Pre-Budget Analysis(2013)

By PGDM B20 Students Venue: SCMS-COCHIN Date: 27/02/2013

GENERAL OVERVIEW

CHINTU MOTWANI (FK-2304)

UMA SHANKAR (FK-2242)

Budget 2012-13 Vs. Actuals

Economy was estimated to grow at the rate of 7.6% in the year 2012-13 but actually grew at 5%.

Reasons behind the GAP:

The weakness in the rupee isn't helping exports, and exports are impacted by global demand. Consumer confidence is low and could impact consumption. Global recession leads to low demand. Power outages are impacting growth. Politics and policies are deterring investments

Fiscal Deficit was projected to be 5.1% But actually touched 5.4% of gdp
Reasons behind the Gap:

Increase in Subsidies Payment of Interest Defence Expenditure

Poor Performance of Public Sector

Excessive Government borrowings Tax Evasion Weak Revenue Mobilization Huge Borrowings

Consequences of fiscal crisis

Debt Trap Cut in Capital Expenditure

No Increase in Expenditure on Education and Health

High Interest Rates

Slow Economic Growth

Other Consequences

CAD was projected to be 3.6% but actually reached 5.2%

1.2
7.00%

CAD

1
6.00%

6.10% 5.40% 4.70%

5.00% 4.00% 3.00% 2.00% 1.00% 0.00%

0.8
0.6 0.4 0.2 0

4.90%

#REF! #REF! #REF!

CAD

Q1

Q2

Q3

Q4

Reasons for increasing CAD

High gold imports ($40billion-2011-12 & $60 billion-2012 13) increased by 50%.
Increase in crude oil prices. Decrease in Industrial production. Decrease in Exports.

Depreciating Indian Rupee.

Export boosters

Diversification of the export basket.

Improvements in domestic supply conditions. Attractive export terms. Overall global demand conditions are more reliable export boosters than depreciation. As regards reduction in imports, it is possible to achieve that by just raising the relative prices of the major imported commodities.

Depreciating Indian rupee

Rupee depreciated by more than 22% in the last 1 and half year. Causes of depreciating rupee: Continued Global uncertainty Current Account Deficit

Capital Account flows

Persistent inflation Interest Rate Difference

Measures to overcome
Measures by RBI:

Using Forex Reserves Raising Interest Rates Make Investments Attractive- Easing Capital Controls- Increasing limits in bonds for FIIs. Measures by govt. Diesel price deregulation Ban in unproductive imports like gold etc. Policy reforms: GST, FDI, DTC, GAAR.

SUBSIDIES
1.25L Cr Food subsidies

2% of GDP

DISINVESTMENT
Rs. 30000Cr - TARGET
NTPC NMDC Oil India Hindustan Copper NBCC 11469 6000 3114 800 125

TOTAL

21508

Strengthening Investment Environment

Capital market
Rajiv Gandhi Equity scheme 50% to 100% IPOs, QIBs.

Reduction in Excise Duty Retrospective Effect

Tax reforms
BEL 220000 250000 80C 100000 to 150000 Interest on loan of House property 1.5L 2L

FDR 5Y to 3Y

Tax on super rich

Banking

Financial Inclusion

Capital Infusion

Insurance

Separate tax deduction

plans

for Pension

Removal of service tax 3%,1.5%

Other areas
Real Estate
Housing sector needs Infra status Cabinet committee on Investment

Defence
Cut leads to 8% in Budgeted outlay

Other areas

Hospitality

Tenure 10Y 15Y

Cement Industry Treat as a basic raw material

Next.!

INFRASTRUCTURE
CHANDAN DUTTA (FK-2326) DENNY JACOB (FK-2362)

Growth story of India

Basics of Infrastructure
Hard

Soft

Transport Energy Solid Waste Management Water Management

Government Social Economic Regulatory

Communication

What we have witnessed

Infrastructure targets have not materialized as planned

Doubling investment in infrastructure from INR 20.5 trillion to INR 40.9 trillion during the Twelfth Plan period. Major share invested in the Telecom and the Oil & Gas sectors. Other critical infrastructure segments, including roads, railways and ports, have witnessed a shortfall in actual investments.

Scenario in the three infrastructure subsegments, including the railways, ports & roads - highways.

