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India Budget 2012-13 - A FICCI Analysis

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An quick analysis of the Union Budget 2012-13 done by FICCI

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India Budget 2012-13 - A FICCI Analysis

  1. 1. UNION BUDGET- 2012-13E c o n o m i c A ffa i r s a n d R e se a r c h D i v i si o n
  2. 2. UNION BUDGETHIGHLIGHTS  Fiscal deficit projected at 5.1% of GDP in 2012-13: Based on a projected buoyancy in non-tax revenue and indirect taxes  The nominal growth rate of GDP is expected to be 14% for 2012-13: This translates into a 6.5% inflation rate, assuming a 7.6% GDP projection in the next fiscal  Exemption limit for general category of individual taxpayers has been raised from Rs1.8 lakh to Rs 2 lakh  Growth impulse could be dampened by the 2% hike in excise duty and service tax: These hikes are expected to add to inflationary pressures and would work against budget expectations of lower inflation  Over the medium term, the Government believes to bring down fiscal deficit further and has targeted a reduction in fiscal deficit to 4.5% by FY2014 and 3.9% by FY2015: Fiscal consolidation will remain a challenge  Budget targets to contain the central subsidies under 2% of GDP in 2012-13: It will be a difficult task  Gross market borrowings will finance 93% of the fiscal deficit in 2012-13: Indication of government borrowing to finance non-plan expenditures  The Government did not enunciate any actionable roadmap for implementation of either the GST or the DTC  No revival of investment allowance, no restoration of tax exemption on dividend income or capital gains for infrastructure capital fund / company and no hike in depreciation rate in budget  Reduction in withholding tax on interest payable on External Commercial Borrowings (ECBs) in certain sectors and extension of concessional tax treatment on the repatriation of overseas dividends are welcome: The raising of the ECB limit for infrastructure sector will also encourage investment in the sector.  The removal of cascading impact of DDT, which was recommend by FICCI is most welcome. The extension of tax benefit period for companies engaged in in-house R&D activities may also provide some relief to the companies.  Provision of extension of 200% weighted deduction for R&D expenditure is specially welcome as it has been announced for a period of 5 years  150% weighted deduction for agricultural extension will hopefully encourage private sector investment in agriculture and raise crop yields  For the power sector besides access to low cost funds the Budget has also extended the sunset date by one year until March 31, 2013 by claiming 100% deduction of profits for 10 years along with an additional distribution of 20%. This measure would encourage investment in power generation. 1
  3. 3. UNION BUDGET MACROVIEWFICCI had ex pec ted and r ec om m ended that the budget would inc lude m eas ures f orprom oting inves tm ent led gr owth. T his was s pec ially reques ted in the c ontex t ofongoing s lowdown of ec onom ic gr owth whic h c ould be lower than 6.9% in 2011 - 12. T henom inal gr owth r ate of G DP is ex pec ted to be 14% f or 2012 - 13. T his trans lates into a6.5% inf lation r ate, as s um ing a 7.6% G DP proj ec tion in the nex t f is c al. It is not c lear ifthe higher gr owth r ate wo uld s ee a s trong revival of the m anuf ac turing s ec tor.T he G over nm ent has budgeted a f is c al def ic it target of 5.1% of G DP in FY2013 asagains t an es tim ated 5.9% of G DP (was budgeted at 4.6% of G DP) in FY2012.T his isbas ed on a pr oj ec ted buoyanc y in non - tax revenue (32% budgeted growth in 2012 - 13agains t a 5 year c om pounded annual growth rate/ CAG R at 6.1%) , bas is Rs 40,000c rore s pec tr um pr oc eeds in nex t f is c al. Net tax revenue to Centre is proj ec ted to c lim bby 20.1% ( 5 year CAG R at 9.9%). Net tax revenue in turn is bas ed on es tim atedbuoyanc y in indir ec t tax es ( ex c is e tax proj ec ted to grow by a s harp 29%, agains t a 5year CAG R at 5% and s er vic e tax es at 30.5% agains t a 5 year CAG R at 16.7%).T he G over nm ent has tak en s everal m eas ures to augm ent indirec t t ax es . O n thes ervic es tax f r ont, the tax bas e has been inc reas ed through the introduc tion of thenegative lis t. T he lis t now c ontains 17 item s , whic h im plies that every other s ervic ewould be tax ed. Apar t f r om this , there is a propos al to rais e the s ervic e tax rate to12% f rom 10% ear lier , br inging it to the pre - c ris is level.O n the ex c is e duty f r ont, the s tandard rate on non - petroleum goods is propos ed to beinc reas ed to 12%. It had been reduc ed to 8% during the peak of the las t globalf inanc ial c r is is an d s inc e then th e G overnm ent has been rolling it bac k in s tages . Ithas been pr opos ed that c us tom s duty on gold bars , c oins and platinum would beinc reas ed f r om 2% to 4%. Duty on nons tandard gold is to be doubled to 10% f rom 5%earlier. Ex c is e duty on gold has als o been inc reas ed to 3% f rom 1.5% earlier.T he G over nm ent did not enunc iate any ac tionable roadm ap f or im plem entation ofeither the G ST or the DT C .G rowth im puls e c ould be dam pened by the 