provisions.
BUDGET PRESENTATIONWhile presenting the Budget on the scheduled day in theLok Sabha (at 11.00 hours), the Finance Minister makes aspeech giving inter alia details of the proposals for thenew financial year regarding taxation, borrowings andexpenditure plans of the Government.The Budget Speech is largely a policy document wherebythe Finance Minister states the salient features of thefinancial administration of the year ending and the yearcommencing.The main purpose however is to focus attention on thepolicies and programmes of the Government and howfar they had been already implemented and areproposed to be implemented during the forthcomingbudget year.
BUDGET PRESENTATIONThe Budget is laid on the Table of the RajyaSabha soon after the Finance Minister hascompleted his budget speech in theLok sabha.No discussion takes place on the day theBudget is presented.Sets of Budget papers are supplied toMembers after the budget has beenpresented.
GENERAL DISCUSSIONSMinistry of Parliamentary Affairs fixes thedates for General Discussions on the Budget.As per the Parliamentary Procedures, theGeneral Discussions on Budget is held on aday appointed by the Speaker, subsequent tothe day of presentation of the Budget and forsuch period of time as the Speaker maydecide.
CUT- MOTIONSAfter the General Discussion, the Demands forGrants of individual Ministries/Departments aretaken up in the Lok Sabha for discussionaccording to a time table as decided at themeeting of Business Advisory Committee of theHouse and voted upon. When a Demand is takenup for discussion, any Member may seekreduction in the amount of the Demand bymoving any of the following types ofCut Motions.
GUILLOTINEOn the last day of the days allotted fordiscussion on the Demands for Grants, at thetime fixed in advance, the Speaker puts all theoutstanding Demands for Grants to the voteof the House. This process is known as‘Guillotine’ and is a device for bringing thedebate on financial proposals to an end withina specified time with the result that severalDemands have to be voted by the Housewithout discussions.
ROLE OF THE EXECUTIVE IN THE BUDGET PROCESSBudget Division in the Ministry of Finance preparethe budget for the financial year, its own estimatingauthorities and those of other Departments/Ministries are required to prepare their detailedestimates.The estimates are prepared separately for Plan andNon plan expenditure. The detailed estimates ofexpenditure are prepared by the estimatingauthorities according to their assessment ofrequirements for the ensuing year, keeping in viewthe actuals of the past years, trends of expenditurein the current year, arrears of previous years andthe decisions already taken by the Government.
MINISTRY OF FINANCE-DEPARTMENT OF ECONOMIC AFFAIRS The finances of Government have traditionally been controlled by the Ministry of Finance. With the phenomenal growth and the complexity of Government activities, several powers have been delegated to Administrative Ministries, but the Ministry of Finance continues to have the overall responsibility of co-ordination and control.
ROLE OF BUDGET DIVISION IN THEDEPARTMENT OF ECONOMIC AFFAIRS The Budget Division in the DEA has the prime responsibility for the preparation and submission of Annual Budget to the Parliament (other than Railways), as well as the Supplementary Demands for Grants and the Demands for Excess Grants. The Budget, Supplementary and Excess Demands of States and Union Territories under the President’s Rule are also entrusted upon the Budget Division.
DEPARTMENT OF EXPENDITUREThe Department of Expenditure is concernedwith expenditure related financial policies of thegovernment covering financial rules andregulations and delegation of financial powers,financial sanctions on issues not covered bydelegated powers, review of staffing ofgovernment establishments, general principles ofgovernment accounting, administration of CentralTreasury Rules, State finances, plan budget,planning and development finance, capitalrestructuring of public sector undertakings etc.
Plan Finance DivisionsThe Plan Finance Division is concerned withmanagement of expenditure in relation to FiveYear Plans. The two distinct segments of thePlans viz. Central Plans and State Plans arehandled in two separate divisions
OFFICE OF CONTROLLER GENERAL OF ACCOUNTS (CGA)The CGA has the responsibility for establishing andmaintaining a technically sound accounting systemin the Departmentalised Accounts Offices. He, onbehalf of the Ministries and Departments, liaiseswith the Budget Division and the Comptroller andAuditor General of India in accounting matters andprovides necessary directions in accountingmatters to the Ministries/ Departments and issuesgeneral instructions about the system and form ofaccounts and procedures for accounting of receiptsand payments.