Railways

Only 1,750 km of new lines was added from 2006 to 2011, as compared to 14,000 in China.
Insufficient Funds Misplaced Investment priorities private investments only constitute 4% of the total investment in the sector. Many proposals for introducing reforms in the railways have not been implemented.

Port

Indias 13 major ports and 60 operational non-major ports handle 95% of the countrys external trade by volume and 70% by value.
Port traffic has increased at CAGR of 8.1% to reach 884.6 million tones with an average utilization of ~90%, as compared to the international average of 70%. level of containerization, custom procedures and insufficient connectivity to their hinterlands.

Roads & Highways

Around 60% of freight and 85% of passenger traffic moves by road in India.
The National Highways only constitute around 1.7% of the road network, but carry 40% of the total road traffic. The NHAI was able to build highways at an average of 13.72 km per day in 2010-11. This dropped further to an average of 10.39 km per day in 2011 12,

What we have planned

Roadblocks

Land acquisition
Regulatory approvals and environmental clearances Funding of the project

capacity of the private sector to execute infrastructure projects.

Expectations

The profit-linked incentives currently given for infrastructure may be continued. PPP basis would require focused attention.

Clarity on land acquisition bill

Fast track environment and forest clearances Minimization Bureaucracy Removal of MAT

Funding of projects

Corporate bond market

Encouraging the NBFCs Private participation

limit of deduction be extended to Rs.50,000 on Infra Bonds

POWER SECTOR

2011-2012 in POWER SECTOR

Electricity generation targeted 5.4% increase in 2011-2012

Growth was 9.3% (April- December 2012) PLF was lower at 72.9%

Energy deficit increased from 7.9 % to 9.6%

Low Capacity addition- 50000 MW in 11th 5 year plan Difficuilties in development of Hydro power Efficiency in Rural electrification

2011-2012 in POWER SECTOR

Import of power under OGL (Open General Licence)

Mega Power Policy Financial incentives for Hydro power projects

Lending capacity of banks to power sector

Encouraging Insurance Company Investments in power sector Reduction of Macroeconomic risks Tax benefits for Power sector

Growth in Infrastructure

Continuation of 80 IA benefit (provides income tax exemption for 10 years) for at least three more years.
The industry wishes for a coal regulator similar to the regulator in the electricity sector. This would make the entire process of coal extraction, pricing and utilization transparent. Industry also wishes for reforms to tackle the problem of land acquisition.

COAL SECTOR

COAL in 2012

Production dropped to 307 Mn tonnes from 320 MT in previous year.

ICVL formed for acquiring Coal resources overseas E-auction launched for transparent practices in coal sector

195 new Coal blocks were allotted to different sectors of Power, cement, steel,Mining..
44230 MT capacity added

Coal sector in Budget 2013-2014

Lower production referring to Environmental issue to be tackled for growth of industry infrastructure
ICVL to get more quantum through financial supports for overseas acquisitions New domestic investment of 2500 crores in raw Coal production E-auctions to be made effective for growth in investment Additional exploration to be allocated funds

OIL & GAS

Oil & Gas in 2012

Growth in Petroleum production of 1.9 % compared to previous year to 38.19 MMT

Natural gas production lowered by 8.8 % to 36.19 BCM New 34 exploration blocks Scope for other forms of energy, like Shale gas

Investment in other countries increased to Rs.64832 Cr.

8 lakh new free LPG connections in Rural areas

Oil and gas in Budget 2013-14

Exemption for various services provided to Exploration & Production (E&P) companies
Customs Duty Exemption for all items require for Oil and Gas Exploration

Customs exemption to Rig imported for Oil & Gas Exploration

Financial aid for onshore Exploration and Production (E&P) activities Exemption to LNG from customs duty for use in power sector

Oil and Gas in Budget 2013-14

Government to trim its subsidy bill for food, fuel and fertilizers to Rs.1.9 Tn or 2% of GDP from 2.4%.
Currently, one of the biggest bloat in the fiscal deficit is subsidy burden. It is expected government will take all possible steps to control the same

Retail fuel pricing on export parity

(The price that a producer gets or can expect to get for its product if exported, equal to the freight on board price minus the costs of getting the product from the farm or factory to the border. )

Oil and Gas in Budget 2013-14

Oil minister has allowed OMCs to increase rates by as much as Rs.0.50 every month. It will be fully implemented in FY14.
Exemption from levy of 5% import duty on LNG and natural gas Incentive for shale gas and oil exploration

Next.!

