Union Budget 2012-13: Neither Reformist Nor Populist

Finance Minister Pranab Mukherjee presented the Union Budget for 2012-13 in the Lok Sabha (lower house of the Parliament) on March 16. The Budget proposed a total plan outlay for agriculture has been increased by 18 per cent from Rs 17,123 crore in 2011-12 to Rs 20,208 crore in 2012-13. This will support the new initiatives announced in the budget besides backing the existing programs which have resulted into record food grain production this year. There is a total non-plan outlay of Rs 4,011 crore in the budget estimates for 2012-13.
The finance minister also announced an increase in the allocation for Rashtriya Krishi Vikas Yojana (RKVY) from Rs. 7860 crore in 2011-12 to Rs. 9217 crore in 2012-13. Expressing satisfaction at the success of bringing Green Revolution to Eastern India by way of increasing the production and productivity of paddy, the Finance Minister proposed to increase the allocation for this scheme from Rs. 400 crore in 2011-12 to Rs. 1000 crore in 2012-13.
Defense
The Union Budget has announced a justifiable 17.6 per cent hike in its defense spending to allocate an additional Rs 28,992 crore for 2012-13, over the ongoing year’s Rs 1,64,415 crore defense budget. India will spend Rs 1,93,407 crore, nearly $38.6 billion, on defense which is about 11 per cent of the entire country’s budgetary outlay for the next financial year staring April 1.
Around Rs 79,579 crore, it was Rs 69, 199 crore in 2011-12, have been earmarked for capital expenses like for new acquisitions of weapons, warplanes, warships, equipment, naval dockyards and special classified projects. In 2011-12, India had affected a hike of 11.59 per cent in its defense spending.
The finance minister said this allocation was based on the present needs projected by the Defense Ministry and further needs for security would also be met. India’ budgetary hike comes just weeks after China announced a $106 billion military budget, taking its military spending into the triple digit figures for the first time.
In other words, India would be spending some 40 per cent of what China spends on its Defense. The core US defense budget, not including its war funding, has been projected $525 billion for the same period. Pakistan has a defense outlay of $5.75 billion for 2011-12, a raise of 12 per cent.
The present hike, when seen from the revised budget allocation for this year, works out to be a 13.15 per cent. Interestingly, the share of India’s defense spending out of its Gross Domestic Product (GDP) has gone up slightly. It now stands at 1.90 per cent of the GDP, up from 1.84 per cent for the ongoing fiscal.
Agriculture
The finance minister Pranab gas announced a Rs 1,00,000 crore increase in the agriculture credit target, boosting it to Rs 5,75,000 for the next fiscal, and raised the outlay for farm sector by more than Rs 3,000 crore - proposals that farmers’ representatives called “encouraging” and economists “lacking in new initiatives”.
Emphasising that agriculture was a priority for the government, Mukherjee increased the total plan outlay for the sector by 18 per cent, up from Rs 17, 123 crore in 2011-12 to Rs 20,208 crore in 2012-13.
As per leading agriculture scientist MS Swaminathan, the increase in the target for agricultural credit to Rs 5,75,000 crore is the only new initiative in Budget. The finance minister has essentially tried to consolidate the gains made as a result of the initiatives he had launched during the previous two budgets.
Education
With a range of flagship projects moving in parallel in the school education sector, Pranab Mukherjee has announced nearly a 22 per cent hike for the Sarva Shiksha Abhiyan and a 29 per cent increase for the Rashtriya Madhyamik Shiksha Abhiyan (RMSA).
The finance minister has earmarked a total of `61,427 crores for the education sector in budget 2012-13, a hike of about 18 per cent in the budgetary allocation over last year, with `15,458 crores earmarked for higher education and `45,969 for school education.
Health
The Union Budget has proposed to increase the outlay of the government’s flagship scheme — National Rural Health Mission (NRHM) and projected to launch the National Urban Health Mission (NUHM) to target the urban poor. It proposes to increase the allocation to NRHM from `18,115 crores in 2011-12 to `20,822 crore in 2012-13.
The finance minister also proposed to extend concessional basic customs duty of five per cent with full exemption from excise duty/CVD to six life-saving drugs/vaccines. The drugs and the vaccines exempted from excise duty are: Raltegravir Potassium for treatment of HIV-I infection, rotavirus vaccine, Pneumococcal Polysaccharide vaccine for the treatment of patients with thallassemia, malignancy, Posaconazole Oral Suspension for the treatment of life threatening invasive fungal infections, Temsirolimus Concentrate for Infusion for Injection for treatment of advanced renal cell carcinoma and Natalizumab the treatment of relapsing forms of Multiple Sclerosis.
