Union Budget 2013-14: Focuses on Economic Growth, Middle Class To Pay More

Finance minister P. Chidambaram presented the Union Budget for 2013-14 in the Parliament on February 28. It was Chidambaram's eighth annual budget, the second highest by anyone in India after a record ten by former Prime Minister Morarji Desai. Overall, it was 82nd Union Budget in the Indian history, including interim and special-situation budgetary proposals, since the first one of independent India was presented by then finance minister R.K. Shanmukham Chetty on November 26, 1947.

Individually, Chidambaram presented the Union Budget for the eighth time, the second-highest by any finance minister. The maximum number of 10 budgets have been presented by Morarji Desai, while Pranab Mukherjee (currently President of the country), Yashwant Sinha, Y.B. Chavan and C.D. Deshmukh have presented seven budgets each in the past.

Plan Outlay

The finance minister has proposed a 29.4 percent hike in the plan expenditure for the union budget 2013-14. The plan expenditure for the next fiscal will be about Rs.5.53 lakh crore, the finance minister said.

The budget expenditure is Rs.16,65,297 crore and the plan expenditure is Rs.5,55,322 crore," Chidambaram said, adding that the plan expenditure in 12th Five-Year Plan was revised to Rs.14,30,825 crore or 96 percent of budgeted expenditure.

Growth Rate

India’s economic growth, as per official estimates, decelerated to 5 percent and 6.2 percent in the past two years, from 8.6 percent and 9.1 percent in the two years preceding them. Chidambaram said the Indian economy was today constrained by three factors: high fiscal deficit, slow growth and high inflation.

The finance minister said a whopping Rs.16.65 lakh crore (Rs.16.65 trillion or nearly $300 billion) would be spent under plan expenditure during 2013-14, which will be 30 percent higher than the outlay for this fiscal.

Fiscal Deficit

While doing a shade better than the targeted fiscal deficit of 5.3 percent of Gross Domestic Product (GDP) at 5.2 percent for the current fiscal, the finance minister has stuck to his target of 4.8 percent of GDP for 2013-14, even while stepping up defense allocation by 14 percent over the revised estimates in the current fiscal.

Similar hikes have been proposed in various sectors. although it is clear that he managed to create a cushion through compression in spending during the current financial year. Expenditure under several key heads, including roads and rural housing actually fell in the current fiscal compared to the previous year.

Tax Rates

The 2013-14 Budget proposed a tax cut of Rs.2,000 for people earning an annual income of between Rs.200,000 and Rs.500,000 and said anything beyond that was not possible given the current circumstances. The finance minister said any hike in the exemption limit for direct tax that is paid by individuals would take millions out of the tax net and was neither a desirable proposition, nor feasible. Accordingly, he proposed a Rs.2,000 tax credit for those in the first slab. This measure will benefit 1.8 crore (18 million) tax payers," he said, adding that this would entail an outgo of Rs.3,600 crore ($650 million) to the exchequer.

The finance minister sought to kick-start the engines of growth by providing incentives for productive investment, stepping up expenditure in social sectors to invigorate the economy in the longer term and giving a token tax break at the lowest slab rate to offset the inflationary burden on the middle class.

The Budget proposed to levy a surcharge of 10 percent on individuals whose annual taxable incomes exceed Rs.1 crore. The surcharge will be levied for the 2013-14 financial year. The finance minister said there are only 42,800 individuals in the country who will be liable to pay the surcharge.

To provide for the various increased allocations, the finance minister moved to tap the well-heeled by way of a one-year surcharge of 10 percent on the ‘super rich’ section of tax payers – all 42,800 of them, that is — along with duties on imported or domestic luxury vehicles such as SUVs, mobile phones (priced over Rs. 2,000), and what has been the tax horse of most Finance Ministers —cigarettes. With other minor tinkering of duties, including Tax Deducted at Source (TDS) on sale of property worth Rs. 50 lakh, the net additional tax revenue in the kitty works out to Rs. 18,000 crore.

However, given the challenges that he faced by way of low growth, high inflation, the widening fiscal and current account deficits coupled with lower than targeted revenue collection during 2012-13, Chidambaram may have disappointed taxpayers looking for some major breaks. But he did provide a tax break of Rs. 2,000 to individual tax payers with taxable income of up to Rs. 5 lakh. This itself is estimated to benefit 1.8 crore tax payers and work out to a revenue sacrifice of Rs. 3,600 crore. Likewise, first-time buyers of affordable homes will get an additional deduction of interest of Rs. 1 lakh for home loans up to Rs. 25 lakh, which will be over and above the current Rs. 1.5 lakh deduction allowed for self-occupied dwellings.