Manufacturing
SUMANTH GVK (FK-2283) ABDULLAH JAMAL MALIK (Fk-2292)

YET To Edit n Get for manufacturing

Next.!

AGRICULTURE
KUMAR PANKAJ (FK-2322) SACHIN V (FK-2270)

INDIA

Population - 1.2 billion

65 % depends on Agriculture 11th plan- Growth rate of 3.7% (Targeted-4%)

Why does the target 4% still remains elusive?

Same set of problems since decades:
Highly under-utilized

Small and fragmented land holdings

Inadequate irrigation facilities

Depleting soil fertility Poor warehousing and storage of food grains Lack of mechanization

Why does the target 4% still remains elusive?

80% - still on the hands of rain god 60% of workforce 15% to GDP

Rural farmers unaware of mechanized farming

Unavailability of proper marketing Perishable goods sold at threw away prices Lack of cold storages Food grains rot due to lack of storage capacity

HOLISTIC APPROACH
Farming Production Marketing

Needs huge investment Government private sector partnership Total plan outlay for agriculture : was Increased by 18% from Rs 17,128Crore - 2011-12 20,208 Crore Agriculture Ministry seeking more support

to

Food ministry- Food security program

Food subsidy- DD Budgetary provision- 1.25lakh Crore (existing-18,000 Crore)

Fund for- PDS IT enabled PDS Direct transfer of cash subsidy Focus needed on National Agriculture Research System Quality seeds to farmers

Creating Env Profit oriented farming

30% of power output irrigation 19% of total diesel Agriculture

2013
80% chance of near normal monsoon

Low chance of excess rain or drought

Government policies were focusing on

Improving farm output Ensuring food security

Self-sufficient for itself

COMPONENTS OF 2012-13 BUDGET

Bringing 2nd green revolution to eastern India for that 1000 Crore allocated .
Allocation under Rashtriya Krishi Vikas Yojana was increased from 6755 Crore to 7860 Crore

Agriculture credit raised from 4,75,000 to 5,75,000

Development of 60,000 pulse villages. Increasing the production of fruits and vegetables and promotion of cereals production

COMPONENTS OF 2012-13 BUDGET

Lending to small and marginal farmers at the rate of 4% National food security bill Subsidy like fertilizers and kerosene paid to farmers directly To operationalize government owned irrigation and water resource finance company to fund irrigation project

COMPONENTS OF 2012-13 BUDGET

Total planned outlay was increased from 17,123 Crore to 20,208 a 18% hike Aim was to give boost to flagship programme Rastriya Krishi Vikas Yogana Launch of five mission

1- National food security mission

2- National mission on sustainable agriculture 3- National mission on oilseed 4- National mission on agriculture extension 5- National horticulture Mission

COMPONENTS OF 2012-13 BUDGET

To boost research and development special grants was made. On agriculture equipment custom duty was reduced to 2.5% from 7.5.Aim was to promote usage by reducing cost.

EXPECTATIONS FROM 2013

Introduction of food security bill. It will make access to food legal right.
- Still malnutrition is big problem 21.5% babies are born with low weight

Measures to harness Demographic dividend.

- It is possible only when farming will be intellectually stimulating and economically

rewarding.
- Implementation of national policy for farmers

EXPECTATIONS FROM 2013

Empowerment of women. - Women constitute 50% of farmers and 60% agriculture workforce - Result of outmigration of man greater attention should be paid to women farmers for future growth - Mahila Kishan Shashiktikaran scheme should be inlarged

EXPECTATIONS FROM 2013

Total planned outlay will be increased from 20,000 crore.

Restructuring of MGNREGA - To combine labour with intellect

- Integration of other programme with

MGNREGA - Number of days of work should be increased from 100 days

EXPECTATIONS FROM 2013

Need to promote sea water farming moment

Number of Krishi Vigyan Kendras should be increased - To provide training in food processing, Value

addition and agribusiness

Budget should be inhanced for Agricultural research from current 200 crore

Modification of KCC scheme.