2% hik e in ex c is e duty and s ervic e tax .T hes e hik es ar e ex pec ted to add to inf lationary pres s ure and would work agains tbudget ex pec tations of lower inf lation.As f ar as per s onal inc om e tax es are c onc erned, the ex em ption lim it f or generalc ategory of individual tax payer s has been rais ed f rom Rs 1.8 lak h to Rs 2 lak hs .O ver the m edium ter m , the G overnm ent believes to bring down f is c al def ic it f urtherand has tar gete d a r educ tion in f is c al def ic it to 4.5% by FY2014 and 3.9% by FY2015.FICCI believes f is c al c ons olidation would c ontinue to be one of the m aj or c hallenges .T he dis inves tm ent tar get at Rs 30,000 c rores is an am bitious one. Additionally, asm entioned ear lie r , the budgeted s pec trum proc eeds at Rs 40,000 c rores f or the nex tf is c al as s um es will be dif f ic ult to ac hieve.T he G over nm ent has als o pr opos ed rationalis ation of tax provis ions that ac c rues f romovers eas tr ans f er of s har es holding underlying as s ets in India. T he propos edrationalis ation will ef f ec t r etr os pec tively f rom April 1’1962. FICCI believes that anypolic y c hanges s hould always be f orward look ing and not with retros pec tive im pac t asit hurts the inves tm ent c lim ate and the bus ines s s trategies f or the inves tors . 2
  4. 4. UNION BUDGETT able 1: Budget at a glance ( Rs crore and as a % of G DP) Growth CAGR 10 CAGR 5 2008-09 2009-10 2010-11 2011-12-RE 2012-13-BE Rate yrs yrs 1 Revenue Receipts 540,259 572,811 788,471 766,989 935,685 22.0 14.2% 9.1% 9.7% 8.9% 10.3% 8.6% 9.2% a. Tax Revenue (net to centre) 443,319 456,536 569,869 642,252 771,071 20.1 16.7% 9.9% 7.9% 7.1% 7.4% 7.2% 7.6% b. Non-Tax Revenue 96,940 116,275 218,602 124,737 164,614 32.0 6.2% 5.1% 1.7% 1.8% 2.8% 1.4% 1.6% 1 Capital Receipts (5+6+7)$ 343,697 451,676 408,857 551,730 555,241 0.6 13.1% 34.1% 6.2% 7.0% 5.3% 6.2% 5.5% 2.a. Recoveries of Loans 6,139 8,613 12,420 14,258 11,650 -18.3 -9.3% 29.3% 0.1% 0.1% 0.2% 0.2% 0.1% 2.b. Other Receipts 566 24,581 22,846 15,493 30,000 93.6 19.4% -20.5% 0.0% 0.4% 0.3% 0.2% 0.3% 2.c. Borrowings and other liabilities* 336,992 418,482 373,591 521,980 513,590 -1.6 15.3% 42.4% 6.0% 6.5% 4.9% 5.9% 5.1% 3 Total Receipts (1+4) 883,956 1,024,487 1,197,328 1,318,720 1,490,925 13.1 13.7% 16.6% 15.8% 15.9% 15.6% 14.8% 14.7% 4 Non-Plan Expenditure 608,721 721,096 818,299 892,116 969,900 8.7 12.8% 15.1% 10.9% 11.2% 10.7% 10.0% 9.5% 4.a On Revenue Account of which, 559,024 657,925 726,491 815,740 865,596 6.1 13.2% 18.0% 10.0% 10.2% 9.5% 9.2% 8.5% 4.a.1 Interest Payments 192,204 213,093 234,022 275,618 319,759 16.0 9.9% 12.7% 3.4% 3.3% 3.0% 3.1% 3.1% 4.b On Capital Account 49,697 63,171 91,808 76,376 104,304 36.6 25.9% 33.5% 0.9% 1.0% 3.0% 3.1% 3.1% 5 Plan Expenditure 275,235 303,391 379,029 426,604 521,025 22.1 -4.1% -21.9% 4.9% 4.7% 1.2% 0.9% 1.0% 5.a. On Revenue Account 234,774 253,884 314,232 346,201 420,513 21.5 21.9% 25.2% 4.2% 3.9% 4.9% 4.8% 5.1% 5.b. On Capital Account 40,461 49,507 64,797 80,404 100,512 25.0 27.1% 82.1% 0.7% 0.8% 4.1% 3.9% 4.1% 6 Total Expenditure (9+13) 883,956 1,024,487 1,197,328 1,318,720 1,490,925 13.1 13.7% 16.6% 15.8% 15.9% 0.8% 0.9% 1.0% 6.a Revenue Expenditure (10+14) 793,798 911,809 1,040,723 1,161,940 1,286,109 10.7 16.3% 22.0% 14.2% 14.1% 15.6% 14.8% 14.7% Of Which, Grants for 87,487 137,505 164,672 6.a.1 creation of Capital Assets 6.b. Capital Expenditure (12+15) 90,158 112,678 156,605 156,780 204,816 19.8 7.0% 3.8% 1.6% 1.7% 1.1% 1.5% 1.6% 7 Revenue Deficit (17-1) 253,539 338,998 252,252 394,951 350,424 30.6 4.2% 31.4% 4.5 -5.2 -3.3 -4.4 -3.4 8 Effective Revenue Deficit (17-18)# 164,765 257,446 185,752 -27.8 -2.1 -2.9 -1.8 9 Fiscal Deficit {16-(1+5+6)} 336,992 418,482 373,591 521,980 513,590 -1.6 15.3% 42.4% 6 -6.4 -4.9 -5.9 -5.1 10 Primary Deficit (20-11) 144,788 205,389 139,569 246,362 193,831 -21.3 27.7% na 2.6 -3.1 -1.8 -2.8 -1.9 Memoranda Nominal GDP Growth rate 5,582,623 6,457,352 7,674,148 8,912,178 10,159,884 Growth 12.0 15.7 18.8 16.1 14.0Source: Budget documentsN o t e : F i g u r e s b e l o w t h e e s t i m a t e s a r e e xp r e s s e d a s a % o f G D P 3
  5. 5. UNION BUDGETT able 2: Direct and Indirect t axes (Rs crore and as a % of G DP) 2012-13 vis-à-vis 2011-12 growth CAGR 10 CAGR 5 2008-09 2009-10 2010-11-RE 2011-12-BE 2012-13 rates yrs yrs 1 Gross Tax Revenue 605,299 624,528 786,888 901,664 1,077,611 19.5% 17.2% 11.0% 10.8% 9.7% 10.3% 10.1% 10.6% 2 Direct Tax2.a. Corporation Tax 213,395 244,725 296,377 327,680 373,227 13.9% 24.3% 14.2% 3.8% 3.8% 3.9% 3.7% 3.7%2.b. Taxes on Income Other than Corporation Tax 106,046 122,475 141,566 166,679 189,866 13.9% 18.3% 12.9% 1.9% 1.9% 1.8% 1.9% 1.9% 3 Indirect Taxes3.a. Customs 99,879 83,324 131,800 153,000 186,694 22.0% 14.6% 10.1% 1.8% 1.3% 1.7% 1.7% 1.8%3.b. Union Excise Duty 108,613 102,991 137,263 150,075 193,729 29.1% 6.9% 5.0% 1.9% 1.6% 1.8% 1.7% 1.9%3.c. Service Tax 60,941 58,422 69,400 95,000 124,000 30.5% 41.7% 16.7% 1.1% 0.9% 0.9% 1.1% 1.2%Source: Budget docum entsN o t e : F i g u r e s b e l o w t h e e s t i m a t e s a r e e xp r e s s e d a s a % o f G D PIt m ight als o be noted that the c apital ex penditure is budgeted to go up by 31% in theyear 2012 - 13. But the gr owth in non - plan c apital ex