Union Budget 2012-13

An Analysis

Overview of the Economy

GDP growth estimated at 6.9 per cent in real terms in 2011-12. Slowdown in comparison to preceding two years is primarily due to deceleration in industrial growth. Headline inflation expected to moderate further in next few months and remain stable thereafter. Steps taken to bridge gaps in distribution, storage and marketing systems have helped in more effective management of inflation. Developments in Indias external trade in the first half of current year have been encouraging. Diversification in export and import market achieved. Current account deficit at 3.6 per cent of GDP for 2011-12 and reduced net capital inflow in the 2nd and 3rd quarters put pressure on exchange rate. Indias GDP growth in 2012-13 expected to be 7.6 per cent +/- 0.25 per cent

Tax
Income tax exemption limit raised to Rs.2 lakh to provide relief of Rs.2,000 for all assesses; 20 per cent tax on income over Rs.10 lakh, up from Rs.8 lakh. Deduction of up to Rs.10,000 from interest from savings bank accounts. Service tax rate raised from 10 per cent to 12 per cent to bring in Rs.18,660 crore. No change in corporate taxes but measures to enable them better access funds. Withholding tax on external commercial borrowings reduced from 20 per cent to five per cent for power, airlines, roads, bridges, affordable houses and fertilizer sectors. Cinema industry exempted from service tax.

Indirect Taxes
Service tax to be shorter by nearly 40 per cent. Proposals from service tax expected to yield additional revenue of 18,660 crore. Given the imperative for fiscal correction, standard rate of excise duty to be raised from 10 per cent to 12 per cent, merit rate from 5 per cent to 6 per cent and the lower merit rate from 1 per cent to 2 per cent with few exemptions. Excise duty on large cars also proposed to be enhanced. No change proposed in the peak rate of customs duty of 10 per cent on nonagricultural goods. Duty-free allowances increased for eligible passengers and for children of up to 10 years. Proposals relating to Customs and Central excise to result in net revenue gain of Rs27,280 crore.

Personal Taxation
General (both men & women) Tax slab
Income Tax Slab (in Rs.) Upto Rs. 2,00,000 Rs. 2,00,000 Rs. 5,00,000 Rs. 5,00,000 Rs. 10,00,000 Rs. 10,00,000 above Tax Applicable (%) Nil 10% 20% 30%

Personal Taxation
Senior Citizens (Aged 60 years but less than 80 years)
Income Tax Slab (in Rs.) Upto Rs. 2,00,000 Rs. 2,00,000 Rs. 5,00,000 Rs. 5,00,000 Rs. 10,00,000 Rs. 10,00,000 above Tax Applicable (%) Nil 10% 20% 30%

Personal Taxation
Very Senior Citizen (Above 80 years)
Income Tax Slab (in Rs.) Upto Rs. 5,00,000 Rs. 5,00,000 - Rs. 10,00,000 Rs. 10,00,000 above Tax Applicable (%) Nil 20% 30%

Winners & Losers: How Budget 2012 played out within key sectors

S. No. 1 2 Gems

Sector Automobile

Won Diesel Car Manufacturers All Jewellery Manufacturers Branded Apparel Manufacturers/Small Retailers All Power Generation Companies Affordable Housing Segment Maintenance Centers for Aircraft and Railways and Business Class Passengers

Lost Large Car Makers Gold and Gemstones Importers/Jewellery Brand Owners Consumers

Retail

Power

Domestic Power Generation Equipment Suppliers Sector as a Whole and Investors in the Sector Locomotive Manufacturers/ Economy Class Air Flyers/ Indian Carriers

5 6

Real Estate & Hospitality Transportation

A look at the Budget

Branded apparel Imported 20 inch LCDLED TVs LED bulbs CFLs Match box Life saving & Probiotics medicines Iodized Salt Mobile phone Branded silver jewellery Foot wear-up to Rs 500/Soya protein foods products

Dearer
Two wheeler Car-SUV Imported luxury vehicle Gold Refrigerator A.C. Washing machine Watches Soaps Cosmetic Cigarette Tobacco Imported jewellery Platinum Imported digital still camera

Cheaper

Transport: Roads and Civil Aviation

Target of covering a length of 8,800 kilometer 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

