Analyst:

Swati Saxena
swati.saxena@religare.com

Ajay Kumar Srivastava ajaykumar.s@religare.com

UNION BUDGET 2012-2013 16th Mar, 2012

BUDGET SYNOPSIS
The Union Budget 2012-13 presented by the Finance Minister Pranab Mukherjee in Lok Sabha on Friday. The government identified five objectives to be addressed effectively in the ensuing fiscal year. They include focus on domestic demand driven growth recovery; create conditions for rapid revival of high growth in private investment; address supply bottlenecks in agriculture, energy and transport sectors particularly in coal, power, national highways , railways and civil aviation; intervene decisively to address the problem of malnutrition especially in the 200 high-burden districts and expedite coordinated implementation of decisions being taken to improve delivery systems, governance, transparency and address the problem of black money and corruption in public life.

Pranab Mukherjee said that Indias GDP growth in 2012-13 is expected to be 7.6 per cent +/-0.25 per cent. He said that in 2011-12, Indias GDP is estimated to grow at 6.9% after having grown at the rate of 8.4% in each of the two preceding years. He said though the global crisis had affected India, it still remains among the front runners in economic growth. Mukherjee said the slowdown is primarily due to deceleration in industrial growth. Stating that the headline inflation remained high for most part of the year, the Finance Minister expressed hope that it will moderate further in the next few months and remain stable thereafter.
The Finance Minister called for a need to have a close look at the growth of revenue expenditure, particularly, on subsidies. He announced that from 2012-13 while subsidies related to food and for administering the Food Security Act will be fully provided for, all other subsidies would be funded to the extent that they can be borne by the economy without any adverse implications. He said that the Government will endeavor to restrict the expenditure on central subsidies under 2 per cent of GDP in 2012-13and over the next three years, it would be further brought down to 1.75 per cent of GDP.

UNION BUDGET 2012-2013 16th Mar, 2012

Tax reforms
The Direct Taxes Code (DTC) Bill will be enacted at the earliest after expeditious examination of the report of the Parliamentary Standing Committee. He said drafting of model legislation for Centre and State Goods and Services Tax (GST) in concert with States are under progress. He added that the GST network will be set up as a National Information Utility and will become operational by August 2012.

Divestment Policy
The Central Public Sector Enterprises (CPSEs) are being given a level playing field vis--vis private sector with regard to practices like buy-backs and listing at stock exchange. While in 2011-12, the Government raised about Rs 14,000crore from disinvestment as against a target of Rs 40,000 crore, the Finance Minister proposed to raise Rs 30,000 crore through disinvestment in 2012-13. He said at least 51 per cent ownership and management of CPSEs will remain with the Government.

Strengthening investment environment

FM said that efforts are on to arrive at a broad-based consensus in respect of decision to allow FDI in multi-brand retail up to 51 per cent. He proposed to introduce a new scheme called Rajiv Gandhi Equity Savings Scheme to allow for income tax deduction of 50 per cent to new retail investors who invest up to Rs 50,000 directly in equities and whose annual income is below Rs 10 lakh. The scheme will have a lock-in period of 3 years. The Finance Minister proposed to allow Qualified Foreign Investors (QFIs) to access Indian Corporate Bond market. He also proposed simplifying the process of Initial Public Offer (IPO).

UNION BUDGET 2012-2013 16th Mar, 2012

MSMEs
The Finance Minister proposed to set up a Rs 5000 crore India Opportunities Venture Fund with SIDBI to enhance availability of equity to Micro, Small and Medium Enterprises.

National Manufacturing Policy

National Manufacturing Policy announced with the objective of raising, within a decade, the share of manufacturing in GDP to 25 per cent and creating of 10 crore jobs.

National Mission on Food Processing

The Financed Minister said that in order to have a better out reach of the food processing sector, a new centrally sponsored scheme titled National Mission on Food Processing will be started in cooperation with the States in 2012-13.