penditure is es tim ated to be m uc hhigher than the gr owth in plan c apital ex penditure. Henc e an im petus to growththrough pum p pr im ing c apital ex penditure is dif f ic ult to envis age .T able 3: Expendit ure t rends ( Rs crore and as a % of G DP) Growth CAGR 10 CAGR 5 2008-09 2009-10 2010-11 2011-12-RE 2012-13 BE Rate yrs yrs 1 Non Plan Expenditure 608,721 721,096 818,299 892,116 969,900 8.7% 12.8% 15.1% 10.9% 11.2% 10.7% 10.0% 9.5% 1.a. Interest payments 192,204 213,093 234,022 275,618 319,759 16.0% 9.9% 12.7% 3.4% 3.3% 3.0% 3.1% 3.1% 1.b. Defence Expenditure 114,223 141,781 154,117 170,937 193,407 13.1% 13.3% 16.9% 2.0% 2.2% 2.0% 1.9% 1.9% 1.c. Subsidies 129,708 141,351 173,420 216,297 190,015 -12.2% 19.5% 32.1% 2.3% 2.2% 2.3% 2.4% 1.9% 1.d. Other Non Plan Expenditure 172,586 224,871 256,740 229,264 266,719 16.3% 11.7% 7.1% 3.1% 3.5% 3.3% 2.6% 2.6% 2 Plan expenditure 275,235 303,391 379,029 426,604 521,025 22.1% 16.1% 20.1% 4.9% 4.7% 4.9% 4.8% 5.1% 2.a. on Revenue Account 234,774 253,884 314,232 346,200 420,513 21.5% 19.1% 18.8% 4.2% 3.9% 4.1% 3.9% 4.1% 2.b. on Capital Account 40,461 49,507 64,797 80,404 100,512 25.0% 8.1% 26.4% 0.7% 0.8% 0.8% 0.9% 1.0% 3 Total Expenditure 883,956 1,024,487 1,197,328 1,318,720 1,490,925 13.1% 13.8% 16.6% 15.8% 15.9% 15.6% 14.8% 14.7% 3.a. on Revenue Account 793,798 911,809 1,040,723 1,161,940 1,286,109 10.7% 14.7% 18.2% 14.2% 14.1% 13.6% 13.0% 12.7% 3.b. on Capital Account 90,158 112,678 156,605 156,780 204,816 30.6% 8.6% 7.3% 1.6% 1.7% 2.0% 1.8% 2.0%Source: Budget documentsN o t e : F i g u r e s b e l o w t h e e s t i m a t e s a r e e xp r e s s e d a s a % o f G D PT hough the budget tar gets to c ontain the c entral s ubs idies under 2 % of G DP in 2012 -13, and br inging them down f r om the c urrent 2.4% will not be eas y. T his is bec aus e 4
  6. 6. UNION BUDGETim plem entation of f ood s ec ur ity bill will alone am ount to a m inim um of 0.7% of G DPand c ould be as high as 1.5% of G DP. W e believe that the es tim ates of f ood s ubs idym ay have a downwar d bias , as it does not inc lude s ubs idy s torage and trans port,leak age c os ts etc ( f ood s ubs idy is proj ec ted to inc reas e by only 3% in 2012 - 13,agains t a 5 year CAG R at 22.1%) Als o, the budgeted f igures f or oil s ubs idy indic ate adec line by about 12% or Rs 24,901 c rores . H owever there has been no word on thepropos ed der egulation of the s ec tor or an inc reas e in dies el pric es . W e hope that them uc h requir ed der egulation of the petroleum s ec tor is tak en f orward in the rightearnes t.T able 4: Subsidy t rends ( Rs crore and as a % of G DP) 2012-13 vis-à-vis 2011-12 growth CAGR 10 CAGR 5 2008-09 2009-10 2010-11 2011-12 RE 2012-13 BE rates Years Years 1 Total Subsidies 129,708 141,351 173,420 216,297 190,015 -12.2% 19.2% 31.9% 2.3% 2.2% 2.3% 2.4% 1.9%1.a. Fertiliser Subsidy 76,602 61,264 62,301 67,199 60,974 -9.3% 22.3% 21.4% 1.4% 0.9% 0.8% 0.8% 0.6%1.b. Food Subsidy 43,751 58,443 63,844 72,823 75,000 3.0% 13.0% 22.2% 0.8% 0.9% 0.8% 0.8% 0.7%1.c. Petroleum Subsidy 2,852 14,951 38,371 68,481 43,580 -36.4% 30.4% 120.7% 0.1% 0.2% 0.5% 0.8% 0.4%1.d. Interest Subsidies 3,493 2,686 4,680 5,791 7,968 37.6% 25.2% 19.6% 0.1% 0.0% 0.1% 0.1% 0.1%1.e. Other Subsidies 3,009 4,006 4,223 2,002 2,493 24.5% -1.9% -0.8% 0.1% 0.1% 0.1% 0.02% 0.02%Source: Budget documentsN o t e : F i g u r e s b e l o w t h e e s t i m a t e s a r e e xp r e s s e d a s a % o f G D PT he gros s m ar k et bor r o wings f or the year 2011 - 12 have been revis ed upwards by 22%f rom Rs 41 71 billion ( BE) to Rs 5100 billion (RE). T his f igure is f urthe r ex pec ted to goup to Rs 5696 billion in 2012- 13. Suc h a high level of borrowing will c ontinue to ex ertpres s ure on inter es t r ates . Apart f rom dated s ec urities , the G overnm ent is als os c heduled to bor r ow Rs 900 billion through t reas ury bills . However the dec reas e ininteres t rates on EPFs is an enc ouraging m ove .T able 5: G ov ernment Borrow ings (Rs crore and as a % of G DP) 2012-13 vis-à-vis 2011-12 growth CAGR 10 CAGR 5 2008-09 2009-10 2010-11 2011-12 RE 2012-13 BE rates yrs yrsGross Market Borrowings 273,000 451,000 437,000 510,000 569,616 11.7% 16.9% 32.0% 4.9% 7.0% 5.7% 5.7% 5.6%Less repayments 39,370 52,576 111,586 73,586 90,616 23.1% 11.6% 19.3% 0.7% 0.8% 1.5% 0.8% 0.9%Net Market Borrowings 233,630 398,424 325,414 436,414 479,000 9.8% 18.1% 34.9% 4.2% 6.2% 4.2% 4.9% 4.7%Source: Budget documentsN o t e : F i g u r e s b e l o w t h e e s t i m a t e s a r e e xp r e s s e d a s a % o f G D PInteres tingly, as table 6 s hows , the huge inc reas e in gros s borrowings f or thegovernm ent in 2012 - 13 m ay c r owd out c redit to private s ec tor. For ex am ple, the ratioof gros s bor r owings to non - f ood c r edit in 2011 - 12 was 1. 14 indic ating that f or everyrupee of non- f ood c r edit , ther e is a c onc om itant borrowing of Rs 1.14 by theG overnm ent. Inter es tingly, the r atio of redem ption to gros s borrowings (indic ating f orevery rupee o f G over nm ent borrowing, the am ount that is going purely to repay 5