For 2012-2013 an allocation of `30, 477 crores has been made as against the budget estimate of `24315 crores in 2011-2012. This amounts to a jump of over 25 per cent. In a major thrust towards ensuring adequate nutrition women and children, the government has proposed to reduce basic customs duty on soya protein concentrate and isolated soya protein to 10 per cent from the present 30 per cent and 15 per cent respectively.
Subsidy
The government has made it clear in the Budget presented that it is not possible to grant more subsidies and keep consumers cushioned from price rises.
The finance minister has set a target to restrict subsidies under 2 per cent of GDP in 2012-13 and bring it down further to 1.75 per cent of GDP over the next three years. This may be achieved through direct transfer of fuel and fertilizer subsidies to the beneficiaries and an increase in retail prices of petroleum products. This means the subsidy bill would be capped at `2.04 lakh crores, considering India’s GDP of `102 lakh crores. The government has absorbed the duty reduction in petroleum products with annual revenue loss of `49,000 crores. For 2011-12, the total subsidy bill has been pegged at `2.16 lakh crores. The Budget estimate for subsidies stands at `1.9 lakh crores for 2012-13.
External Commercial Borrowings
Finance Minister Pranab Mukherjee permitted the sectors to take External Commercial Borrowings (ECB) route to help themselves.
The Budget proposed to allow external commercial borrowings to part finance rupee debt of existing power projects. Reliance Power, Tata Power, Torrent Power, Adani Power, GVK Power are the major companies which would get benefit from this move.
As regards airlines, Kingfisher, Jet Airways and SpiceJet got a major relief after the Government allowed the airline companies to raise capital through external borrowings worth $1 billion for a year.
Kingfisher Airlines, which has a debt of around Rs 600 crore, reported a net loss of Rs 469 crore for the July-September quarter of the current fiscal, while Jet Airways posted a net loss of Rs 101.22 crore (Rs 1.01 billion) for the third quarter of 2011-12, will benefit the most from the move.
As regards the real estate and road sector, the Budget has taken into account the crying need to focus on affordable housing sector by allowing ECB for low cost housing, road as well as construction. Experts say as withholding tax on ECBs for affordable housing has been reduced from 20 per cent to 5 per cent for 3 years this will help ease the liquidity in the sector.
Tax Relief
In a relief to individual taxpayers and salaried class, the finance minister raised the exemption limit on personal income-tax by `20,000 to `2,00,000 in the Union Budget. The exemption limit will be the same for men and women, unlike in the past. The threshold limit for senior citizens remains unchanged, at `2,50,000. The change will mean savings of `2,000 in tax for male taxpayers and savings of `1,000 for women.
The finance minister also tinkered with tax slabs; the top 30 per cent income-tax rate will be applicable from incomes of `10 lakhs and above, against `8 lakhs now. This will give a straight and flat tax relief to the extent of `20,000 for anyone who has income over `10 lakhs. Incomes between `2,00,001 and `5,00,000 will be taxed at 10 per cent; and those between `5,00,000 and `10,00,000 at 20 per cent.According to the finance minister, increasing the exemption limit is a move toward implementing the Direct Taxes Code (DTC). The standing committee of Parliament that scrutinised the DTC Bill had suggested raising the tax exemption limit to `3 lakhs. Tax rates for senior citizens (60 and above) and “very senior” citizens (80 and above) remain unchanged. The qualifying age for senior citizens has been set at 60 now.
Revenue Collection
The finance minister has been timid in revenue collection resources, which will raise just `41,440 crores net. It is clear that he has tried to act cautiously, and not been as proactive as expected, possibly due to global economic weaknesses, as well as domestic constraints. The revenue collection is nowhere close to what was needed, given the huge fiscal deficit the government must grapple with. He widened the service tax net, but said himself that the funds he will get is far less than what this sector, accounting for almost 59 per cent of GDP, could be tapped for.
