Budget 2012-13

Fiscal Arithmetic
Particulars

2011-12
(in Rs. crore)

2012-13
(in Rs. crore)

%age
change

Gross Tax Receipts

9,01,767

10,77,612

+ 19.5%

Total Expenditure

12,57,729

14,90,925

+ 18.54%

Corporation Tax with Rs 3,73,227 crore will be the major contributor in the
Revenue Receipts.
Of the total expenditure, the Plan Expenditure is budgeted at Rs.5,21,025
crore which is 18% higher than the Budget Estimates of 2011-12.
The Non-plan expenditure is budgeted at Rs. 9,69,900crore which is 8.7%
higher than the RE for 2011-12 and 18.8 higher than the BE for 2011-12.

Key Highlights
Economy:
GDP expected to grow by 6.9% in 2011-12
Inflation to moderate in the next few months
Fiscal deficit deterioration in 2011-12.Fiscal deficit at 5.9% of GDP IN
2011-12 and 5.1% of GDP IN 2012-13.
Subsidies:
Subsidies capped at 2% of GDP
Tax reforms:
DTC (Direct Tax code) Bill to be enacted at the earliest

Investment Policy:
For 2012-13 Rs.30,000crores to be raised through disinvestment
Efforts on to build up a consensus to allow FDI in multi retail up to 51%
Retail Investors-Rajiv Gandhi Equity saving scheme-Income tax

deduction of 50% for investment up to Rs.50,000 in equities whose

annual income is below Rs.10Lacs.This scheme will have a lock in of
three years.
Tax free Bonds of Rs.60,000crore to be allowed for financing

infrastructure projects.( The tax free bonds to be available during the

entire year 2012-13)

Governance:
A central KYC (Know your customer) to be developed to avoid
multiplicity of registration.
Proposal to lay a white paper on Black money in the current session
of Parliament. Measures proposed to deter the generation and use of
unaccounted money.
Tax Proposals:
Direct Taxes:

No IT for income up to Rs 2,00,000; 10% on income between Rs 2-5

lakh; 20% on income between Rs 5-10 lakh and 30% on income above
Rs 10 lakh.
Tax audit-Compulsory Tax audit under Sec.44AB for SME raised from
existing Rs.60Lacs to Rs.1crore and for professionals from Rs.15Lacs to
Rs.25Lacs.
Reduction in security transaction tax by 20% on cash delivery
transactions .

Indirect Taxes:
Service Tax rate to be increased from 10% to 12%
Proposal to tax all services except in the negative list comprising of 17
heads.
Standard rate of excise duty to be raised from 10% to 12%
Excise duty on large cars (value more than USD 40,000) to be increased.
Increase in custom duty on Gold and other precious metals.

SECTORAL IMPACT

Sector

Banking Sector

Proposal
Public Sector Banks and Financial
Institutions, to get Rs 15,888 crore for
capitalization.
External Commercial Borrowings (ECB)
to be allowed to part finance Rupee debt
of existing power projects.

Power Sector

Coal India to sign fuel supply

agreements with power plants, having
long-term PPAs with DISCOMs and
getting commissioned on or before
March 31, 2015.
Full exemption from basic duty provided
to certain fuels for power generation.

Impact
Capital infusion to help
maintain banks minimum
tier - I capital, will build
confidence in investors
about the financial quality.

Power companies one of

the major beneficiaries
with many custom
exemptions and permission
for ECBs to finance rupee
debt.

Sector

Proposal

Impact

Allocation of Road Transport and Highways

Ministry enhanced by 14 per cent to Rs 25,360
Construction companies to
crore.
get major boost with full
Surface Transport Full exemption from import duty on certain
exemption in import duty of
categories of specified equipment needed for
specialized equipment.
road construction, tunnel boring machines and
parts of their assembly.
Direct import of Aviation Turbine Fuel
permitted for Indian Carriers as actual users.