  7. 7. UNION BUDGETprevious gover nm ent debt ) was 43 pais e in 2004 - 05, that had dec lined to 16 pais e in2012- 13. By this logic , the governm ent borrowings s hould have dec lined in 2012 - 13.However, in c ontr as t, in the nex t f is c al, the m ark et borrowings will f inanc e 93% of thef is c al def ic it as c om par ed to 84% las t year. T his c learly indic ates that the G overnm entis now bor r owing pur ely to f inanc e non - plan ex penditure, as revenue growth hasdec elerated in the las t c ouple of years .T able 6: G ross borrow ings, crow ding outand redempt ion Gross Redemption Borrowing/ / Gross Non Food Market Credit Borrowings2002-03 0.88 0.222003-04 1.03 0.352004-05 0.29 0.432005-06 0.37 0.272006-07 0.35 0.242007-08 0.39 0.222008-09 0.66 0.142009-10 0.97 0.122010-11 0.64 0.262011-12 1.14 0.142012-13 0.16Source: Budget documents 6
  8. 8. UNION BUDGET SECTOR ANALYSIST able 7 gives us an im pac t of budget on the dif f erent s ec tors . As c an be s een f rom thetable, m os t of the i s s ues whic h were in the wis h lis t have not been f ulf illed. Sec torslik e ins uranc e, r etail, war ehous ing, environm ent & c lim ate c hange and c hem ic al arethe ones wher e is s ues have not been addres s ed ex tens ively . A m ore detailed im pac t ofthe budget has been pr ovided below bas ed on dif f erent s ec tors .T able 7: FICCI’s Scorecard of W ish list & Budget Impact Wish-list Budget Impact Sector Not No of wishes Addressed +ve -ve Addressed Chemical 15 2 13 7 1 FMCG 6 1 5 3 1 Energy, Defense & 3 3 2 Aerospace Oil & Gas 3 3 Retail 8 8 7 Medical Devices 3 1 2 1 Technical Textiles 7 4 3 4 2 Warehousing 21 5 16 5 1 MSME 4 1 3 7 Power 8 4 4 2 Infrastructure 1 1 Homeland Security 1 ICT 3 2 Agriculture 5 5 Environment & 10 10 Climate change Textiles 8 2 6 10 Gems & Jewellery 2 2 1 3 Wellness 4 4 Health 11 3 8 5 Human Resource 7 3 4 4 2 Banking 3 3 Insurance & Pensions 4 1 3 Health Insurance 4 2 2 Microfinance 1 1 Capital Markets 7 7 Total 145 45 100 53 21Source: FICCI ResearchF o o t n o t e : c o u n t s o f ‘ A d d r e s s e d ’ a n d ‘ N o t A d d r e s s e d ’ wi s h - l i s t a d d s u p t o t h e n u m b e r o f wi s h e s m a d ei n e v e r y s e c t o r . H o we v e r , c o u n t s f o r B u d g e t I m p a c t wi l l n o t a d d u p t o t h e n u m b e r s o f wi s h e s a s r e s t o fthe impact are neutral 7
  9. 9. UNION BUDGETAgriculture  The budget has plac ed a m aj or em phas is on agric ulture by way of announc ing right polic ies that would ens ure m ore inves tm ents in agric ulture ex tens ion, developm ent of agr i m ar k eting inf ras truc tur e, inc reas ing agri c redit availability to the f ar m er s , etc . FICCI welc om es thes e initiatives , as they will give a big pus h to agr ic ultur e gr owth  T he long s tanding dem and of FICCI that 150 per c ent weighted deduc tion of ex penditur e be ex tended to inves tm e nts m ade in the ex tens ion s ervic es has been c ons ider ed. T his is a very pos itive m ove as it will lead to m ore inves tm ents by the pr ivate s ec tor in agric ulture ex tens ion, whic h will res ult in inc r eas ing yields .  T he gover nm ent has c ons idered FICCI’s s ugges tion to ex tend interes t s ubvention f or pos t har ves t loans agains t warehous e rec eipts . T his will reduc e the dis tr es s s elling by the f arm ers .  FICCI als o welc om es the dec is ion to enhanc e the inves tm ent link ed deduc tion f or war ehous es and c old s torages to 150 per c ent. T his would attrac t large private inves tm ents in the c old c hain ac ros s the c ountry whos e dem and f ar outs tr ips the pr es ent handling c apac ity. T he enhanc ed c old c hain and war ehous ing f ac ilities would im m ens ely c ontribute to the governm ent c of f ers as thes e would r educ e hor tic ultural produc e was tages to an ex tent of 30 %. Apart, s ignif ic ant alloc ation was m ade f or inc reas ing the warehous ing c apac ity in the c ountr y.  Sever al announc em ents m ade on indirec t tax es f ront by way of reduc tion in im por t duty on f ar m equipm ent, green hous es , water s oluble f ertilizers would als o r es ult in lower input c os ts f or f arm ers .  G over nm ent’s dec is ion to s et up a c om pany to f inanc ing m inor irrigation work s and inc luding ir r igation pr oj ec ts under v iability gap f unding is an innovative as it would enc our age s ever al private c om panies to enter into the bus ines s of developing ir r igation f ac ilities .  Rs 200 c r or e f or Res earc h Rewards f or agric ultural res earc hers f or break thr oughs is yet another innovativ e polic y approac h adopted by the gover nm entChemicals  An es tim ated 40 % of the f r uit and vegetable produc tion in India goes was te due to lac k of s tor age, c old c hain and trans port inf ras truc ture. T o addres s thes e is s ues , dur ing 2011 - 12, approval is being given to s et up 15 m ore Mega Food Par k s . Spec ialty c hem ic als will be part of this f ac ilitation.  T o attr ac t inves tm ent in this s ec tor, henc ef orth, c apital inves tm ent in the c reation of m oder n s tor age c apac ity will be eligible f or viability gap f unding s c hem e of the Financ e Minis try. It is als o p ropos ed to rec ognize c old c hains and pos t - har ves t s tor age as an inf ras truc ture s ub - s ec tor.  In or der to give a boos t to inf ras truc ture developm ent in railways , ports , hous ing and highways developm ent, tax f ree bonds of Rs 30,000 c rores to be is s ued by var ious G over nm ent undertak ings in the year 2011 - 12. T his inc ludes Indian 8