UNION BUDGET 2012-2013 16th Mar, 2012

Budget Highlights
Excise duty on big cars raised to 24% Luxury item, eating out, air travel became more expensive Service Tax rate hike to 12% from 10% earlier Baggage allowance raised from Rs 25,000 to Rs 35,000 for the people of Indian origin (adults) and from Rs 12,000 to Rs 15,000 for children Oil cess on domestic crude raised to Rs 4,500 per ton from Rs 2,500 per ton

Customs duty increases from 50% to 75% on the import of some vehicle
Excise duty brought down to 6% on all processed food Cigarettes, diamonds and imported cycles become more expensive Customs duty is increased on bicycles and its parts Iodized salt, match-boxes, soya products to become cheaper Customs duty raised from 2% to 4% on standard gold Prices of Solar power lamps, LED bulbs goes down Exemption from basic customs duty for road and highway construction equipment. Rs. 15888 crore for PSU Banks' recapitalization plan for FY13. FY13 tax receipts seen up 15% , FY13 gross taxes at 10.6% of GDP.

UNION BUDGET 2012-2013 16th Mar, 2012

New warehouses for food-grain stocks to be built FY13 midday meal scheme outlay at Rs 11937 crore Government to set up company to finance minor irrigation works Kisan credit cards can be used in ATMs 27% increase in funds for drinking water and sanitation of rural areas Rs 20,822 crore earmarked for National Rural Health Mission against Rs 18,115 crore this year

ECB for low cost housing projects and ECB cap raised for airlines
FM proposed to introduce the Rajeev Gandhi equity scheme for small investors Foreign loans for low cost housing projects Govt. raises foreign loan limit for aviation sector Tax-free bonds limit is increased GDP to grow at 6.9 % in budget 2012-13 Expect current account deficit to be lower next year Rs 242 crore project with World Bank assistance to improve dairy production Largest expenditure in fuel and fertilizer subsidies Food security subsidy proposed to be fully provided Direct cash subsidy for LPG and Kerosene to consumers 10% of IPO above Rs 10 crore via electronic platform.

UNION BUDGET 2012-2013 16th Mar, 2012

Budget Estimates
Gross Tax Receipts estimated at Rs10,77,612 crore. Net Tax to Centre estimated at Rs7,71,071 crore Non-tax Revenue Receipts estimated at Rs1,64,614 crore. Non-debt Capital Receipts estimated at Rs41,650 crore. Temporary arrangement to use disinvestment proceeds for capital expenditure in social sector schemes extended for one more year

Total expenditure for 2012-13 budgeted at `14,90,925 crore

Plan expenditure for 2012-13 at `5,21,025 crore is 18 per cent higher than BE 2011-12. This is higher than 15 per cent projected in Approach to the Twelfth Plan Non-plan expenditure estimated at Rs9,69,900 crore. Rs3,65,216 crore estimated to be transferred to States including direct transfers to Fiscal deficit at 5.1 per cent of GDP in BE 2012-13. Net market borrowing required to finance the deficit to be Rs4.79 lakh crore in 2012-13 Central Government debt at 45.5 per cent of GDP in 2012-13 as compared to Thirteenth Finance Commission target of 50.5% Effective Revenue Deficit to be 1.8 %of GDP in 2012-13

UNION BUDGET 2012-2013 16th Mar, 2012

TAX Proposals
DIRECT TAXES Exemption limit for the general category of individual taxpayers proposed to be enhanced from Rs1,80,000 to Rs2,00,000 Upper limit of 20% tax slab proposed to be raised from Rs8 lakh to Rs10 lakh. Proposal to allow individual tax payers, a deduction of upto Rs10,000 for interest from savings bank accounts Proposal to allow deduction of upto Rs5,000 for preventive health check up Senior citizens not having income from business proposed to be exempted from payment of advance tax To provide low cost funds to stressed infrastructure sectors, rate of withholding tax on interest payment on ECBs proposed to be reduced from 20% to 5%for 3 years for certain sectors Restriction on Venture Capital Funds to invest only in 9 specified sectors proposed to be removed Proposal to continue to allow repatriation of dividends from foreign subsidiaries of Indian companies at a lower tax rate of 15% upto 31.3.2013 Investment link deduction of capital expenditure for certain businesses proposed to be provided at the enhanced rate of 150 per cent New sectors to be added for the purposes of investment linked deduction Proposal to extend weighted deduction of 200 per cent for R&D expenditure in an in-house facility for a further period of 5 years beyond March 31, 2012

