REVIEW OF THE INDIAN BUDGET PROPOSED FOR 2012-13

The Budget 2012-13 announced by the Finance minister, Pranab Mukherjee , has seen mixed reactions from sectors all over. Some pleased, others indifferent and the rest plain outraged. Aimed at fuelling growth and slashing the raging fiscal deficit from the current 5.9% to, some may say an over-ambitious, 5.1% of the G.D.P. Many have criticized the budget to be lackluster and to be lacking vision as it has not seemed to be devoid of any major reforms which would bring the ailing inflation ridden economy back on track. First and foremost, the Finance Ministers attempt at consolation to the general public was pertaining to the income-tax exemption stated in the budget, which he held would help boost consumption as people would have more disposable income to buy goods. However this bought little comfort has the overall increase in excise duties on all goods and service tax on all services increasing from 10% to 12% would prove to be a more the effective cancelling force on consumption as people would have to shell out quite a bit more than they were before. His rationale for increasing these taxes was that he intended to raise an additional Rs 27,280 Cr through customs and central excise levies and Rs 18,660 Cr from service taxes. This move was a risky move to take in an already inflation ridden economy and has sparked fears in numerous industries that it may lead to choke demand altogether. The result of the respective increases in excise and service taxes are predicted to skyrocket the prices of automobiles, consumer electronics such as computers, laptops, printers, refrigerators; cosmetics , confectionary etc.. The telecom industry which has been one of the fastest growing sectors in the country , which was in dire need of tax exemptions or benefits in light of constantly increasing operating costs and slim profit margins, was given none. On the contrary the increase in service tax is going to boil down to the consumers and raise the phone bills and hence adversely affect the industry. The positives here were the exemption from excise duties for mobile parts manufactured in India as well as increased funding for telecom towers.

The Budget proposed to double the customs duty on precious metals such as gold and platinum in order to curb the surge in gold imports which is contributing to the rising trade deficit and the weakening of Re. This move shall however make the cost of gold jewelry and some gold coins as well as platinum jewelry dearer hence dampening consumption on the domestic front as well. The automobile industry on a holistic level suffered a negative impact on account of the budget. With the excise duty increasing the prices of cars and large S.U.V.s ,it threatens to additionally reduce the already suffering volume of sales in the auto industry. There was a relaxation for the automobile industry as the budget in reduced the excise duty from 10% to 6% on parts for hybrid environmental friendly cars. In the Fast Moving Consumer Goods sector the budget proposed to increase basic excise duties on cigarettes of more than 65mm length by adding an ad-valorem tax of 10% in the existing specific rates. The ad-valorem rates would be chargeable on 50% of the retail sales price declared on the pack. While analysts hold that this move may not necessarily affect sales in the long run , as they predict the sales to bounce back after a lull of about 2 quarters, the increase in excise is predicted to spark an increase in the tax arbitrage between duties paid and duty evaded cigarettes, which inevitably incentivize the already growing trade of excise evaded and smuggled cigarettes. This move is also predicted to adversely impact the livelihoods of the tobacco farmers. On the banking front the budget moved towards lowering interest rates for the moderation of inflation in the economy. R.B.I. lowered C.R.R. from 5.5% to 4.75% which is estimated to pump Re 48000 Cr into the economy. In the Agriculture sector the budget proposed nothing that might help agricultural production, storage, research, marketing and distribution. Provisions of Re 100 Cr have been made in the second green revolution mainly in the eastern region and an increase in 13% in the budget allocation has been earmarked for the irrigation scheme. However this allocation may not necessarily trickle down to the actual recipients on account of corruption. Thus the overall increase of 18% in the budget allocation for the primary sector has been the only real contribution this year.

However even for this to prove of worth to the sector a robust distribution system and a check on corruption would be required. On the infrastructure front, though the budget envisaged building 8800 kms of roads, however does not specify the implementation period and hence by extension the completion date. The railway budget announced an increase in the fare for those travelling in first class or second class A/C compartments and the same fare for the rest of the categories. This was a disappointment as just before this there had been made a decision to increase the fares on all categories of the railway, the first of its kind to come in 10 years, which in turn would have brought about an additional 4000 Cr revenue. The budget left corporate taxes untouched as well as gave tax concessions to infrastructure sectors. All in all the budget in my opinion seems to be too safe and lackluster in vision and ultimately incapable of bringing about any real change in the state of the present economy. Furthermore the budget is mired with bottleneck effects wherein many of the variables seem to be overpowering or cancelling out one another. Thus to me, the budget seems to be more of an attempt by the Finance Minister to gain political favour in the government than benefitting the nation as a whole. On a whole the budget is likely to bring about the very forces that it is meant to fight, i.e. , inflationary pressures as well as be over-burdening on the common man.