Fiscal Deficit
There is skepticism about the finance minister’s claim of reducing the fiscal deficit to 5.1 per cent of the GDP in the coming year. This year the budgetary target of 4.6 per cent of the GDP has been overshot by one percentage point due to economic slowdown, higher oil prices and a hefty subsidy bill. There is no guarantee that things would change this year. There is another negative signal for foreign investors. The government has indicated that the British firm Vodafone’s case may be reopened as the definitions of “property” and “transfer” have been changed retrospectively. The Supreme Court had ruled in favor of Vodafone in a tax dispute over a cross-border deal. Such actions hit investor confidence.
Highlights
* Tax burden for individuals to come down: Income tax exemption limit raised from Rs. 1,80,000 to Rs. 2,00,000; 10 per cent tax for 2-5 lakh income; 20 per cent for 5-10 lakh and 30 per cent beyond Rs. 10 lakh; Savings bank account interest up to Rs. 10,000 exempted from tax.
* Many services and goods to cost more: No change in corporate tax rate, but standard rate of excise duty, as also service tax rates, raised from 10 per cent to 12 per cent; No change in peak customs duty of 10 per cent on non-agri goods.
* Large cars, imported bicycles, cigarettes, bidis and some imported jewellery to cost more; branded silver jewellery may get cheaper.
* Boost for capital markets: Securities Transaction Tax on cash delivery reduced by 25 per cent to 0.1 per cent; A new Rajiv Gandhi Equity Saving Scheme to allow income tax deduction to retail investors in stocks.
* Economy expected to gain ground: GDP growth rate pegged at 7.6 per cent in 2012-13; Subsidy Expenditure to be checked and higher tax revenues targeted; Rs. 30,000 crore to be raised from disinvestment.
* Capital boost to financial and infrastructure sectors: Rs. 15,888 crore to be provided for capitalisation of public sector banks and financial institutions; Infrastructure investment of Rs. 50 lakh crore in 12th period, with half from private sector; Tax free bonds of Rs. 60,000 crore to be allowed for financial infrastructure projects.
* Fight against black money: White paper on black money in current session of Parliament; Introduction of compulsory reporting requirement for assets held abroad; tax collection at source on high-value cash purchase of bullion, jewellery, immovable property and trading in coal, lignite and iron ore.
* Greater scrutiny of closely-held companies for funds; Taxation of unexplained money, credits, investments, expenses at highest rate of 30 per cent irrespective of income slab.
* Tax reforms: Direct Taxes Code (DTC) at earliest; GST network to be operational by August 2012; Central Excise and Service Tax being harmonized. A General Anti-Avoidance Rule (GAAR) to be introduced to counter aggressive tax avoidance.
* Attracting foreign funds: Efforts on to allow FDI in multi-brand retail and permitting foreign airlines invest in domestic players; External borrowings to the extent of USD one billion for aviation companies; Qualified Foreign Investors to get access to corporate bond market.
* Tax relief for stressed sectors: Sectors like agriculture, infrastructure, mining, railways, roads, civil aviation, manufacturing, health and nutrition, and environment to get duty relief; Turnover limit for compulsory tax audit for SMEs raised from Rs 60 lakh to Rs 1 crore.
* Farming for growth: Target for agricultural credit raised to Rs 5,75,000 crore; Interest subvention for short-term crop loans to farmers at 7 per cent interest continues; additional 3 per cent for prompt paying farmers.
Financial Highlights of Budget 2012-12:
* Direct proposals to give in net revenue loss of Rs. 4,500 crore and net gain of Rs. 45,940 crore from indirect taxes, resulting into a net gain of Rs. 41,440 crore.
* Fiscal deficit targeted at 5.1 per cent of GDP in 2012-13, down from 5.9 per cent in 2011-12; Central Government debt at 45.5 per cent of GDP.
* Total expenditure budgeted at Rs. 14,90,925 crore; plan expenditure at Rs. 5,21,025 crore, 18 per cent higher than 2011-12 budget; non-plan expenditure at Rs. 9,69,900 crore.
* Gross Tax Receipts estimated at Rs. 10,77,612 crore, 15.6 per cent higher than original budget estimates and 19.5 per cent over the revised estimates for 2011-12.
* Net tax to the Centre in 2012-13 estimated at Rs. 7,71,071 crore; Non-Tax Revenue Receipts estimated at Rs. 1,64,614 crore and Non-debt Capital Receipts at Rs. 41,650 crore.