Defense Allocation

The government has marginally increased its defense spending by 5.31 percent than 2012-13. The defense budget for 2013-14 starting April 1 will be Rs 2,03,672 crore, an increase of Rs 1,93,407 crore more from the 2012-13 budget.

The revised budget after the mid-fiscal cut was Rs 1,78,504 crore in December 2012. The hike is 14.10 percent, much lower than last year’s 17.6 percent hike. Also the share of defense spending in the GDP will be reduced from 1.9 percent for the year ending March 31 to 1.79 percent of the GDP. The share of defense spending in the overall expenditure will be 10 percent of government expenses, a decrease of 11 percent this year.

Finance Minister P. Chidambaram said that India plans to spend up to 2.03 trillion rupees ($37.7 billion) on defense next year, up from a revised 1.78 trillion rupees this year.

The finance minister said 867.41 billion rupees will be spent to buy defense equipment in the next fiscal year, up from this year's about 695.79 billion rupees. The government had originally planned to spend 795.78 billion rupees on purchasing defense equipment this year.

Despite the cut in this year's defense budget, India will become the world's fourth-largest defense spender by 2020, behind the United States, China and Russia, and surpassing France, Japan and the United Kingdom. It is predicted that India's defense spending will reach $65.4 billion in 2020.

Boost to Agriculture

Finance Minister P Chidambaram hiked the agriculture budget by 22 percent, increased farm credit limit to small and marginal farmers from Rs 5,75,000 crore to Rs 7,00,000 crore in 2013-14 and announced setting up “nutri-farms” pilot project.

The sector got a major boost, in line with the UPA’s ambitious food security Bill (which got an allocation of Rs 10,000 crore) and the next general election, as sufficient sops have been announced for farmers in the Budget.

Also for the first time perhaps, the government set aside separate funds - Rs 500 crore - to start a program on crop diversification.

Education Sector

The Union Budget set aside a budget of Rs 79,451 crore for the entire education sector, including literacy and higher and technical education. This represents a meagre Rs 5,395 crore increase over the budget estimate of Rs 74,056 crore for the Ministry of HRD in the last financial year. The hike constitutes 7.2 percent over 2012-13, whereas last year the increase for the education sector budget was a handsome 18.6 percent. Expenditure on education as a proportion of the GDP has increased from 2.59 percent in 2007-08 to 3.31 percent in 2012-13.

The Plan Budget is Rs 65,869 crore which is Rs 4,442 crore more than Rs 61,427 crore in last fiscal. It will certainly ask for more money with the Right to Education Act (RTE) in mind.

The budget for school education is Rs 49,659 crore which is only 8 percent more than last year. The allocation for the Sarva Shiksha Abhiyan (SSA) is up from Rs 25,500 crore last fiscal to Rs 27, 258 this year an increase of Rs 1,758 crore which is very low considering SSA is the main vehicle to implement the RTE Act. Midday Meal Scheme has been allocated Rs 13,125 crore as against Rs 11,937 crore last year, an increase of Rs 1,260 crore.

Skill Development of Youth

The 2013-14 Budget has allocated Rs.1,000 crore to develop job-oriented skills among youth. Assuming that 10 lakh (one million) youth can be motivated in one year, skill trained youth will give enormous boost in employment and productivity," Chidambaram said, while presenting the federal 2013-14 budget to the Lok Sabha, the lower house of parliament.

The finance minister allocated Rs.1,000 crore (Rs.10 billion) for the "ambition", saying that it would be a "trigger for skill development in the country".

Infrastructure

Infrastructure got a major thrust in the 2013-14 budget with Finance Minister P. Chidambaram announcing a slew of measures to boost sector's growth, like raising Rs 50,000 crore through taxfree bonds and setting up of major ports.

In some other decisions which would boost the infrastructure development in the country, the government also said that it would set up a road regulatory authority in the financial year 2013-14 to address financial stress, construction risk and contract management in the road sector and start work on two more industrial corridors between Bangalore and Chennai and Bangalore and Mumbai.

"The power transmission system from Srinagar to Leh will be constructed at the cost of Rs 1,840 crore, Rs 226 crore provided in current budget," Chidambaram said in his budgetary proposals for next fiscal.

In a move that is also strategic for the region, the proposed 220 kV line from Srinagar to Leh, to be implemented by Power Grid Corp, will pass through Kargil, Drass, Khalsi and is aimed at enhancing the reliability of power supply.