PLANNING COMMISSIONThe Government of India has constituted abody known as the Planning Commission withthe Prime Minister as its Chairman and otherMembers comprising eminent personalitiesfrom various fields of economics, agriculture,education, industry, social sciences and publicadministration. Socio-economic developmentplanning attempted by the Commission coversthe entire country including the States.
PLANNING PROCESSThe Planning Commission holds extensivediscussions with the Central Government andthe States, which submit in advance their ownestimates of resources and expenditure forthe Plan period. Planning Commissionprepares the Five Year Plans taking intoaccount the resources that would be availableand the needs for development.
FINANCE COMMISSIONthe distribution between the Union and the States of the netproceeds of taxes which are to be, or may be, dividedbetween them under this Chapter and the allocation betweenthe States of the respective shares of such proceeds
RESERVE BANK OF INDIAThe banking system which constitutes the coreof the financial sector, plays a critical role intransmitting monetary policy impulses to theentire economic system. Its efficiency anddevelopment therefore, are vital forenhancing growth and therefore influencingthe financial and budgetary policies of theGovernment
THE BUDGET PROCESSThe Budget Cycle normally starts towards theend of September of the current year andlasts till May of the next financial year. On thepresumption that Budget shall be presented
BUDGET CIRCULARThe commencement of Budget Process takesplace with the issue of the Budget Circular ,normally issued in the month of Septembereach year. The Budget Circular is issued withthe purpose of providing guidance toMinistries/ Departments in framing theirRevised Estimates for the current year and theBudget Estimates for the ensuing financialyear, for further rendition to the BudgetDivision.
2nd week of SeptemberIssue of Budget Circular to allMinistries/ Departments regarding framing ofestimates of receipts and expenditure, timeschedule etc.
PRE-BUDGET MEETINGSThe Ministries/Departments are required toprepare the Statement of Budget Estimates forRE of current year and the ensuing year’sBudget Estimates for pre-budget discussionswith Secretary (Expenditure). The dates ofdiscussions are intimated separately.
Follow-up action• The month of October and November is devoted to follow-up action on the Budget Circular that includes coordinating with various Ministries/Departments, procuring data for the Receipts Budget and scrutiny of the estimates framed by the Ministries/ Departments for the Pre-Budget meetings
End October/November• [Non-Plan: Revised Estimates (RE) and Budget Estimates (BE)]• Pre-budget meetings taken by Secretary (E) with Financial Advisers
1st week of DecemberPlan resources forecast, for PlanningCommission by Finance Ministry separately forexternally aided projects of Centre and States.
Mid-December• Finalizing ceilings of expenditure: Plan & Non-plan RE for the current year and Non-Plan BE for the following year (excluding major subsidies and Defence)
Prior to 1st week of January• Communication of ceilings of expenditure to Ministries/ Departments under Item 3 aboveWithin one week of communicationof ceilings Rendering Statement of Budget Estimates to Budget Division by Ministries/Departments on the basis of ceiling communicated
1st week of January• Issue of Circular calling for 3rd Batch of Supplementary Demands for Grants 1st week of February Last Date of receipt of proposals from Ministries/Departments
15 to 18 th January• Communication Gross Budgetary Support to Planning Commission 25th January Communication of plan allocation to Ministries/ Departments by Planning Commission
Last week of January• Estimates of major subsidies and of Defence Expenditure
29th January• Receipt of Plan estimates from Ministries along with write-up 5th February• Closing of all expenditure estimates and work of Budget printing begins
BUDGET PRESS AND SECURITY/ LOCK-IN ARRANGEMENTS:The Finance Ministry has its own press to printthe entire set of Budget papers. The Budgetpress which runs in the basement of theNorth -Block, becomes totally forbidden in themonth before the Budget is presented.