Textiles
Government has announced a financial package of 3,884 crore for waiver of loans of handloom weavers and their cooperative societies. Two more mega handloom clusters, one to cover Prakasam and Guntur districts in Andhra Pradesh and another for Godda and neighboring districts in Jharkhand to be set up. Three Weavers Service Centers one each in Mizoram, Nagaland and Jharkhand to be set up for providing technical support to poor handloom weavers. 500 crore pilot scheme announced for promotion and application of Geotextiles in the North Eastern Region. A power loom mega cluster to be set up in Ichalkaranji in Maharashtra with a budget allocation of `70 crore.

Micro, Small and Medium Enterprises

5,000 crore India Opportunities Venture Fund to be set up with SIDBI. To enable greater access to finance by Small and Medium Enterprises (SME), two SME exchanges launched in Mumbai recently. Policy requiring Ministries and CPSEs to make a minimum of 20 per cent of their annual purchases from MSEs approved. Of this, 4 per cent earmarked for procurement from MSEs owned by SC/ST entrepreneurs.

Agriculture
Plan Outlay for Department of Agriculture and Co-operation increased by 18 per cent. Outlay for Rashtriya Krishi Vikas Yojana (RKVY) increased to Rs. 9,217 crore in 2012-13. Initiative of Bringing Green Revolution to Eastern India (BGREI) has resulted in increased production and productivity of paddy. Allocation for the scheme increased to `1,000 crore in 2012-13 from Rs. 400 crore in 2011-12. Rs. 300 crore to Vidarbha Intensified Irrigation Development Programme under RKVY. Remaining activities to be merged into following missions in Twelfth Plan:
National Food Security Mission National Mission on Sustainable Agriculture including Micro Irrigation National Mission on Oilseeds and Oil Palm National Mission on Agricultural Extension and Technology National Horticultural Mission Target for agricultural credit raised by Rs.1,00,000 crore to Rs. 5,75,000 crore in 2012-13.

Kisan Credit Card (KCC) Scheme to be modified to make KCC a smart card which could be used at ATMs

Irrigation
Structural changes in Accelerated Irrigation Benefit Programme (AIBP) being made to maximise flow of benefit from investments in irrigation projects. Allocation for AIBP in 2012-13 stepped up by 13 per cent to 14,242 crore. Irrigation and Water Resource Finance Company being operationalised to mobilise large resources to fund irrigation projects. A flood management project approved by Ganga Flood Control Commission at a cost of `439 crore for Kandi subdivision of Murshidabad District.

Rural Development and Panchayati Raj

Budgetary allocation for rural drinking water and sanitation increased from 11,000 crore to Rs. 14,000 crore representing an increase of over 27 per cent. Allocation for PMGSY increased by 20 per cent to Rs.24,000 crore to improve connectivity. Major initiative proposed to strengthen Panchayats through Rajiv Gandhi Panchayat Sashaktikaran Abhiyan. Backward Regions Grant Fund scheme to continue in twelfth plan with enhanced allocation of 12,040 crore in 2012-13, representing an increase of 22 per cent over the BE 2011-12.

Education
For 2012-13, 25,555 crore provided for RTE-SSA representing an increase of 21.7 per cent over 201112. 6,000 schools proposed to be set up at block level as model schools in Twelfth Plan. 3,124 crore provided for Rashtriya Madhyamik Shiksha Abhiyan (RMSA) representing an increase of 29 per cent over BE 2011-12.

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 18,115 crore in 2011-12 to 20,822 crore in 2012-13. National Urban Health Mission is being launched. Pradhan Mantri Swasthya Suraksha Yojana being expanded to cover up gradation of 7 more Government medical colleges.

Security
A provision of 1,93,407 crore made for Defense services including Rs. 79,579 crore for capital expenditure. Any further requirement to be met. Rs. 1,185 crore proposed to be allocated for construction of nearly 4,000 residential quarters for Central Armed Police Forces. Rs. 3,280 crore proposed to be allocated for construction of office building of Central Armed Police Forces. Scheme to create National Population Register likely to be completed within next 2 years.