EXPECTATIONS FROM 2013

For rural area government is going to curtail number of CSS(central sponsored scheme) from 147 to 59
Aim is to bring efficiency. Flexibility to states in managing funds for CSS 40,000 crore rural development flexi fund will be constituted.

Next.!

BANKING & INSURANCE

BANKING:
ARPAN BANERJEE(FK-2210)

SONIA JOSEPH (FN-196)

CONTENTS

Overview of Indian Banking Industry.

Past, Present and Futures. Recent changes in the sector. Expectations from the Budget

Overview..

Overview

Present overview

Value

64 Trillion

Factors of growth

Increasing disposable income, exposure to huge range of products, increase use of mobile banking, Financial inclusion program

Budget Highlights 2012

Provision of Rs.15,888 Crores for capitalization of Public Sector Banks,Regional Rural

Banks (RRBs)

Consideration for creating a financial holding company to raise resources and meet the

requirements of Public Sector Banks

Extension of financial inclusion scheme Swabhimaan UID-Aadhaar platform to support the payments of MG-NREGA; old age, widow and

disability pensions; and scholarships directly to the beneficiary accounts

Central KYC depository to be developed in 2012-13 to avoid multiplicity of registration Proposal to transform the KCC into smart card which could be used at ATMs

Concerns for the banking industry..

More stringent capital requirements to achieve as per Basel III:

Concerns for the banking industry..

Increasing non-performing and restructured assets

New Banking Licenses

Intensifying competition
Promoting Financial Inclusion

improving organisational design

EXPECTATIONS FROM THE BUDGET.

Infusion of Capital by the Government-20000 crores

Recapitalization of banks Incentivize increase in financial savings and move people away from physical savings Lock-in period for tax saving savings deposits may be reduced from the current 5 years to 3 years

Capital infusion
25000 14 12 20000 amount in crores percent of gdp 10 8 6 4 2 0 0 Series1 2010-11 20117 2011-12 12000 2013-14 20000 Series2

Net financial savings

15000

10000

5000

2009-10 12.2 12.2

2010-11 9.3 9.3

2011-12 7.8 7.8

Series1

NPA
5 4.5 4 3.5 3 2.5 2 1.5 1 0.5 0 percent of NPA

Series1

Sep/12 3.6

Mar/13 4

Mar/14 4.4

EXPECTATIONS FROM THE BUDGET. More tax sops

Increasing the TDS limit on fixed deposit to Rs 25,000

Incentives for investment in infrastructure bonds-tax exemption of 20000 u/s 80ccf

A reduction in the lock-in period for tax saving deposits to three years

GENERAL EXPECTATIONS FROM THE BUDGET.

1.Recovery machinery to be strengthened to reduce NPAs.

2.Basel- 3 capital norms to be (CAR) achieved at a faster pace. 3.Tax incentives for recovery of bad loans. 4.Opening more branches in rural areas and making rural

service mandatory for promotions- to make financial

inclusion successful

BANKING & Insurance

INSURANCE:
JUVIN (FN-186)

RAKESH (FK-2296)

BUDGET 2012-13

10 Times 5000 10 D
NO. THAT MATTER in 20122013 BUDGET FOR INSURANCE SECTOR

60 Years

1 Lakh

FDI in INSURANCE

Accepted by Cabinet Committee Bill to be passed 26 to 49% Profitability Penetration

Open Architecture Structure

Divided into 3 zones Separate partners in different region Zone A- 14 regions Zone B- 9 regions Zone C- 17 regions any partner

Separate Tax Deduction

Section 80C of the Income Tax Act

Annuities and LI premium to be treated different For Investments In Retirement Savings Outside The Rs 1 Lakh

Insuranc e Bill
Service Tax On Realization Basis
EXPECTATIONS FROM20132014 BUDGET

More Tax Concessions

Annuit y policy
Post retirement Medical Schemes

Reduction in Service Tax

Next.!

MAJOR SERVICES SECTOR

REMYA RACHEL ABRAHAM (FK-2300) NAZMI NAZEEB (FN-194)

Contents
1) Introduction 3) Health Sector:
Budget 2012 highlights. Budget 2013 expectations. 4) Retail Sector: Budget 2012 highlights Budget 2013 expectations

2) Education Sector: Budget 2012 highlights. Budget 2013 expectations.