* Total expenditure for 2012-13 budgeted at Rs. 14,90,925 crore, including Rs. 5,21,025 crore of Plan Expenditure and Rs. 9,69,900 crore as Non-Plan Expenditure. * Defence services get Rs. 1,93,407 crore; any further requirement to be met.

Economic Survey 2011-12: Inflation Pegged at 6.5 Per Cent, Maintained GDP Growth at 6.9 Per Cent

Finance Minister Pranab Mukherjee presented the Economy Survey 2011-12– a report card of the Indian economic scenario for current fiscal– in the Lok Sabha (lower house of the Parliament) on March 15.
Inflation Rate
The Survey pegged inflation at 6.5-7 percent by end of March and projected a further moderation in the next fiscal. Inflation in the current fiscal has largely been driven by high food prices. It had slipped to a low of 6.6 percent in January, but rebounded to almost 7 percent in February. The survey, however, said that fiscal consolidation was the only way to keep inflation down.
The survey said that monetary measures by the Reserve Bank of India (RBI) and its impact on curbing inflation needed to be studied further to improve efficiency of such actions in the future. Incidentally, the RBI in its mid-quarter review of the monetary policy left key rates unchanged, citing upside risks to inflation.
Growth Rate
The Economic Survey has maintained Gross Domestic Product (GDP) growth at 6.9 per cent. The growth in the financial year 2012-13 growth is expected to come in at 7.6 per cent and the financial year 2013-14 growth is pegged at 8.6 per cent.
Indian along with Indonesia showed strong growth despite a global economic slowdown in the final quarter of 2011, according to the International Monetary Fund (IMF).
IMF in its latest provisional report has said the GDP growth of G20 – a grouping of leading economies of the world – slowed to 0.7 per cent in the October-December quarter, compared with 0.9 per cent in the third quarter.
In the United States, GDP growth increased to 0.7 per cent in the fourth quarter, compared with 0.5 per cent in third quarter.
The IMF stated that in India and Indonesia growth increased strongly, but slowed in China to 2 per cent, compared with 2. 3 per cent in the third quarter.
In Japan, economic growth decreased to (-)0.2 per cent, following the strong rebound (+1. 7 per cent) in third quarter.
The Survey states that GDP fell by (-)0.3 per cent in both the European Union and the euro area in the fourth quarter of 2011, the first fall since the second quarter of 2009.
Fiscal Deficit
The Survey states that the fiscal outcome in 2011-12 is likely to be affected by the macroeconomic setting which indicates sharp slowdown in industry and rising costs affecting profits. In the first nine months of the current fiscal, gross tax revenue has grown by 12.2 per cent as against the budget estimate target of 17.3 per cent, it said.
On the other hand, as against a target of 4.9 per cent for the whole year, growth in total expenditure in the first nine months of 2011-12 was 13.9 per cent, which comprised 15.4 per cent growth in non-Plan expenditure and 10.8 per cent growth in Plan expenditure, the survey added.
Per Capita Income
According to the Survey, the per capita income of India stood at $ 1,527 in 2011. The Survey says that this is perhaps the most visible challenge. Nevertheless, India has a diverse set of factors, domestic as well as external that could drive growth well into the future.
The Survey further says that between 1980 and 2010, India achieved a growth of 6.2 per cent, while the world as a whole registered a growth rate of 3.3 per cent. As a result, India’s share in global GDP more than doubled from 2.5 per cent in 1980 to 5.5 per cent in 2010.
Consequently, India’s rank in per capita GDP showed an improvement from 117 in 1990 to 101 in 2000 and further to 94 in 2009. China, however, improved its rank from 127 to 74 during the same period.
Highlights
* India's economic growth estimated at 6.9 per cent in the current fiscal; growth momentum to pick up in next two fiscals to 7.6 per cent 2012-13 and 8.6 per cent in 2013-14.
* RBI expected to lower policy interest rates, as inflationary pressures expected to ease in coming months; A low interest rate regime to encourage investment activity and push forward economic growth.
* Steps required for deepening of domestic financial markets, especially corporate bond market and attracting longer-term inflows from abroad; Efforts at attracting dedicated infrastructure funds have begun.
* The growth rate of investment in the economy is estimated to have declined significantly; borrowing costs up due to a sharp increase in interest rates.
* High borrowing costs and increase in other costs affecting profitability and internal accruals.
* Slowdown in Indian economy largely due to global factors, as also because of domestic factors like tightening of monetary policy, high inflation and slower investment and industrial activities.