Highlights

* Fiscal deficit for 2013-14 pegged at 4.8 percent of GDP and 5.2 percent in 2012-13

* Plan expenditure pegged at Rs. 5,55,322 crore and Non-Plan at Rs. 11,09,975 crore

* New taxes to collect Rs. 18,000 crore for government

* Voluntary Compliance Encouragement Scheme launched for Recovering service tax dues

* Rs 14,000 crore earmarked for capital infusion in public Sector banks in 2013-14

* Refinance capacity of SIDBI raised to Rs. 10,000 crore

* TUF Scheme for textile sector to continue in 12th Plan With an investment of Rs. 1.51 lakh crore

* No change in income tax slabs

* Relief of Rs. 2,000 for tax payers in tax bracket of Rs2-5 lakh

* Ten percent surcharge on persons with taxable income of over Rs. 1 crore

* Tobacco products, SUVs and mobile phones to cost more

* Income limit under Rajiv Gandhi Equity Savings Scheme Raised to 12 lakh from Rs. 10 lakh

* First home loan of up to Rs. 25 lakh to get extra Interest deduction of up to Rs. 1 lakh

* Duty free limit of gold import increased to Rs. 50,000 For male passengers and Rs. 1 lakh for female passengers

* India’s first women’s bank to be set up by October

* Concessional six percent interest on loans to weavers

* Commodity transaction tax of 0.01 percent proposed on non-agri futures traded on commodity bourses

* Securities transaction tax brought down to 0.01 percent

* No change in basic customs duty; normal excise and Service tax rates unchanged at 12 percent

* Handmade carpets and textile floor coverings of coir or jute exempted from excise duty

* Excise duty on SUVs increased to 30 percent from 27 percent

* Chidambaram says India to become $5 trillion economy, And among top five in the world by 2025

* Rashtriya Swasthya Bima Yojana benefit extended to Rickshaw pullers, auto and taxi drivers, among others

* ‘Nirbhaya Fund’ of Rs. 1,000 crore to empower women and Provide safety in the wake of Delhi gang rape incident

*Rs 9,000 crore earmarked as first installment of balance of CST compensation to states

* Defense allocation at Rs. 203,672 crore, education Rs. 65,867 crore and rural development ministry Rs. 80,194 crore

* Rs 10,000 crore earmarked for national food security toward incremental cost

* Farm credit target set at Rs. 7 lakh crore as against Rs. 5.75 lakh crore in 2012-13

* Direct benefit transfer scheme to be rolled out in the entire country during tenure of UPA government

Assessment

At first glance, the budget may appear harmless to the middle-class. In fact, it might even appear friendly what with all those improvements in housing loan deductions and stock market investments. But make no mistake, this budget will bite the average citizen in more ways than one.

Just take the seemingly innocuous proposal to impose service tax on all air-conditioned restaurants. With most decent restaurants — we are not talking of the up-market ones here — climate-controlled, eating out will become at least another 12 percent more expensive. Remember that restaurants are in the process of revising their price-lists even now with rising prices of food commodities.

Cellular phones are now a necessity and smart phones are increasingly becoming so as they help you do your daily business on the go. As much as 97 percent of all telephone connections in the country are cellular. Yet, smart phones (or phones that cost more than Rs.2,000) will now become pricier with the sharp rise in excise duty to 6 percent from 1 percent. In addition to driving business to the grey market, this proposal will also undo the efforts to push people into using their mobiles extensively for transactions.

It can be said that it must not be forgotten that the finance minister appears to have placed enormous trust in the growth figures going northward in the coming months, and with that he hopes the revenues will follow. After all, by not changing the income tax slabs or too significantly altering the indirect tax proposals which previously existed, Chidambaram hopes to mop just under Rs18,000 crore from his new tax proposals.

However, since that is far less than what the Government needs to meet its expenditure, the Minister is banking heavily on upward economic growth to trigger revenue generation. But growth has dipped from a high of nine percent only a few years ago to around five percent now. While the Minister hopes for a turnaround to six percent and above, there remains a big ‘if'.

Economic Survey 2012-13: Reflects India's Grim Reality, Cautions Against Growing Taxes

Finance Minister P. Chidambaram presented the pre-Budget Economic Survey for 2012-13 to Parliament on February 27. The Survey reflects the grim reality that India is facing a severe slowdown and must act fast to spur investment, restart stalled projects, cut interest rates and contain its fiscal deficit.

Growth Rate

The Survey made it clear that this fiscal’s five per cent growth, the slowest in the past decade, could no longer be blamed on external factors alone, and the government will have to act on the domestic front to come out of the slump.

The Economic Survey, while projecting an optimistic growth rate of 6.1-6.7 percent for 2013-14, stated that to contain the fiscal deficit the government should widen the tax base and cap subsidies, particularly through better targeting and plugging leakages. It also claimed the downturn was more or less over, and that the economy was looking up. Claiming that the downturn was “more or less over” and that the economy was looking up, the Survey projected a cautiously optimistic growth rate of 6.1-6.7 percent while conceding that the Gross Domestic Product (GDP) growth for the current fiscal was likely to slip to the decade’s low of five per cent — compared to the estimates by the Central Statistical Organisation (CSO) of 6.2 percent for 2011-12 and 9.3 percent the year before.