13th February• Printing of non-sensitive documents, namely Expenditure Budget Vol. 1 & 2, Demands for Grants, etc. 15th February Removal of non-sensitive documents from Budget Press to Room No.72, North Block
20th February• ‘Lock in’ of Budget Press• 21st February : Printing of Receipts Budget including 4 Annexes required under FRBM Rules, 2004 Printing of Annual Financial Statement Printing of 3 FRBM statements
22nd February• Complete Finance bill (both in Hindi and English) to be given for printing• Memorandum Explaining the Provisions in the Finance Bill to be given for printing• Finalization and printing of Budget at a Glance
25th February• Finance Minister’s Budget Speech and Key Features of Budget 26th FebruarySummary for the Cabinet
27/28th February• Obtaining approval of the PM to the ‘Summary for the President• President’s recommendation under Articles 112, 115 & 117 of the Constitution 27/28th February (By 8.30 AM)
28th February (Prior to Budget presentation)• Obtaining approval of the Cabinet to the Budget proposals (on Budget Day and as per time intimated by Cabinet Secretariat 28th February (11.00 AM) Finance Minister’s budget speech starts
28th / 29th February (Immediately after completion of Budget Speech)• Introduction of the Finance Bill in Lok Sabha• 28th /29th February (Immediately after completion of Budget Speech and Introduction of Finance Bill in Lok-Sabha). Laying of Budget documents in Rajya Sabha
Finalization and printing 1st week MarchSending of the Bill to Legislative Department1st week MarchSummary for the President 1st /2nd week MarchIssue of notices for introduction, considerationand passing of the Bill in Lok Sabha1st /2nd week MarchRepeat action as above for Rajya Sabha 2nd weekMarchPassing of the Bill by Lok Sabha 2nd week MarchPassing of the Bill in Rajya Sabha 2nd/3rd week ofMarch
Other key parameters• Expenditure trends• Non plan expenditure – broad categories• Non plan expenditure – subsidies, interest subsidies Plan expenditure Central plan outlay
Some more key parameters• Revenue trends• Deficits• Tax and non Tax revenue• Capital receipts trends• Fiscal prudence measures• Govt. debt• Govt. borrowings• Monetary policy issues
GDP growth target – 9% 0.25%. Fiscal deficit 4.6% of GDP (better than 4.8% set in roadmap L/Y); positive for bond markets. Target looks aggressive given absence of non-tax revenues (3G booty) this year & underestimation of subsidies. Target to reach 4.1% in 2012-13 and 3.5% in 2013-14 welcome. Effective Revenue Deficit – 1.8% of GDP; persistent Revenue Deficit a concern. Net market borrowings Rs 3.43 lakh crore. Lower than estimates; positive for bond markets.
Direct tax slabs tinkered with Exemption limit raised to Rs 1.8 lakh from Rs 1.6 lakh; with inflation at over 10% , hardly any increase in real terms. Exemption limit for senior citizens - raised to Rs 2.5 lakh from Rs 2.4 lakh. Age to qualify as “senior citizen” reduced to 60 from 65. “Very Senior Citizens” (80 years +) - exempt upto Rs 5 lakh. Salaried taxpayers not required to file return of income if tax discharged by way of TDS. Corporate taxes Surcharge reduced from 7.5% to 5%. MAT increased marginally from 18% to 18.5%. SEZ units & developers to be subject to MAT; will hit infra companies. LLPs to be subject to MAT; negative for LLPs Positive for corporates; not much for the aam aadmi
No reversal of excise stimulus given in 2009; positive for auto companies. Environmental concern - Fuel cell, hydrogen cell technology, hybrid vehicles granted concessions. Branded garments to get expensive – excise duty @ 10%. Consumer goods such as sanitary napkins, diapers to get cheaper – excise reduced from 10% to 1%. Efforts to incentivize agriculture by reducing duties: No excise on air-conditioning equipment, refrigeration panels used in cold chains. No excise on equipment used in cold storages, mandis and warehouses. Customs duty on micro-irrigation equipment reduced from 7.5% to 5%. No customs on import of de-oiled rice bran cake. Export duty of 10% to discourage exports; positive for dairy processing organizations.
Excise duty on iron ore increased to 20%; negative for mining companiessuch as Sesa Goa, NMDC; positive for steel companies. Capital goods used in ultra mega power projects exempted from excise duty. Customs duty on Solar lanterns reduced from 10% to 5%. Cash dispensers and their parts exempted from customs duty, in order tofurther financial inclusion.