UNION BUDGET 2012-2013 16th Mar, 2012

Proposal to provide weighted deduction of 150% on expenditure incurred for agri-extension services Proposal to provide weighted deduction at 150% of expenditure incurred on skill development in manufacturing sector. Proposal to extend the sunset date for setting up power sector undertakings by one year for claiming 100 % deduction of profits for 10 years Turnover limit for compulsory tax audit of account and presumptive taxation of SMEs to be raised from Rs60 lakhs to Rs1 crore Exemption from Capital Gains tax on sale of residential property, if sale consideration is used for subscription in equity of a manufacturing SME for purchase of new plant and machinery

Reduction in securities transaction tax by 20 %on cash delivery transactions

Proposal to extend the levy of Alternate Minimum Tax to all persons, other than companies, claiming profit linked deductions Proposal to introduce General Anti Avoidance Rule to counter aggressive tax avoidance scheme Measures proposed to deter the generation and use of unaccounted money A net revenue loss of Rs4,500 crore estimated as a result of Direct Tax proposals Proposal to provide weighted deduction of 150% on expenditure incurred for agri-extension services Proposal to provide weighted deduction at 150% of expenditure incurred on skill development in manufacturing sector. Proposal to extend the sunset date for setting up power sector undertakings by one year for claiming 100 % deduction of profits for 10 years

UNION BUDGET 2012-2013 16th Mar, 2012

Proposal to provide weighted deduction of 150% on expenditure incurred for agri-extension services Proposal to provide weighted deduction at 150% of expenditure incurred on skill development in manufacturing sector. Proposal to extend the sunset date for setting up power sector undertakings by one year for claiming 100 % deduction of profits for 10 years Turnover limit for compulsory tax audit of account and presumptive taxation of SMEs to be raised from Rs60 lakhs to Rs1 crore Exemption from Capital Gains tax on sale of residential property, if sale consideration is used for subscription in equity of a manufacturing SME for purchase of new plant and machinery

UNION BUDGET 2012-2013 16th Mar, 2012

TAX Proposals
INDIRECT TAXES
Proposal to tax all services except those in the negative list comprising of 17 heads Exemption from service tax is proposed for some sectors Service tax law to be shorter by nearly 40% Number of alignment made to harmonize Central Excise and Service Tax. A common simplified registration form and a common return comprising of one page are steps in this direction

Revision Application Authority and Settlement Commission being introduced in Service Tax for dispute resolution
Utilization of input tax credit permitted in number of services to reduce cascading of taxes Place of Supply Rules for determining the location of service to be put in public domain for stakeholders comments Study team to examine the possibility of common tax code for Central Excise and Service Tax

New scheme announced for simplification of refunds

Rules pertaining to point of taxation are being rationalised To maintain a healthy fiscal situation proposal to raise service tax rate from 10% to 12%, with corresponding changes in rates for individual services Proposals from service tax expected to yield additional revenue of Rs18,660 crore

UNION BUDGET 2012-2013 16th Mar, 2012

Budget 2012-13: What it means for You?

UNION BUDGET 2012-2013 16th Mar, 2012

Automobile

The Sedan lovers will be disappointed with an increase in the excise duty on large cars. Given the current economic scenario and the revenue deficit of the country, the hike in excise duty was fully anticipated. The industry will pass on the entire burden of excise duty to customers. The demand will definitely remain affected for some time, however, if the interest rates come down in near future then the revival in demand could be possible in near future.
Banking

FM proposed to provide Rs 15,888 crore for capitalization of Public Sector Banks, Regional Rural Banks and other financial institutions including NABARD. He added that a Central Know Your Customer (KYC) depositary will be developed in 2012-13 to avoid multiplicity of registration and data upkeep.
Infrastructure

Infrastructure sector will get a big boost with Rs 50,00,000 lakh crore investment announced by the Finance Minister Pranab Mukherjee in the Union Budget 2012-13. Stating that in 2011-12 tax free bonds for Rs 30,000 crore were announced for financing infrastructure projects, he proposed to double it to raise Rs 60,000 crore in 2012-13. Budget outlay has been meaningfully increased from last year and this bodes well for infrastructure mutual fund schemes that the retail investor has exposure to.
Textile Sector