  10. 10. UNION BUDGET Railway Financ e Cor por ation Rs 10,000 c rores , National Highway Author ity of India Rs 10,000 c r or es , HUDCO Rs 5,000 c rores and Ports Rs 5,000 c rores .  Polic y ex pec ts to tak e the s hare of m anuf ac turing in G DP f rom about 16 % to 25% over a per iod of ten years . A G roup of Minis ters has been s et up to c ons ider all is s ues r elating to rec onc iliation of environm ental c onc erns em anating f r om var ious departm ental ac tivities inc luding thos e relat ed to inf r as tr uc tur e and m ining. T his G roup will als o s ugges t c hanges in the ex is ting s tatutes , r ules , r egulations and guidelines and m ak e its rec om m endations in a tim e bound m anner . T his will benef it the c hem ic al indus try als o.  W eighted deduc tion on paym ents m ade to National Laboratories , univer s ities and Ins titutes of tec hnology, f or s c ienti f ic res earc h, enhanc ed f rom 175 % to 200%.  Mic r o- ir r igation is an environm ent - f riendly and ef f ic ient m eans of irrigation es pec ially f or dr y land f ar m ing. I t is propos ed to reduc e the bas ic c us tom s duty on m ic r o- ir r igation equipm ent f rom 7.5 % to 5%. T his is an opportunity f or the Plas tic s indus tr y.  Full ex em ption f r om bas ic c us tom s duty and a c onc es s ional CVD of 1% to s team c oal f or a per iod of two years till Marc h 31, 2014FM CG  Direc t tax : Ex em ption lim it of pers onal inc om e tax inc reas ed, will be leading to augm entation in the dis pos able inc om e: Should give s tim ulus to the dem and of FMCG pr oduc ts .  Cas c ading ef f ec t of dividend dis tribution tax rem oved: T o benef it Ind ian MNCs  G ST networ k ex pec ted to roll out by Augus t 2012: No c larity on the im plem entation tim eline.  Standar d r ate of ex c is e inc reas ed f rom 10 % to 12%, the m erit rate f rom 5 % to 6%, and the lower m er it rate f rom 1 % to 2%: c ould lead to inc reas e in the produc t pr ic e and would have inf lationary im pac t  Inc r eas e in bas ic ex c is e duty on c igarettes of m ore than 65m m length by adding an ad valor em c om ponent of 10 % to the ex is ting s pec if ic rates . T he ad valorem duty would b e c har geable on 50% of the Retail Sal e Pric e dec lared on the pac k : Pric es will inc r eas e of c igarettes m anuf ac tured dom es tic ally.  Inc r eas e in bas ic ex c is e duty on hand - rolled bidis f rom 8 to 10 per thous and and m ac hine - r olled bidis f rom 19 to 21 per thous and, however ex is ting ex em ption avail able to hand - rolled bidis f or c learanc es up to 20 lak h bidis per annum is being r etained: It is an ef f ort to gain revenue and s truc ture the unor ganis ed s ec tor . 9
  11. 11. UNION BUDGETEnergy, Def ense and Aerospace  T he budget has not addr es s ed any of the is s ues whic h are plaguing the growth of the pr ivate s ec tor in def enc e. No s tep is being tak en in the direc tion of c reating a level playing f ield f or the private s ec tor. Private s ec tor c ontinues to be on an uneven f ooting unable to c om petitively bid agains t the DPSUs and the O EMs owing to the is s ues s uc h as FERV, and uneven tax es and duties .  Although the gover nm ent has approved the guidelines f or es tablis hing the j oint ventur e c om panies by def enc e PSUs in PPP m ode, it c an’t be c laim ed that s etting of guidelines alone will boos t s e lf relianc e and indigenization. T he guidelines will ens ur e tr ans parenc y in s etting up of J VCs and not direc tives to DPSUs to f or m s J Vs with private s ec tor. As DPSUs ’ order book s are f ull with order s and over f lowing in s om e c as es , the intent to f orm J V in D PSUs is not ther e.Retail  Direc t tax : Ex em ption lim it inc reas ed, although a tok en inc reas e yet will be leading to augm entation in the dis pos able inc om e : Should give s tim ulus to the retail s ales  Indir ec t tax : Ser vic e tax inc reas ed f rom 10% to 12%: Foo d s ervic es retailing to have an im pac t; eating out would be ex pens ive. In addition inc reas e in s ervic e tax on r entals of c om m er c ial prem is es would lead to inc reas e in c os t f or the retailer s .  DT C def er r ed no c lar ity on G ST tim elines  Ef f or ts to c ontinue to build a c ons ens us in c ons ultation with the State gover nm ents . : No f r es h air f or m ulti - brand retailing in this res pec t  Inves tm ent link ed deduc tion of c apital ex penditure inc urred in the c old c hain bus ines s is pr opos ed to be provi ded at the enhanc ed rate of 150% , as agains t the c ur r ent r ate of 100% : W ill attrac t inves tm ent in c old c hain inf ras truc ture and im pr ovis e the s upply c hain  W eighted deduc tion of 150% on ex penditure inc urred f or agri - ex tens ion s ervic es whic h will tr ic k le down to give boos t to f ood retailing s ec tor as well  Conc es s ional im por t duty to be available f or ins tallation of Mec hanis ed Handling Sys tem s and Pallet Rac k ing Sys tem s in m andis or warehous es f or hortic ultural produc e: Mec hanis ation would lead to reduc tion in was tageM edical Dev i ces  T he im pac t of c us tom d uty reduc tion will be f ar reac hing in c utting down the c os ts of m edic al devic es and equipm ents where titanium diox ide is us ed as an input.T echnical T ext iles  T he us e of r ight m ix of f ibr e as is the trend worldwide 10