Rate of service tax retained at 10%. More services brought within the tax net Hotel rooms with tariff exceeding Rs 1,000 per day – 5% Air-conditioned restaurants serving liquor – 3% Healthcare to get expensive (Govt hospitals exempted) Centrally air-conditioned hospitals with 25 or more beds - 5% Diagnostic tests of all kinds – 5% Air travel to be dearer Domestic air travel (higher class) – 10% Domestic air travel (economy class) – Rs 50 International journeys by economy class – Rs 250
Positives DTC most likely to be enacted by April 1, 2012. 3 fold increase to Rs 1,000 crore for building judicial infrastructure & E- Courts. Financial sector legal reforms – Amendment of the following laws: Insurance Act - to increase FDI limit to 49%. Pension Fund Regulatory & Development Authority Act. SBI (Subsidiary Banks) Act – for merger with SBI. Other Banking Laws – including additional banking licenses to private sector. Companies Bill to be tabled in present session of Parliament.Negatives No timeline for GST. Legal reforms promised for years, but no political support for the passage of laws. Mere announcements; will the Government be able to walk the talk?
Will the FM be able to meet the 4.6% Fiscal Deficit target? Will subsidies be contained within budgeted levels? No commitment to dampen inflation, with half baked supply-side measures.
Positives Allocation of Rs 2.14 lakh crore; increase of 23.3% over L/Y. FII Investment in corporate bonds in infra sector raised to 40 billion USD. To attract foreign funding for infrastructure, infra debt funds to be notified, with attractive TDS rate of 5%. Income of Fund exempt from tax. Tax free bonds of Rs 30,000 crore for infra development. Infra bonds eligible for tax rebate for individuals upto Rs 20,000. Rural Infra Development Fund – corpus increased to Rs 18,000 crore from Rs 16,000 crore. Viability gap funding for capital investment in setting up of storage capacity. Infra status for cold chains and post-harvest storage facility. Infra status for capital investment in fertilizer production.Negatives Infra financing addressed partly, though execution still a concern. Limit for infra bonds not increased; concerns still exist for financing of USD 1 trillion during the 12th Plan.
Allocation of Rs 160,887 crore – 17% increase, (36.4% of total plan allocation). Allocation for 6 schemes of “Bharat Nirman” increased to Rs 58,000 crore (increased by Rs 10,000 crore). Direct transfer of cash for LPG, kerosene and fertilizer subsidy, eliminating leakages; expected to be in place by March 2012. 10 lakh per day Aadhar numbers to be rolled out by October 2011, streamlining the delivery mechanism. Wages indexed to CPI-AL under the MGNREGA. Pay for Aanganwadi workers doubled, albeit from an extremely low base. Pension rules relaxed for unorganized workers / BPL beneficiaries. India Microfinance Equity Fund of Rs 100 crore - for equity contribution to smaller MFIs. Boost to low cost housing through favourable financing.Not much for the aam aadmi; unless if the delivery mechanism starts functioning.May induce some consumption, with marginally higher budgetary allocations.
Economic Survey 2010–11 Agriculture production estimated to increase by 5.4% Food grain : 6.5% (232 million tonnes) Oil seed :11.9% Cotton : 4.2% Sugarcane : 15.2% (24 million tonnes) Fruits : 4.1% Vegetables : 3.8% Total farm credit given to farmers till September – Rs. 194,392 crore Period of repayment of loan extended by 6 months Share in country’s GDP : 14.2%
Figures in Rs crore 2010 - 11 2011 -12 ChangeTotal allocation (under Rashtriya Krishi Vikas Yojna) 6,755 7,860 16.35%For Green revolution in eastern region 400 400 SameTo promote 60,000 pulses villages in rain fed area 300 300 SameFor sustaining the gains and conservation 200 NilFor promoting oil seed plantation Nil 300To establish efficient supply chain for vegetables Nil 300To promote higher production of traditional cereals Nil 300(Ragi. Millet, etc.)National mission for Protein supplement Nil 300For accelerated fodder development program Nil 300Total farm credit allocated 375,000 475,000 26.66%Rate of interest 7% 7% SameEffective interest rate 5% 4% -1% Allocations of Rs 300 crore respectively too small to make any difference!!!