Aviation Sector

Mixed impact on the cash

strapped sector as FDI still to
get nod, however tax
concession on parts and
allowing ECB to help them to
Proposal to allow foreign airlines to participate some extent.
up to 49 per cent in the equity of an air transport
undertaking under active consideration of the
government.
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.

Sector

Proposal

Impact

Building of commercial vehicle bodies to have duty of an Large cars to get costly, auto
ad valorem rate of 3 per cent instead of Rs 10000 charged makers to hike prices. Demand
earlier.
to get negatively impacted.
Premium cars such as
Hike in import duty to 75% from 60% for assembled SUVs Bentleys, BMWs, Porsche and
and multi-utility cars costing more than $40,000.
Volvos will become more
Auto Sector
expensive.

Basic Excise duty hiked to 12 per cent from 10 per cent.

Rates hiked from 10-12%.

Service Tax

All services to be taxed except 17 in negative list

The increased duties are

likely to impact the passenger
car market as auto industry is
expected to pass on the entire
burden of excise duty to
customers.
Almost everything to get
costly, electricity bill, phone
bill and even consumer goods
purchase.

CRITICAL ANALYSIS

Critical Analysis
Fiscal Deficit

Reduction of fiscal deficit from 5.9 to 5.1 per cent of the GDP
More modest and realistic than last years target of 4.6 per
cent
Target to be achieved by an expected 19.5 per cent growth in
gross tax revenue, realisation of Rs300 billion from
disinvestment and sale of spectrum for Rs400 billion
The major hurdle in achieving this target will be the subsidy
expenditure currently capped at 2 per cent of the GDP

 Subsidy bill at 2% of GDP

Rs430 billion on oil subsidies and Rs685 billion on fertilizer

subsidies
Based on the assumption that oil prices will stay at
$115/barrel
In case of crude oil reaching $150/barrel, the government
will be forced to revise its target upwards
A low subsidy outlay is expected to fuel inflation
A high subsidy bill will lead to a higher fiscal deficit

 Disinvestment of Rs300 billion

Government could not meet the disinvestment target of

Rs400 billion last year
The best that they have achieved is Rs230 billion in 2010-11
when the Sensex breached 20000
ONGC FPO debacle
Due to weak FIIs, the government might have to depend
upon cash-rich PSUs to meet this target.

 Tax Law Amendment (Vodafone case)

Right to tax cross-border deals if they involve Indian assets

retrospectively from 1962
Short-sighted: short term gain given precedence over long
term implications
Will affect investor sentiments negatively
Hamper FDI inflows particularly when it is rather badly
needed in sectors like aviation & infrastructure

Rajiv Gandhi Equity Saving Scheme

o

Fine print
The

scheme will allow for income tax deduction of 50

per cent to new retail investors who invest up to Rs
50,000 directly in equities (no Mutual Funds
allowed)
Lock-in period of three years, one-time deduction
Not for existing investors
Restricted to top 100 or 200 shares on BSE & NSE
In case of early exit, the tax benefit will have to be
surrendered to the Government

Rajiv Gandhi Equity Saving Scheme

o

Impact

1.5 crore PAN account-holders with a yearly salary

between Rs 2 lakh and Rs 10 lakh do not have a Demat
account
The scheme has the potential of infusing Rs750 billion into
the markets
Will encourage the flow of savings in financial instruments
and improve depth of the domestic capital market
Reduce dependence on FIIs & FPIs

Rajiv Gandhi Equity Saving Scheme

Shortfalls

No Mutual Funds are exempt under this scheme, hence

1st time investors, with limited financial knowledge, will
be left to fend for themselves
The scheme will restrict the investment to top 100200
companies. Mid-cap & Small-cap firms will not get any
benefits
Will lead to heavy investments just before the end of
the assessment period so as to meet the tax planning
targets.

Conclusion
The budget was aptly summed up by a fund manager

as neither reformist not populist

It is a politically correct budget where the Finance

Minister has tried to walk a thin rope between

fiscal consolidation & growth stimulation
The country can live with an unexciting budget like

this one as long as there is proper implementation

THANK YOU