Fiscal Deficit

The Survey had pegged the fiscal deficit at 5.1 percent for the GDP for 2012-13, which the finance minister later revised to 5.3 in view of the rising expenditure and subdued revenue collection. For the new fiscal, the finance minister has committed to bring it down to 4.8 per- cent.

The 2012-13 Survey notes that the government needs to contain the fiscal deficit especially by shrinking wasteful and discretionary subsidies. The Survey said: "Controlling the expenditure on subsidies will be crucial. The domestic prices of petroleum products, particularly diesel and LPG need to be raised in line with their prices prevailing in the international market.

In addition, delays in getting permissions for projects need to be curbed so that investment can pick up. Implementation of GST, if approved, would create an integrated market and bring more producers in the tax net. Also, the direct benefit transfer scheme recently rolled out on the AADHAAR platform will target subsidies better.

Agriculture Reforms

Economic Survey states that with agriculture growth rate falling short of the four per cent target in the past five years, the country’s annual economic report card (the first since the beginning of the 12th Five-Year Plan period), calls for increase in yields and reforms like a suitable sustainable strategy to maximize agricultural income and make it a viable option.

The farm sector achieved 3.6 percent growth during the 11th Five year Plan (2007-12) – higher than growth of 2.5 and 2.4 percent during ninth and 10th Five-Year Plans but lower than expectations of 4 percent growth target.

Therefore, in the face of stiff challenge of feeding its growing population, the Survey has sought urgent reforms to boost crop yield and private investment in infrastructure to motivate farmers.

Economic Survey for 2012-13 has emphasized putting in place a strategy for farm development in the eastern and northeastern regions amid saturation in crop yields in Green Revolution belt, especially in the States of Punjab and Haryana.

Tax Rate

In what may bring cheer to the well-heeled in the wake of a raging pre-Budget debate over squeezing more out of the super-rich class, the Survey suggested the government’s efforts to raise additional revenue should be through widening of the tax base and not by increasing the rates. The Survey stated: “It is much better to achieve a higher tax-GDP ratio by broadening the base which is taxed rather than increasing marginal tax rates significantly — higher and higher tax rates impinge more and more on incentives to undertake taxable activity, while encouraging tax evasion.”

Several experts, including PMEAC Chairman C. Rangarajan, have pitched for higher rates of taxes on super-rich. The Survey, prepared by a group of economist led by Chief Economic Advisor Raghuram Rajan, said it is better to achieve fiscal consolidation partly through a higher tax-GDP ratio than merely through reduction in expenditure as it would only hurt development spending.

The Tax-GDP ratio touched a peak of 11.9 percent in 2007-08, but declined to 9.6 percent in 2009-10. It was 9.9 percent in 2011-12. “Raising the tax-GDP ratio to above the 11 percent level is critical for sustaining the process of fiscal consolidation in the long run,” it said.

Gross tax revenue in April-December 2012 has grown by 15 percent to over Rs. 6.81 lakh crore. However, the growth in tax collection was “significantly” short of the growth envisaged in Budget. The tax collection until December 2012, was 63.2 percent of Budget estimates, lower than the last five-year average of 69 percent.

Rate of Inflation

Predicting that headline inflation may fall to 6.2–6.6 percent by next month, the Survey stated that elevated food inflation would continue to remain an area of concern as it inched towards double digits in December 2012. While 2012, the inflation was driven by protein items, this year it has been due to increase in prices of cereals such as wheat, rice and maize.

Inflation which is one of the major areas of concern for the United Progressive Alliance (UPA) Government, has remained in the range of above seven per cent since December 2009, while to add to its woes food inflation, too, has remained on the higher side during the same period, and according to the Economic Survey for 2012-13, easy money policy of major developed and developing nations may further aggravate inflationary expectations in India.

The survey further added that inflation has remained muted in the current financial year and declined to a three year low of 6.62 percent in January 2013. The average wholesale prices-based inflation in 2012 (April-December) moderated to 7.55 percent from 8.94 percent in the corresponding period of 2011-12.

Industrial Production

With the spurt in factory output last October turning out to be an aberration in the wake of sharp downturns in the months after, the latest Economic Survey has sought to describe the industrial production scenario as a ‘mixed picture’ of sluggishness bottoming out as well as continuing for a little longer period.

What came as a surprise to the government while India Inc. maintained a ‘we said so’ stance to clamor for easing of interest rates, was that industrial growth, as measured by the Index of Industrial Production (IIP), witnessed a smart recovery with a robust 8.3 per cent expansion in October, 2012.

Despite the downward bias, the Survey has highlighted at least two factors which point to some optimism on the industrial front.