* Inflation high, but showing clear signs of slowdown by the year-end; Whole-sale food inflation down to 1.6 per cent in January 2012 from 20.2 per cent in February 2010.
* India remains one of the fastest growing economies of the world; Country's sovereign credit rating rose by a substantial 2.98 per cent 2007-12
* Farm sector growth pegged at 2.5 percent for 2011-12.
* Services sector to grow at 9.4 percent.
* Services sector share in GDP to go up to 59 percent in the fiscal ending March 31.
* Industrial growth pegged at 4-5 percent, expected to improve as economic recovery resumes.
* Inflation on Wholesale Price Index (WPI) was high but showed clear slow down by the year-end. This is likely to spur investment activities leading to positive impact on growth.
* WPI food inflation dropped from 20.2 percent in February 2010 to 1.6 percent in January 2012.
* Calibrated steps initiated to rein-in inflation on top priority.
* India remains among the fastest growing economies of the world.
* Fiscal consolidation on track - savings and capital formation expected to rise.
* Exports grew by 40.5 percent in the first half of this fiscal and imports grew by 30.4 percent.
* Foreign trade performance to remain a key driver of growth.
* Forex reserves enhanced - covering nearly the entire external debt stock.
* Central spending on social services goes up to 18.5 percent this fiscal from 13.4 percent in 2006-07.

Rail Budget 2012-13: Hike in All Classes Fares

Railway Minister Dinesh Trivedi presented his maiden Railway Budget for 2012-13 in the Parliament on March 14. The annual plan outlay for Indian Railways for 2012-13 has been pegged at Rs 60,100 crore which provides Rs. 6,872 crore for new railway lines and significant funds for passengers safety, security and amenities. Of the total budget, Rs 24,000 crore will be in the form of gross budgetary support, Rs 2000 crore from railway safety fund (RSF) and Rs 18050 crore would be through internal accruals.
The railway minister has focused on five important fields, which are: safety; consolidation; decongestion and capacity augmentation; modernization; and to bring down the operating ratio from 95 per cent to 84.9 per cent in 2012-13.
Passengers Charged
The increase would be 2 paise per km for suburban trains; 3 paise per km for mail trains. Express train fare was up by 5 paise per km, 10aise p per km for a/c chaircar, 10 paise per km for a/c 3-tier, 15 paise per km for a/c 2-tier and 30 paise per km for a/c 1st class. Platform tickets would now cost Rs 5.
According to the railway minister, the attempt was to round off fares to eliminate the need for change.
According to the minister, Indian Railways will invest Rs.7.35 lakh crore during the 12th Five Year Plan (2012-17), against Rs.1.92 lakh crore in the current one. By then, it will double its contribution to India's gross domestic product to 2 percent.
The minister said the outlay of Rs.60,100 crore proposed for 2012-13 will be the highest ever and added that the network will require Rs.14 lakh crore over the next 10 years for modernization.
Coming to specific proposals, the railway minister said 85 new line projects would be taken up during the next fiscal year at a cost of Rs.6,870 crore, even as feasibility surveys would be conducted for another 114 lines.
Trivedi said an attempt will also be made to increase train speeds to 160 km per hour from around 90-100 km per hour. With that, he said, a journey from New Delhi to Kolkata will be brought down to 14 hours from 17 hours.
Budget At A Glance
* Passenger fares to be hiked by 2 paise per km for suburban and ordinary second class travel; 3 paise per km for mail/ express second class; 5 paise per km for sleeper class; 10 paise per km for AC chair car/AC 3-tier and First Class; 15 paise per km for AC 2-tier and 30 paise per km for AC 1-tier.
* Minimum fare and platform tickets to cost Rs 5.
* Seventy-five mew Express trains to be introduced, along with 21 new passenger services, nine DEMU services and 8 MEMU services trains.
* Route of 39 trains to be extended and frequency of 23 trains to be increased.
* Railways to hire more than one lakh employees in 2012-13; 80,000 persons hired last year.
* Indian Railways Stations Development Corp to be set up to re-develop stations and maintain them like airports.
* To set up an independent Railway Safety Authority as a statutory body.
* The open discharge toilets on trains to be replaced with green (bio) toilets.
* All unmanned level crossings to be abolished in next five years; To target zero deaths due to rail accidents.