The Finance Minister announced setting up of two more mega clusters, one to cover Prakasam and Guntur districts in Andhra Pradesh and other for Godda and neighboring districts in Jharkhand in addition to 4 mega handloom clusters already operationalized. He also proposed setting up of three Weavers Service Centres, one each in Mizoram, Nagaland and Jharkhand. The Minister proposed a Rs 500 crore pilot scheme in twelfth plan for promotion and application of Geo-textiles in the North East. A powerloom Mega Cluster will be set up in Ichalkaranji in Maharashtra.

UNION BUDGET 2012-2013 16th Mar, 2012

Agriculture

Shri Mukherjee proposed an increase by 18% to Rs 20,208 crore in the total Plan Outlay for the Department of Agriculture and Cooperation in 2012-13. He said that the outlay for Rashtriya Krishi Vikas Yojana (RKVY) is being increased to Rs 9217 crore in 2012-13. The Finance Minister proposed to raise the target for agricultural credit to Rs 5,75,000 crore, which represents an increase of Rs 1,00,000 crore over the target for the current year. A short term RRB Credit Refinance Fund is being set up to enhance the capacity of Regional Rural Banks to disburse short term crop loans to the small and marginal farmers.Further modification of Kisan Credit Card Scheme will help farmers as it can be used at ATMs.
Irrigation

Structural changes in Accelerated Irrigation Benefit Programme (AIBP) being made to maximize the flow of benefit from investments in irrigation projects. Allocation for AIBP in 2012-13 stepped up by 13% to Rs14,242 crore. Irrigation and Water Resource Finance Company being operationalised to mobilize large resources to fund irrigation projects. A flood management project is approved by Ganga Flood Control Commission at a cost of Rs 439 crore for Kandi sub-division of Murshidabad District.
Power and Coal

Coal India Limited advised to sign fuel supply agreements with power plants, having long-term PPAs with DISCOMs and getting commissioned on or before March 31, 2015. External Commercial Borrowings (ECB) to be allowed to part finance Rupee debt of existing power projects.
Education

For 2012-13, Rs25,555 crore provided for RTE-SSA representing an increase of 21.7 per cent over 2011-12. 6,000 schools proposed to be set up at block level as model schools in Twelfth Plan. Rs 3,124 crore provided for Rashtriya Madhyamik Shiksha Abhiyan (RMSA) representing an increase of 29 per cent over BE 2011-12. To ensure better flow of credit to students, a Credit Guarantee Fund proposed to be set up.

UNION BUDGET 2012-2013 16th Mar, 2012

Health

No new case of polio reported in last one year. Existing vaccine units to be modernized and new integrated vaccine unit to be set up in Chennai. Scope of Accredited Social Health Activist ASHA is being enlarged. This will also enhance their remuneration. Allocation for NRHM proposed to be increased from Rs18,115 crore in 2011-12 to Rs20,822 crore in 2012-13. National Urban Health Mission is being launched. Pradhan Mantri Swasthya Suraksha Yojana being expanded to cover Upgradation of 7 more Government medical colleges.
Fertilisers

Government has taken steps to finalise pricing and investment policies for urea to reduce Indias import dependence in urea .
Transport: Roads and Civil Aviation

Target of covering a length of 8,800 kilometre under NHDP next year. Allocation of the Road Transport and Highways Ministry enhanced by 14 per cent to Rs 25,360 crore.ECB proposed to be allowed for capital expenditure on the maintenance and operations of toll systems for roads and highways, if they are part of original project.Direct import of Aviation Turbine Fuel permitted for Indian Carriers as actual users.ECB to be permitted for working capital requirement of airline industry for a period of one year, subject to a total ceiling of US $ 1 billion. Proposal to allow foreign airlines to participate upto 49 per cent in the equity of an air transport undertaking under active consideration of the government.
Thrust on housing

Finance Minister proposed various measures to address the shortage of housing for low income groups in major cities and towns including ECB for low cost housing projects and setting up of a Credit Guarantee Trust Fund.

UNION BUDGET 2012-2013 16th Mar, 2012

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