First is the data on frequency distribution of products/product groups within the IIP basket which indicates that the number of products with negative growth has declined from 182 in the fourth quarter of 2011-12 to 160 in October-November 2012.

The second positive factor is the Reserve Bank of India’s ‘Business expectation index’, which showed moderately positive growth during the third quarter of the current fiscal after posting persistent negative growth for the previous six quarters. Since the RBI business index tracks IIP growth fairly closely, the change in trend suggests a possible bottoming out of IIP growth moderation.

Foreign Direct Investment

According to the Economic Survey, Foreign Direct Investment (FDI) in India slumped by 43.3 percent at $15.85 billion in April-November period of the current financial year as compared to $27.93 billion in the corresponding period previous year. The overseas investment flows in top five services declined by 9.7 percent at $8.19 billion during the period under review.

The Survey stated that overall FDI inflows increased by 33.6 percent in 2011-12. Overseas investment inflows in services surged by 57.62 percent in the financial year ended March 31, 2012.

The document presented a day ahead of the Union Budget 2013-14 pointed out that the government has taken many policy initiatives to liberalize FDI policy for services sector. This includes increasing FDI limit from 49 percent to 74 percent in teleports and DTH and cable networks, permitting FDI up to 74 percent in mobile TV, up to 49 percent in scheduled and non-scheduled air transport services and up to 50 percent in multi-brand retail trading.

The Survey stated that the government has also amended the existing policy on FDI in single brand product retail trading.

Health Sector

The country’s spending on health remains abysmally low with the Survey revealing that the spending on health, as compared to the spending on the rest of social services, has actually been declining in the country. Raising alarm over the decline, the survey has called for increased focus on health and education if India's demographic dividend is to be used to its advantage. Between 2011 and 2016, as many as 63.5 million workers, mainly aged between 20 and 35 years, will join India's pool. For this segment to be productively engaged, spending on health and education must remain consistent, the survey says.

But the ground situation paints to a sorry picture. The combined central and state expenditure on social services as a proportion of total expenditure increased from 22.4 per cent in 2007-08 to 25.1 per cent in 2012-13 and the spending on education among all the social services also increased over this period from 43.9 to 46.6 per cent.

However, the combined general spending (federal and states) on health has fallen over the past five years from 21.5 per cent to 19.2 per cent.

Petroleum Subsidies

The 2012-13 Survey has called for addressing the key issues of petroleum subsidies, clarity on gas pricing policy, petroleum price distortion and concerns over various disputes pertaining to the New Exploration Licensing Policy (NELP). It stated that addressing the key fiscal risk of petroleum subsidies is critical in better fiscal marksmanship.

It stated further that the overall subsidy bill of the government, it said, was likely to overshoot the target of Rs.1.79 lakh crore this financial year due to higher crude oil prices. The government had put the petroleum products subsidy at Rs.43,580 crore, food subsidy at Rs.75,000 crore and fertilizer subsidy at Rs.60,974 crore, taking the total subsidy bill to Rs.1,79,554 crore for 2012-13.

Employment Rate

The 2012-13 Economic Survey stated that the employment rate between June 2011 and June 2012 went up by approximately 7 lakh led mainly by the IT and BPO sector which accounted for almost half of the increase. It stated that upward trend in employment since July 2009 continues despite the economic slowdown.

A sector wise analysis shows that the textiles sector including apparels saw 1.70 lakh job additions, followed by transport sector (0.45 lakh), metals (0.26 lakh), gems and jewelry (0.19 lakh) and automobiles (0.11 lakh) in June 2012 over June 2011.

The survey said that employment in handloom/power loom and leather sectors has marginally declined during this period.

It said that there has been a sustained and consecutive increase in employment in both the public and private sectors covered at overall level during the last eleven quarters with a total addition of 30.73 lakh employment during this recovery period.

According to the Survey, India is on the brink of a demographic revolution with the proportion of working-age population between 15 and 59 years likely to increase from approximately 58 per cent in 2001 to more than 64 per cent by 2021. Moreover around 63.5 million new entrants to the working age group between 2011 and 2016, the bulk of whom will be in the relatively younger age group of 20-35 years.

The Survey added that the annual growth rate of employment in the private sector in 2011 was 5.6 per cent whereas that in the public sector was negative.