  12. 12. UNION BUDGET  Lik ely to enc o ur age m anuf ac turing of tec hnic al tex tiles item s lik e bullet proof helm ets in the c ountr y and m ak ing them c om petitive  G eo- tex tiles m anuf ac tur ing will get a boos t in the c ountry if the dom es tic ally produc ed item s ar e enc our aged under the Rs 500 c rores s c hem e announc ed f or Nor th- Eas t f or applic ation of geo - tex tiles  R&D is m us t f or tec hnic al tex tiles , henc e the budget will have s alutary im pac t on the s ec tor  G reen hous e c over s c an be im ported at bas ic im port duty of 5% now as agains t 10%. May dis inc entive lo c al m anuf ac turing here  W eaving is weak link in the tex tiles value c hain and needs to be m odernis ed. Henc e, c us tom duty ex em ption on s huttles loom s will help the s ec tor in upgr ading the tec hnologyW arehousing  T he pr opos al f or s etting up the national f ood Proc es s ing Mis s ion is a welc om e m ove whic h will def initely c ontribute to enhanc ed growth of the s ec tor on ac c ount of im pr oved c entr e s tate c oordination and ex ec ution of polic ies .  T he inc r eas e in ex c is e duty ac r os s c ategories ranging f rom 1 - 2% will c ontrib ute to inf lationar y pr es s ur es and we s eek a roll bac k . Sinc e the indus try is low m ar gin and high volum e the roll bac k bec om es even m ore pertinent.  Enhanc em ent in inves tm ent link ed deduc tion of c apital ex penditure towards c old c hain f ac ility, war ehous es i s a pos itive m ove towards inc entivizing f low of m oney in thes e ar eas .  Creation of 2 m illion tonnes of s torage c apac ity in the f orm of m odern s ilos has already been appr oved. Nearly 15 m illion tonnes c apac ity is being c reated under the Pr ivate Entr epr eneu r ’s G uarantee Sc hem e, of whic h 3 m illion tonnes of s tor age c apac ity will be added by the end of 2011 - 12 and 5 m i llion would be added nex t year  T he r educ tion in c us tom s duty on probiotic s and Soya protein c onc entrate and is olated s oya pr otein as well as re duc tion in ex c is e duty on all proc es s ed s oya f ood pr oduc ts , as als o the reduc tion in c onc es s ional bas ic c us tom s duty along with r educ ed ex c is e duty of 6 % on iodine, is a s tep in the right direc tion towar ds ac hieving nutr ition and health goalsM SM E  Inc r eas e in Com puls or y audit lim it of s m all bus ines s will help c urtail c os t of hiring auditor s / legal ex per ts  In or der to enhanc e availability of equity to MSME s ec tor, s etting up of Rs . 5,000 c r or es India O ppor tunities Venture Fund with SIDBI is a welc om e s te p. T his will help MSMEs f unding requirem ent during their s tart- up as well as growth s tage 11
  13. 13. UNION BUDGET  For the year 2012 - 13, tax - f ree bonds f or Rs . 5000 c rores were announc ed f or f inanc ing in f r as tr uc tur e pr oj ec ts f or SIDBI  In addition to 4 m ega handloom c lus ters alre ady operationalis ed, the announc em ent of two m or e m ega c lus ters , one to c over Prak as am and G untur dis tr ic ts in Andhr a Pr ades h and the other f or G odda and neighbouring dis tric ts in J har k hand is a welc om e m ove f or prom oting c lus ter developm ent f or MSMEs . Als o pr oviding as s is tanc e in s etting up of dorm itories f or wom en work ers in the 5 m ega c lus ter s r elating to handloom , power loom and leather s ec tors would inc r eas e em ploym ent opportunities f or wom en.  T he alloc ation f or Pr im e Minis ter’s Em ploym ent G eneration Program m e ( PMEG P) has been inc r eas ed by 23% f rom Rs . 1,037 c rore in 2011 - 12 to Rs . 1,276 c r or e in 2012 - 13. T his would eventually help in broadening entr epr eneur s hip bas e and thereby inc reas ing the em ploym ent opportunity in the MSME s ec tor .  In or der to pr o vide im petus to the MSME engaged in produc tion of low - c os t m edic al devic es , a r educ ti on on bas ic c us tom s duty to 2.5% with c onc es s ional CVD of 6% on s pec if ied parts , c om ponents and raw m aterials f or the m anuf ac tur e of s om e dis pos ables and ins trum ents was a nnounc ed. Als o, f ull ex em ption f r om bas ic c us tom s duty and CVD is als o being ex tended to s pec if ied raw m ater ials f or the m anuf ac ture of c oronary s tents and heart valves . T hes e c onc es s ions would be s ubj ec t to ac tual us er c ondition. T his announc em ent will help Indian m anuf ac tur er s to bring out indigenis ed produc ts at low c os t.Pow er  Fuel r ef or m s : G over nm ent’s apprec iation f or the c onc erns of power s ec tor s tak eholder s par tic ular ly pertaining to the f uel is s ues is welc om e. T he ef f orts s tar ted by PMO by m anda ting Coal India Lim ited to s ign Fuel Supply Agr eem ents ( with under tak ings having s igned the PPAs and lik ely to c om m is s ion bef or e or by Marc h 31, 2015). T hes e have been f urther enhanc ed by f ull ex em ption of bas ic c us tom s duty and a c onc es s ional CVD of 1% on s team c oal f or a per iod of 2 years till Marc h 2014. O ther f uels us ed f or power gener ation s uc h as natural gas and LNG , uranium have als o been f ully ex em pted f r om bas ic c us tom s duty. T he propos ed c ons titution of an inter - m inis ter ial gr oup to under tak e peri odic review of the alloc ated c oal m ines and m ak e r ec om m endations on de - alloc ations , if s o required is als o welc om e. T hes e m eas ur es c oupled with f ull ex em ption f rom bas ic c us tom s duty f or c oal m ining proj ec ts will c er tainly m ak e the proc es s m ore ac c ountable and hopef ully lead to greater dom es tic ex plor ation of c oal.  