Positives To enhance rice production in eastern region, a good step taken by Govt. throughGreen Revolution. There could be a possibility for export in the coming year. Govt. will look to include urea in nutrient based subsidy. Basic customs duty reduced from 5% to 2.5% for agricultural machinery;Positive for organizations such as IFFCO. To increase fertilizer production and cold storage production capacity in thecountry, infrastructure status granted for capital investment in fertilizer productionand for cold chains and post-harvest storage facility. Proposed 15 more mega food parks for the preservation of vegetables and fruits.Including these, total food parks in the country to rise to 30. Positive for foodprocessing companies such as EID Parry, etc.
Negatives Total allocation for FY12 increased by 16.35%. However, Plan Expenditure isonly 4.07% of total Plan expenditure, which is very low considering that about58% of country’s population is employed in agriculture. Further, Plan capitalexpenditure is an abysmal 0.13% of total Plan capital expenditure. This will hardlyaddress any supply side issues. An increase in interest rate subvention from 2% to 3%, if loan is repaid on time.It will bring down effective interest rate to 4%. But at the same time, there are noprovisions for drought relief. Rs. 300 crore investment to improve supply chain management a good attemptbut past experience shows that implementation may be tardy. Besides, Rs 300crore is a paltry sum to address the problem.
Why subsidy given to the sector is not in line with input cost? Why farm loan limit through Kisan credit card remains same, ie Rs. 300,000despite inflation being around 10%? While additional interest subvention is welcome, however, if the farmer delaysloan repayment even by 1 day (after six months grace period), he has to pay doubleinterest, ie 14%. In Budget speech, FM endorsed that soil fertility has decreased through the useof chemical fertilizers. He proposed steps to increase organic agriculture in thecountry. But in the same speech, he talked about giving subsidy to chemicalfertilizers and exemption from tax for any investment in chemical fertilizer sector. In India, more than 60% farmland irrigated by rain water. Sufficient steps havenot been taken to ameliorate the situation. One funny but good argument given by a Kisan – While a car loan is cheaperthan a tractor loan…… he has nothing to do with the car on his farm. Mildly positive for Agriculture but negative for Kisan.
Key announcements Effects on FMCG sectorIncome-tax exemption limit enhanced Positive for branded food items segment and(Rs 1.6 lakh to Rs 1.8 lakh) personal care segment, because of increase in purchasing power.Sanction of Rs 58,000 crore for Bharat Will improve purchasing power of rural people,Nirman giving impetus to rural consumption.100% increase in wages of Aanganwadi Will enhance purchasing power.workers and helpersIndexation of wage rates under MGNREGA Will positively affect the purchasing power ofto the Consumer Price Index for Agricultural rural people.LabourReduction in central Excise duty on sanitary Positive for personal care companies, such asnapkins, baby and adult diapers from 10% to P&G.1%Reduction in customs duty on bamboo for Will reduce the input cost of Agarbattis.Agarbattis from 30 percent to 10 percent Positive for ITC, though agarbatti business very small right now. Measures could increase consumption, though marginally!!!
Key announcements Effects on FMCG sectorNo reversal of excise stimulus Will positively impact FMCG products (positive for ITC, HUL & Dabur).No change in excise duties on cigarettes Positive for all cigarettes companies of India (ITC, Godfrey Phillips).Allocation of 15 mega food parks Will strengthen the supply chain for food articles.Allocation of fund for 150 lakh metric Positive for food & beverages segment.tons warehouse facility and 1.4 lakh ton Companies such as ITC, Britannia tocold storage facility. benefit.10% excise duty on branded readymade Negative impact on branded readymadegarments garment companies (Raymonds, Future Group).Roadmap for implementation of GST in Will positively impact FMCG companiesnext FY with a single point taxation scheme.