Monetary and Credit Policy: Repo and Reverse Repo Rates Unchanged

The Reserve Bank of India (RBI) has recently released its mid-quarterly review. It has clearly spelt out that monetary policy actions will be in terms of rate cuts going forward, given the moderating growth momentum and higher downside risks to growth.
The RBI kept repo and reverse repo rates unchanged at 8.5 per cent and 7.5 per cent, respectively, to fight rising inflation in Asia's third largest economy. The central bank left Cash Reserve Ratio (CRR–(money that banks must keep with the RBI) unchanged at 4.75 per cent. Recently, the RBI slashed CRR, the portion of deposits banks are required to keep with the central bank, by 0.75 percentage points, a step that was meant to infuse Rs 48,000 crore into the economy.
Earlier on March 9, the central bank cut CRR by a hefty 75 basis points, or three-fourths of one per cent, from 5.5 per cent to 4.75 per cent effective the fortnight beginning March 10.
The markets and the corporate sector were expecting the CRR cut on March 15 when the RBI is scheduled to announce its mid-quarter review. But the central bank said on Friday it feared a liquidity crunch due to the advance tax (to be paid before March 15) outflows; and this would have increased the already tight position of banks due to the usual frontloading of cash balances with the RBI.This CRR cut will inject around Rs. 48,000 crores of primary liquidity into the banking system. Earlier in January, the cut in CRR of half a per cent injected Rs. 31,500 crores into the banking system. The CRR cut was welcomed by banks and the corporate sector.
On January 24, RBI had cut CRR by 0.5 percentage points to 5.5 per cent, releasing Rs 32,000 crore into the system. Since then, the fund crunch has only worsened.
The strain on the system rose to high of Rs 1.02 lakh crore. And going forward it will only increase as by March 15 companies will have to make advance tax payments which will drive out Rs 60,000 crore from the system.
Another Rs 12,000 crore is likely to go out of banks due to the Oil and Natural Gas Corporation (ONGC) auction last week, and a similar amount will be drained out on account of excise duty payment by companies.
Rate of Inflation
Inflation rose to 6.95 per cent in February which is much above the Reserve Bank’s comfort level of 5-6 per cent. RBIs own forecasts of inflation is that it will go down to 7 per cent levels in March 2012 from November 2010 levels of 9.11 per cent. RBI has indicated that non food manufacturing inflation is still a worry as it has gone up from 7.6 per cent in October 2011 to 7.9 per cent in November 2011. However, it has reiterated that despite the rise in non food manufacturing index, headline inflation momentum is slowing down.
The market will now have to work out its own math on inflation. Inflation can surprise on the downside as much as it has surprised on the upside. It is going to be a difficult call on where inflation is headed in 2012, but considering the fact that prices are already at elevated levels with inflation as measured by the Wholesale Price Index (WPI) averaging over 9 per cent for the past two calendar years, inflation has the ability to come off sharply especially if global growth slows down dramatically.
GDP Growth
There are now serious concerns on the slowdown in the Indian economy as the Gross Domestic Product (GDP) growth figures for the September-December 2011 quarter came in a paltry 6.1 per cent, the lowest since the Lehman crisis that shook the global economy in 2009.
The economy has given mixed signals in the past few months with some green shoots being seen on inflation, foreign institutional investor inflows, stock markets, the rupee and policy action picking up.
However, the figures come as a dampener as they are well below estimates. It is clear the lag effect of problems seen last year of low investor confidence resulting in low investment, high inflation and high interest rates and policy inaction are playing out. The surprise is that GDP growth is now at the level seen during the Lehman crisis when the world economy was in a reset mode though the situation has improved since.
GDP growth decelerated to a low of 6.1 per cent in the third quarter of fiscal 2012, raising fresh concerns about the growth slowdown. Industrial sector continues to be the main laggard and grew at an anemic rate of 2.6 per cent due to falling domestic demand and faltering global recovery.
The magnitude of moderation has been a bit of surprise because advance estimates released earlier had pegged financial year 2012-13 growth at 6.9 per cent.
According to FICCI, it would be ironical if GDP growth in 2011-2012 goes below 6.8 per cent, would be lower than in the crisis that was achieved in 2008-09 — the year of the post Lehman crisis.
Foreign Trade
Indian imports continued to outpace exports in February as demand remained weak in major exports markets like the United States and Europe, nudging the government to revise up the full-year trade deficit projections.
A widening trade deficit will likely worsen India's current account deficit and further weaken the rupee. Merchandise exports grew an annual 4.3% to $24.6 billion in February, while imports grew 20.6 percent to $39.8 billion.
The trade deficit widened to $15.2 billion during the month, from $14.8 billion in January.

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.