Financ ing Im per atives : ECBs have been allowed to part - f inanc e Rupee Debt of ex is ting power pr oj ec ts and tax - f ree bonds am ounting INR 10,000 c rores have been pr opos ed f or the power s ec tor. For t he power s ec tor, bes ides ac c es s to low c os t f unds , the Budget has als o propos ed ex tens ion of the s uns et date by one year f or power s ec tor undertak ings s o that they c an be s et up on or bef ore Mar c h 31, 2013 f or c laim ing 100% deduc tion of prof its f or 10 year s . Additional depr ec iation of 20% in the initial year is propos ed to be ex tended to new as s ets ac quir ed by power gener ation c om panies . T he dec is ion to rem ove the c as c ading ef f ec t of Dividend Dis tr ibution T ax is als o welc om e. 12
  14. 14. UNION BUDGETHomeland Securit y  Ef f or ts to i nc r eas e the availability of res idential quarters to f orc es . In 2012 - 13, it is envis aged to c ons tr uc t nearly 4,000 res idential quarters f or Central Arm ed Polic e For c es f or whic h 1,185 c rore s are propos ed to be alloc ated  A pr ovis ion of 3,280 c r or es f or 2012 - 13 has als o been m ade f or c ons truc tion of of f ic e buildings inc luding land ac quis ition and barrac k s to ac c om m odate 27,000 per s onnel. T his will pr ovide better work ing environm ent and inc entive f or people to s er ve in var ious f or c es .ICT  Need to get f ur ther elabor ation on the viability gap f unding announc ed f or phone tower s .  Som e m obile phone par ts have been ex em pted f rom bas ic c us tom s duty whic h is good news  Inc r eas e in s er vic e tax will hit the end c us tom ers in telec om s ec tor, m ore s o when the indus tr y is f ac ing lots of unc ertainty  Foc us on e - enablem ent by s tres s ing on enabling e - f iling, e - paym ent of tax es , c om puter ization of c om m er c ial tax es , Creation of online platf orm s etc .  All thr ee public s ec tor O il Mark eting Com panies have launc hed LPG trans par en c y por tals to im prove c us t om er s ervic e and reduc e leak age  Mobile- bas ed s ys tem that gives all inf orm ation on f ertilizer and s ubs idies m ovem ents to be r olled out nation - wide is pos itive s tep  Us e of Aadhaar as power f ul ef f ec tive tool in ac hieving good gover nanc e and m aintaining tr ans par enc y  Endeavour to s c ale up and roll out Aadhaar enabled paym ents f or various gover nm ent s c hem es in at leas t 50 dis tric ts within nex t 6 m onthsEnv ironment , Climat e Change & R enew able Energy  No c hange in the ex is ting c onditionT extiles  Ex c is e duty on r eadym ade G arm ents f urther reduc ed: Ex c is e duty of 10% is applic able to br anded r eady- m ade garm ents with abatem ent of 55% f rom the Retail Sale Pr ic e. Along with inc reas e in duty to 12%, FM propos es to enhanc e the abatem ent to 70%. As res ult, the inc idenc e of duty as a perc entage of the Retail Sale Pr ic e would c om e down f rom 4.5% to 3.6%.In term s of im pac t, there would be m ar ginal benef it to tex tile c om panies in the higher end of the value c hain  Autom ated s huttle loom s ex em pted f ro m c us tom s duty: Fully ex em pt autom atic s huttle - les s loom s f r om bas ic c us tom s duty of 5% would have the pos itive im pac t on weaving indus tr y and s pec ially Denim s ec tor 13
  15. 15. UNION BUDGET  Mor e Handloom c lus ter s : Setting up of two m ore handloom m ega c lus ters , one to c over Pr ak a s am and G untur dis tric ts in Andhra Prades h and other f or G odda and neighbor ing dis tr ic ts in J hark hand in addition to 4 m ega handloom c lus ters already oper ating.  T hr ee W eaver s Ser vic e Centers one eac h in Mizoram , Nagaland and J hark hand to be s et up f or pr oviding tec hnic al s upport to poor handloom weavers  Setting up of dor m itor ies f or wom en work ers in the 5 m ega c lus ters relating to handloom , power loom and leather s ec tors  Rs 500 c r or es pilot s c hem e in twelf th plan f or prom otion and applic ation of G eo - tex tiles in the Nor th Eas t Region  Reduc tion of bas ic c us tom s duty on raw m aterials  Mega Power loom Clus ter: A Power loom Mega Clus ter will be s et up in Ic halk ar anj i in Mahar as htr a with budget alloc ation of Rs 70 c rores  Relief to Silk indus tr y: Full ex em pt ion f rom bas ic duty is being ac c orded to autom atic s ilk r eeling and proc es s ing m ac hinery as well as its parts . It is als o propos ed to r es tr ic t thes e ex em ptions and the ex is ting c onc es s ional rateof bas ic c us tom s duty of 5 % only to new tex tile m ac hinery  Sec ond- hand m ac hiner y would now attrac t bas ic duty of 7.5%  T o r educ e bas ic c us tom s duty on wool was te and