Introduction

Education sector

Budget 2012
18% hike in budget allocation
Plan outlay- Rs. 61,427 crores 22% increase for Sarva Shiksha Abhiyan (SSA) Budgetary allocation for higher education Rs. 15,458 crores and for school education Rs. 45969 crores

Contd.
29% increase in allocation for Rashtriya Madhyamik Shiksha Abhiyan (RMSA)
There was also a 11% increase for the flagship mid day meal program in schools from Rs. 10,380 crores to Rs. 11937 crores .

FM also announced that 6000 model schools be open of which 2500 would be in the PPP mode.
Allocation for the National Skill Development Fund has been doubled to Rs. 1000 crores , so total corpus of fund became Rs. 2500 crores

Expectations
Government needs to provide adequate funds for education of differentlyabled.
Grant infrastructure status to higher education sector. Establishment of educational institutions as a company under section 25 of Companies Act, 1956.

Additional income tax exemptions for education sector.

Healthcare sector

Budget 2012
Hike of 13.24% in total outlay for the sector.
Total outlay is Rs. 34,488 crores

Plan outlay for Ministry of Health and Family Welfare is up by 14% at Rs. 30,477 crores and non-plan outlay Rs. 4,011 crores.
Hike of 15% in allocation for the NRHM to Rs. 20,822 crores.

Contd..
AYUSH gets a total plan outlay of Rs. 990 crores ( 10% hike)
Dept. of Health Research gets Rs. 660 Crores (10% hike)

Department of AIDS Control got a sum of Rs.1700 crores

Expectations
Reforms in health care sector including FDI and global collaborations in life sciences.
Budgetary intervention for diagnostic industry. Restriction on use of secret comparable by TPAs. Flexibility in using multiple year data. Exemption of excise duty for drugs and vaccines.

RETAIL SECTOR

Budget 2012
FDI in single brand retailing had been increased to 100% from earlier 51%.

FM said that efforts were on to make a political consensus in the case of 51% FDI in multi brand retailing.

FDI in multi-brand retail would come into effect in a "phased" manner, beginning from metropolitan cities.

Expectations
Separate industry status to the sector in order to efficiently monitor the growth of the industry.

Additional I-T provisions for retail companies.

Next.!

TAX REFORMS
UNNI KRISHNAN (FK-2225) RAHUL NAROTHAMAN(FK-2266)

BUDGET ESTIMATES 2012-13

Gross Tax Receipts estimated at `10,77,612 crore.

Net Tax to Centre estimated at `7,71,071 crore. 7.6% of GDP 20.1% growth over last year

Rs. 5.70 lakh crore direct tax target for the fiscal.
Current CAGR 16.7% (past 10 years)

Net direct tax collection grew by 12.49 per cent to over Rs. 3.90 lakh crore in the April-January period, less than the budgeted annual target of 15 per cent The gross collection of direct taxes stood at over Rs. 4.55 lakh crore during the April-January period of current fiscal year, as against Rs.4.25 lakh crore in the same period in 2011-12

HIGHLIGHTS

Tax reforms

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.

No change in corporate tax rate

Tax reforms

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. Shift from a positive list approach to negative list approach in the taxation of services

Tax reforms

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.

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.

 New tax slab to be raised to 3L from the existing 2L

Introduction of a Surcharge of 10% with the top slab of Income Tax instead of increasing tax slab from 30% to 40%.

Introduction of Inheritance Tax

 Medical allowance to be raised from 15000p.a. to 50000 p.a. Increase in deduction for housing loan from INR 150,000 to INR 300,000 Transportation allowance to be raised from 800p.m. to 3000 p.m.

 Re-Introduction of Infrastructure Bonds under section 80c of income tax to promote investments The deduction limit under section 80c will be increased from 1 L p.a. to 1.5 L Reduction in excise duty on Aviation Sector from 12% to 10%.

 Reduce CST from 2% to 1% in view of the delay in implementation of GST Tax Exemption for companies engaged in infrastructure project development and SEZ companies

 GST will be Amended if most of the states are coming under consensus Keep the Indirect tax rates unchanged, especially the Service tax and Central excise rates

Abolish Surcharge and cess from Corporate Tax

Fiscal Deficit 4.8%

Fiscal Deficit 5.9%

THANK YOU.!