99th Indian Science Congress

The five-day 99th Indian Science Congress was held in Bhubaneswar (Orissa, officially Odisha since November 2011) on January 3, 2011. The Congress, which was attended by approximately 15,000 delegates, including 12 Nobel laureate scientists, from across the globe, including scientists and policymakers, was inaugurated by Prime Minister Manmohan Singh. Prof Geetha Bali, general president of the Indian Science Congress Association, presided over the inaugural session of the Congress
The Kalinga Institute of Industrial Technology (KIIT) and the National Institute of Science Education and Research (NISER) jointly hosted the Congress, the largest gathering of the scientific community. The focal theme of the five-day scientific extravaganza is “Science and technology for inclusive innovation — Role of women”.
India’s Research and Development
Pointing out that India’s Research and Development (R&D) spending as a percentage of the Gross Domestic Product (GDP) had been ‘low and stagnant’, the prime minister made a strong pitch for increasing it to at least 2 per cent of the GDP from the current level of less than 1 per cent. He said: “This can only be achieved if the industry, which contributes about one-third of the total R&D expenditure today, increases its contribution significantly.”
The prime minister made a frank assessment of the country’s progress in science and technology area, highlighted the lacunae in the policies and implementation and called for greater alignment of the S&T sector with the inclusive development needs of the country.
Decade of Innovations
Stating that the United Progressive Alliance (UPA) Government had declared 2010-20 as the ‘Decade of Innovations’, he appealed to scientists and policy makers to use the research-based knowledge productively for social benefit. “For a country grappling with the challenges of poverty and development, the over-riding objective of a comprehensive and well-considered policy for science, technology and innovation should be to support the national objective of faster, sustainable and inclusive development,” the Prime Minister said.
Coinciding with the mega event, he announced that the Centre was considering a proposal to build national capacity and capability in supercomputing to be implemented by the Indian Institute of Science (IISc), Bangalore, at an estimated cost of Rs 5,000 crore. Another proposal to establish a Neutrino Observatory in Tamil Nadu with an investment of Rs. 1,350 crore was also under consideration.

Bangladesh Government Faces Challenge in Controlling Prices of Commodities

The Bangladeshis are bearing the brunt of rise in the prices of essential commodities in the international market. The poor people of the country are passing their days in hardship in spite of various social safety net programs of the government. A consumer at this moment has to spent taka 110 (Tk) for commodities which he could purchase with Tk 100 in 2010 because of rise in inflation. Under this ground reality, Finance Minister Abul Maal Abdul Muhith is going to announce the budget of the coming fiscal year (2012-13).
Economists and market analysts are saying that controlling prices of the commodities will be the main challenge in the coming budget. The prices of essential commodities made a further high jump because of a recent rise in the prices of fuel oils and CNG, and an enhancement of transport fares as a sequel to this.

Tackling Inflation
The finance minister will announce budget in parliament on June. This will be the third budget of the present government. Debates have already begun on what good news a hopeful Abul Maal Abdul Muhith will give in the new budget or whether there will be any surprise there. All are in unison that inflation is a big enemy of the economy at this moment. The finance minister himself has admitted that inflation is the main problem. Economists have suggested the government to ensure social security, including enhancement of food supply, to gear up rural economy, increase investment, and reduce the impact of inflation.
It was reported that the finance minister will undertake efforts in gearing up social safety net programs in the new budget for controlling the inflation. All existing allowances, including elderly and widow grants, will be continued in the new budget. But proposals will be made to expand the areas of allowances instead of enhancing the amounts.
Honorarium of the freedom fighters will also be increased. A special emphasis will be given to keep the food supply normal. For this reason, plans have been undertaken to build an adequate stock of foods. A proposal will be made to construct new warehouses to increase the capacity of food stocking.
An announcement of recruiting 100,000 new employees in the public sector will also be made in the new budget. A proposal for making the highest allocation in the education will also be made in the budget. The new budget will continue all existing stipend programs for the students. Like in the past, the energy and power sector will be given the highest priority in the fiscal plan.
In fact, tackling the inflation will be the main challenge of the government in the coming budget. He thinks that the government has no adequate mechanism in its hands to contain the price hiking. The government can keep the food supply normal and gear up the social safety net programs.
Maintaining the growth and controlling the inflation will be the main challenge of the government in the next budget. Adopting a monetary policy with more contractions for controlling the inflation. But the principle objective of the next budget would be to increase investment and employment by keeping the inflation under control.
The areas of Value-Added Tax (VAT) and tax would be expanded in the coming budget to increase revenue from internal sources. But no big change will be made in the tax structure. Additional 500,000 taxpayers will be identified for the expansion of area of income tax. The people will be given some sorts of relief from tax burden. In this regard, a proposal will be made to fix the tax-free income at Tk 180,000 for individual by rebating Tk 15,000. But minimum income tax rate at Tk 2,000 will remain intact in the budget.
For discouraging smoking, prices of cigarettes will be increased. A proposal will be made in the budget to restructure duties in car import to stop tax evasion. Facilities of tax rebate will be reduced to increase collection. There will be a proposal for expanding the tax net up to the upazila (subdistrict)-level. An announcement will be made in the new budget for paying VAT rate equally by all small and big traders for abolishing rebate facilities against value addition tax of VAT goods and service sector.
The highest 25 percent tax will be maintained for protecting the interest of the local industries, whereas a proposal will be made for continuing one more year the regulatory duties on all imported finished goods. An announcement will be made in the budget to increase the tenure of bond license from the existing one year to two years for the convenience of the entrepreneurs. A provision will be made for duty-free import of necessary equipment for building solar power plants for generating alternative energy to face electricity crisis. An announcement will be made for enhancing more two years the preshipment inspection system. The interest on savings certificate will be increased.
The new budget will make a set of reform proposals in the income tax sector. A proposal has been made in the next budget to realize an additional tax of Tk 55billion through increasing the tax net and taking various reforms and administrative measures. An announcement will be made to set up 100 taxpayer centers across the country to reach the income tax service at the doorsteps of the common man. Provisions will be made so that the taxpayers can submit their return online.
At present, Tk 0.40 (0.4 percent) is realized as source tax on the export earning of the garment sector. In the coming budget the source tax might be imposed on all the export oriented sectors other than garments. At present the eligible persons have been brought under the income tax net only in the urban areas. A proposal will be made to expand the tax net up to the upazila-level. The new budget will made an announcement on introducing Alternative Dispute Resolution (ADR) to settle litigations quickly for increasing revenue earning. Massive reform programs will be undertaken to make the National Board of Revenue (NBR) a powerful organization. The laws will be announced to make the VAT rules more simplified.
Prices of Essential Commodities