wool tops f rom 15% to 5%  T o r educ e bas ic c us tom s duty on T itanium diox ide f rom 10% to 7.5%G ems & Jew ellery  Ex c is e duty s tays at 1%  Cus tom duty on G o ld and Platinum duty has been inc reas ed f rom 2% to 4%. T his will af f ec t the end us er, s inc e the duty hik e will be pas s ed on to them  Branded Silver J eweller y is ex em pted f rom ex c is e duty; as s uc h there is no branded s ilve r j eweller y available in m ark et  Cut and Polis hed c olor ed gem s s tone to attrac t bas ic c us tom duty of 2% at par with Diam onds . T his will have m arginal im pac t.Health  Inves tm ent link deduc tion of c apital ex penditure f or c ertain bus ines s es inc luding hos pitals pr opos ed to be provi ded at the enhanc ed rate of 150% whic h will inc lude hos pitals . T he m eas ure will inc rem entally inc entivize hos pital penetr ation into tier - II and tier - III c ities . However, the dem and f or ‘Inf r as tr uc tur e Status ’ has not been m et whic h would have a f ar greater im pac t on the ex pans ion of num bers of beds in T ier II - T ier III c ities . 14
  16. 16. UNION BUDGET  W ithin the ex is ting lim it f or deduc tion allowed f or health ins uranc e, a deduc tion of up to Rs .5000 is being allowed f or preventive health c hec k ups . o T his would benef it the end c ons um er in a big way; the propos al would lead to m ove towar ds prevention and m anagem ent of dis eas es as als o health c ouns eling ins tead of j us t c urative healthc ar e whic h is the need of the hour o Hos pitals and s tandalone diagnos tic s c enters would benef it through s ubs tant ial additional bus ines s . o Health ins ur anc e indus try c an als o benef it indirec tly through better ris k pr of iling of c ons um ers and m ore s c ientif ic pric ing in the long run.  Alloc ation f or NRHM pr opos ed to be inc reas ed f rom Rs .18,115 c rores in 2011 - 12 to Rs .20 ,822 c r or es in 2012 - 13. o Additional f unding will pos itively im pac t various public health initiatives of the G over nm ent at the rural level.  National Ur ban Health Mis s ion is being launc hed. o T his will have a pos itive im pac t on inc luding the urban poor in the public health initiatives of the G overnm ent whic h was neglec ted until nowHuman Resource  G over nm ent has lar gely m is s ed out on the FICCI rec om m endations f or higher educ ation. Ex c ept f or the routine inc reas e in the f und alloc ation f or the s ec tor, ther e has not been any m aj or announc em ent m ade. In f ac t, the budget s peec h f inds no m ention of higher educ ation anywhere, thereby not giving a c lear pic tur e of the am ount alloc ated f or higher educ ation this year. Als o the m uc h awaited im pending Bills on higher educ a tion f ound no plac e in his s peec h whic h would f ur ther aggr avate the anx iety of s tak eholders , m ore s o f rom the f oreign higher educ ation pr ovider s .Higher Educat ion  G over nm ent’s pr opos al to c reate a Credit G uarantee Sc hem e f or educ ation loans thr ough bank s to ens ure better f low of c redit to des erving and m eritorious s tudents will def initely enhanc e the af f ordability of higher educ ation am ongs t the m iddle and low inc om e groups there by inc reas ing the G ER.  T o pr om ote inves tm ent in res earc h and developm ent, t he governm ent has ex tended the weighted deduc ti on of 200% f or R&D ex penditure in an in - hous e f ac ility beyond Mar c h 31, 2012 f or a period of f ive years whic h c ertainly im pac t the R&D gr owth in univer s ities and res earc h c entres .  G over nm ent’s announc em ent o f weighted deduc tion of 150% of ex penditure inc ur r ed on s k ill developm ent in m anuf ac turing s ec tor would partially help in addr es s ing s hor tage of s k illed m anpower in the m anuf ac turing s ec tor and would gener ate em ploym ent. FICCI’s initiative of s etting up Na tional Knowledge Func tional Hubs ( NKFH) f or c reating a s us tained m ec hanis m f or indus try - ac adem ia link age f oc us ing on c apital goods /m anuf ac turing will gain by 15
  17. 17. UNION BUDGET attr ac ting c or por ate inves tm ent in the hub. Planning Com m is s ion is als o propos ing to integr ate thi s m odel in the 12th Plan.School Educat ion  21.7% inc r eas e in budget alloc ation ( Rs 25,555 c rores f or 2012 - 13) f or Sarva Shik s ha Abhiyan ( SSA) whic h is being c urrently im plem ented through Right to Educ ation ( RT E) would c ertainly help in m eeting the res our c e c runc h and help in inc r eas ing liter a c y level in the c ountry  T he m ention of s etting up 6000 m odel s c hools is one of the elem ents f rom las t year ’s budget. 2500 m odel s c hools to be built in PPP a f ram ework has not tak en of f due lac k of c ons ens us between t he governm ent and the private s ec tor. Henc e, ther e is an ur gent need by the governm ent to ex pedite the proc es s s o that it f r uc tif ies in the 12th Plan period  29% hik e in f und alloc ation (Rs 3124 c rores ) f or Ras htriya Madhyam ik Shik s ha Abhiyan ( RMSA) whic h was launc hed in 2009 to enhanc e ac c es s to quality s ec ondar y educ ation is a good m ove f orward to arres t s c hool dropout rate at the m iddle s c hool level. 16

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