Figures in Rs croreAllocation 2010-2011 2011-2012 % Change YOYEstimated total allocation 41,981.45 52,057 24%Percentage of Total 3.45% 4.14% 0.69%ExpenditureAllocation for National Skill 1,000 500 -50%Development CouncilExpenditure on Sarva Shiksha 15,000 21,000 40%Abhiyan
Special grant to recognize excellence in universities and higherinstitutions.S.No. University/ Institute Amount1 Aligarh Muslim University 50 Crore2 Kerala veterinary and Animal Sciences University 100 Crore3 Mahatma Gandhi Antarrashtriya Hindi 10 Crore Vishwavidyalaya, Wardha4 IIT, Kharagpur 200 Crore5 Rajiv Gandhi National Institute of Youth 20 Crore Development, Sriperumbudur, Tamil Nadu6 IIM, Calcutta 20 Crore7 Maulana Azad Education Foundation 200 Crore8 Centre for Development Economics and Ratan Tata 10 Crore Library, Delhi School of Economics, Delhi9 Madras School of Economics 10 Crore
Positives Increase in allocation of funds by 24% is truly commendable. A revised Centrally Sponsored Scheme “Vocationalisation of Secondary Education” to improve the employability of youth. Special emphasis on areas such as Skill Development and the National Knowledge Network that is critical for India to be a global leader in the 21st century. National Knowledge Network initiative shows the government’s preference to reach quality education to the students irrespective of their geographical location. With the increase in the Sarva Shiksha Abhiyan budget by 40% to Rs 21,000 crore, there should be a much larger role for the private sector in K-12 and Teacher Training space built around the PPP (public private partnership) model. Pre-metric scholarship for SC and ST students will be advantageous and it would benefit about 40 lakh students.
Negatives Education sector has not been opened up for foreign participation. Govt. has not given any emphasis on private sector participation. Govt. has not allowed any tax sops to the private players in the educationsegment.
Jumbo rolls of 400 feet and 1,000 feet exempt from CVD (countervailingDuty). +ve for the film production companies such as Eros, Ashta Vinayak,Balaji Telefilms. Excise duty on LED reduced to 5% but the change in taxes on LED unlikelyto affect the end consumer much. Excise duty reduced from 10% to 5% on parts of ink-jet and laser-jet printersReduction in the price of printers a positive for companies such as JagranPrakashan and HT Media.
The Government was expected to exempt from customs dutythe cover paper used by magazines but not announced. There was also a demand for tax concessions to animation,gaming and VFX, which is a booming segment. A lot of program content is sourced from foreign players. If therecipient of income does not have a Permanent Account Number,the withholding taxes at 20% are borne by payer (Indiancompanies). Industry was expecting that this rate will be relaxedso that Indian players do not get penalized for payee’s failure toapply for PAN.
Positives Subsidy related liabilities to be met in cash and not bonds, bringing them into fiscal accounting. Direct transfer of cash for LPG, kerosene and fertilizer subsidy – promised for years though!!!!; expected to happen by March 2012. Negatives Subsidies grossly underestimated, when price of oil has gone past USD 100 a barrel and food prices are at all-time high. Figures in Rs crore Subsidies Actuals Budgeted Revised Budgeted (2009-10) Estimate Estimate Estimate (2010-11) (2010-11) (2011-12)Fertilizer 61,264 49,981 54,977 49,998Food 58,443 55,578 60,600 60,573Petroleum 14,951 3,108 38,386 23,640
Disinvestment target of Rs 40,000 crore quite optimistic, especially if the markets go into a tailspin. No provision for the Food Security Bill (estimated provision required Rs 11,000 crore – Rs 15,000 crore, if the Bill goes through). Subsidies grossly underfunded.
Liberalization of pricing of petro products. Reduction of duties on petro products; negative for Oil Marketing Companies. No announcement on multi-brand retail. No announcement on the date for implementation of the IFRS. No reversal of excise stimulus ; positive for auto companies. STPI Scheme extension ; a big let down for the IT industry. Increase in customs duty on gold & silver ; positive for jewellery companies. Increase in excise duty on tobacco & cigarettes ; largely positive for ITC.
Value for Money or 3 E sEconomy: minimizing the cost of resources used or required - spending less;Efficiency : the relationship between the output of goods and services and the resources to produce them- spending well;Effectiveness: the relationship between the intended and actual results of public spending - spending wisely.