The inflation in March was at 10.49 percent on a point-to-point basis. This rate of the inflation is the highest after 2008. The people of fixed income group suffer the maximum because of any rise in the inflation. The negative impact of the inflation is that it does not increase the income at a rate the commodity prices make the jump. And as a result, the poor people lose their purchasing capacity.
The cause of concern at the high trend of inflation is that most of the people in our country live below the poverty level. This creates some sorts of unrest in the economy. At present the rate of inflation surpassed the double-digit mark. It has become a very difficult task for the common people to meet the cost of living amid the continuous rise in the inflation.
ADP: A proposal for a huge Annual Development Program (ADP) will be made in the coming budget for increasing investment in the public sector. The possible size of the ADP might between Tk 465 billion and Tk 470 billion. The resources committee has recommended for an ADP of Tk 460 billion. Prior to her foreign visits, the prime minister issued instructions to allocate more fund for the ADP. The Planning Commission has finalized the draft of the new ADP. The National Economic Council (NEC) will approve the ADP at the end of May following return of the prime minister from abroad.
A proposal has been made for allocating Tk 273.170 billion for the new ADP from internal resources increasing the domestic share in the program. The rest of the ADP fund will come from foreign assistance. There will be 1,013 projects in the proposed ADP. Of those, the number of new projects will be over 200. Most of these projects are under the ministries of local government and communications. Many people believe that these projects are worthless and those being taken in political consideration.
The Planning Commission said that a demand for Tk 620 billion has come from different ministries in the new ADP. It has been learnt that the proposal for maximum allocation in the newly proposed ADP is made for the electricity sector. The proposed allocation for the power sector in the new ADP is about taka 72 billion, which is 44 percent higher than that of the current fiscal year (2011-12). The allocation for the power sector in the current fiscal is Tk 50.170 billion. A proposal has been made for allocating Tk 11.140 billion for the energy sector which was Tk 10 billion in the current fiscal.
The Local Government Division has made a proposal for allocating Tk 95.550 billion in the new ADP for the development of rural infrastructures. In addition, proposals for allocating Tk 35.120 billion for primary mass education and Tk 21.430 billion for education ministry have been made in the new ADP. The implementation rate of the ADP still April was 60 percent.
Subsidy: Subsidies will be continued in the coming budget. A proposal has been made to allocate Tk 250 billion for the purpose. The maximum of the subsidy is given to the power and energy sectors. A sum of Tk 120 billion will be allocated for the power and energy sector. The rest of the subsidy money will go to agriculture, food, and social safety net programs and export sector. A big chunk of the budget money is spent for subsidy. At present the allocation in the subsidy sector is about 9 percent of the total budget. In the current fiscal year, Tk 170 billion was allocated as subsidies for different sectors. The amount in the revised budget increased to Tk 200 billion. Most of the subsidy money was spent in the energy sector as the prices of fuel oil increased in the international market. In this regard, economist and researcher Dr Hasan Mansur said that budget deficit would increase if the amount of subsidies rises. And this would leave a negative impact on the inflation, he added.
Size of Budget: The government is going to announce a big-volume budget in the coming fiscal year to boost investment. The outlay of the new budget could be at Tk 1,630 billion. Of this, revenue budget is Tk 117 0billion and development budget Tk 470 billion. The Gross Domestic Product (GDP) target in the new budget might be fixed at 6.9 percent or 7 percent. The budget deficit has been fixed at 5 percent.