Governance
UID-Aadhaar
Enrolment of 20 crore persons completed under UID mission. Adequate funds to be allocated to complete enrolment of another 40 crore persons.

Black Money
Proposal to lay a White Paper on Black Money in current session of Parliament.

Public Procurement Legislation

Bill regarding Public Procurement Legislation to be introduced in the Budget

Session of the Parliament.

Legislative measures for strengthening anti-corruption framework are at various stages of enactment.

Other Highlights
National Skill Development Fund allocated Rs.1,000 crore. National Population Register to be completed in two years. Integrated Child Development Scheme to be strengthened and restructured with allocation of Rs.15,850 crore. Completion of highway projects 44 per cent higher than in previous fiscal. External commercial borrowing of up to $1 billion permitted for airline sector.

Other Highlights
Allocation of Rs.200 crore for research on climate change. Infusion of Rs.15,888 crore in public sector banks, regional rural banks and NABARD in 2012-13. Hope to raise Rs. 30,000 crore from disinvestments Better monitoring of expenditure on government schemes

PROS
This Budget identifies five objectives relating to growth recovery, private investment, supply bottlenecks, malnutrition and governance matters. This budget is good for our bright future because government is trying to reduce fiscal deficit it is possible through only increasing tax.

CONS
No capital gains tax for SMEs on sale of residential property Budget 2012 won't alter market expectations Budget 2012 fails to deliver short-term growth punch. Budget 2012-13 disappoints InfoTech sector with most expectations not met Budget 2012: Not enough action on fiscal correction Union Budget 2012-13 is no tonic for a slowdown-hit economy

Capital Plan Outlay (in crore)

Particulars Grand total Agriculture 2010 464316 13825 2011-12 558172 12861 2012-13 651509 16121

2Civil Aviation
Communication and IT Environment and Forest External Affairs Health and Family welfare

6223
13708 2181 800 20726

5621
15101 1902 1125 24315

7293
21394 2430 1500 30477

Home Affairs
Human Resource Development Petroleum and Natural Gas Power Rural Development Science and Technology

2542
43514 60967 42945 720261 4650

6152
51772 69883 62792 67139 5432

10500
61427 79728 62425 73175 5975

Impact Analysis
India Inc.
PROPOSAL EFFECT

Excise duty and service tax raised to 12% from 10%

Investment in infrastructure to go up to 50 lakhs crore in 12th plan; half expected from private sector New sector to be added for purpose of investment linked deduction

Price need to be raised, margins may get affected

More opportunities for private sector to invest in PPP projects Incentives for investment

Impact Analysis
Capital Market
PROPOSAL Reduction Of STT on delivery based sale and purchase of share from 0.125 to 0.1 %
Qualified foreign investors allowed to invest in corporate bond market IPO of Rs 10 cr. And above will only be in electronic from

EFFECT Transaction costs will come down

Deepening of corporate debt market

Cost of issuing shares will come downs; opens doors for more retail investors From Tier 2/3 towns

Impact Analysis
Tax-Payer
PROPOSAL EFFECT

Individuals exemption limit to be raised Provides tax relief of Rs 2,000 to Rs 200,000

Allow deduction of up to Rs 10 lakhs for interest from saving accounts Upper limits of 20% to be raised to 10 lakh from 8 lakh Allow deduction of up to Rs 5000 for preventive health check up More benefit for senior citizens

Tax benefit of Rs20,000

Health awareness

Impact Analysis
Economy
PROPOSED Rs 30,000 crore to be raised from disinvestment in 2012-13 Provision regarding implementation of Advance Pricing Agreement to be introduced in finance bill,2012 Rs 15, cr. To be provided for capitalization of public sector banks and financials institutions Tax-free bonds of Rs 60,000 cr. For financing infrastructure projects in 2012-13 EFFECT Retail investors will get PSU shares Minimize transfer pricing litigation Big boost to IT and BPO service providers Banks will be better equipped to face competition. More long term financing instruments for infrastructure projects

Conclusion
Demand will boost because of rural development and increase in exemption limit. Sales will increase as there is rise in the income of the consumer. As the Profit increase it will lead to increase in taxes. Government income will increase.

Thank You
A Presentation by:

Adit Gupta