The Honorable Finance Minister presented the Union Budget 2012 under the shadow of his fiscal calculations going away for the Financial Year 2011-12. The expectation that GDP growth would revert to the pre-global financial crisis level at around 9 percent was dashed as the economy disappointedly grew only by 6.9 percent, mainly due to deceleration in industrial growth. GDP growth was salvaged by the services sector which grew at 9.4 percent and is now about 56 percent of India’s GDP. Indian industry struggled under the twin burdens of persistent high inflation which escalated input costs and rising interest rates due to tightening of monetary policy by the Reserve Bank of India.
For the better part of the past two years, our economy had to battle near double-digit inflation. Our monetary and fiscal policy response during this period was geared towards taming domestic inflationary pressures. A tight monetary policy impacted investment and consumption growth. The fiscal policy had to absorb expanded outlays on subsidies and duty reductions to limit the pass-through of higher fuel prices to consumers. As a result growth moderated and the fiscal balance deteriorated.
The corporate Tax Collections and a feeble disinvestment program could not match the budgeted numbers on the Revenue side, higher crude oil import prices resulted in much larger than anticipated subsidies on fuel, food and fertilizers on the Expenditure side.
Given this backdrop the Finance Minister identified five objectives in framing his Budget for 2012-13:
• Focus on domestic demand 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
• Expedite coordinated implementation of decisions being taken to improve delivery systems, governance and transparency and address the problem of black money and corruption in public life.
OVERVIEW OF INDIAN ECONOMY
Let us now have a look at a brief overview of the Indian economy
1. GDP
· GDP is estimated to grow at 6.9% in real terms in 2011-12 and 7.6% +/- 0.25 per cent in 2012-13
· Slowdown is primarily due to deceleration in industrial growth, rising cost of credit, political turmoil in Middle East, earthquake in Japan and weak domestic business sentiment, added to this decline.
2. INTERNATIONAL TRADE AND FOREX RESERVES
· Exports have grown by 23.5% while imports have grown by 29.4% during April to January.
· Growth in exports has come due to higher growth in Asia which accounts for 57% of the total exports.
· India’s forex Reserves at the end of February 2012 is US$293.44 billion is the sixth largest forex reserve holder in the world.
3. DISINVESTMENT
· For 2012-13, government proposes to raise Rs 30,000 crore through disinvestment.
· In 2011-12, as against a target of Rs40,000 crore, the Government estimates to raise about Rs 14,000 crore from disinvestment.
· The government will continue to maintain at least 51% ownership and management control.
4. INFLATION
· Inflation as measured by WPI was high during most part of the year ranging from 9.7% at the start of financial year to 6.6% in January 2012.
· Monetary and fiscal policy measures aimed at taming the domestic inflationary pressures.
5. FISCAL DEFICIT
· The combined effect of lower tax and disinvestment receipts and higher expenditure, mainly on account of subsidies, has pushed the fiscal deficit to 5.9 per cent of GDP in the Revised Estimates for 2011-12.
· The fiscal deficit was 4.5% in 2011-12 and is projected to be at 5.1% for 2012-13.
6. CAPTIALISATION OF BANKS
· Government proposes to provide Rs15,888 crore for capitalization of PSBs, RRBs and other financial institutions including NABARD. The Government is also examining the possibility of creating a financial holding company which will raise resources to meet the capital requirements of Public Sector Banks.
· A central Know Your Customer (KYC) depository will be developed in 2012-13 to avoid multiplicity of registration and data upkeep.
· Saving bank account interest rates were deregulated
7. TAX REFORMS
· DTC bill will be enacted at the earliest after expeditious examination of the report by the Parliament standing committee.
· Drafting of model legislation for Centre and State GST in concert with States is under progress.
· GSTN will be set up as a National Information Utility and will become operational by August 2012. The GSTN will implement common PAN-based registration will enhance transparency and check tax evasion.
8. INFRASTRUCUTRE AND INDUSTRIAL DEVELOPMENT
· Tax free bonds were doubled from Rs 30,000 crore to Rs 60,000 crore. This includes `10,000 crore for NHAI, `10,000 crore for IRFC, `10,000 crore for IIFCL, `5,000 crore for HUDCO, `5,000 crore for NHB, `5,000 crore for SIDBI, `5,000 crore for ports and `10,000 crore for power sector.
· ECB to be allowed to part finance rupee debt of existing power projects.
· Lack of adequate infrastructure is a major constraint on growth. During the Twelfth Plan period, infrastructure investment will go up to Rs50 lakh crore. About half of this is expected to come from private sector.
· The Government has approved guidelines for establishing joint venture companies by defence Public Sector Undertakings in PPP mode.
· To ease access of credit to infrastructure projects, India Infrastructure Finance Company Limited (IIFCL) has put in place a structure for credit enhancement and take-out finance. A consortium for direct lending and grant of in-principle approval to developers before the submission of bids for PPP projects has also been created.
· Irrigation (including dams, channels and embankments), terminal markets, common infrastructure in agriculture markets, soil testing laboratories and capital investment in fertilizer sector eligible for VGF under this scheme. Oil and Gas/LNG storage facilities and oil and gas pipelines, fixed network for telecommunication and telecommunication towers will also be made eligible sectors for VGF.
SUBSIDIES
· The major subsidies at the Centre are for food, fertilizers and petroleum products. Some subsidies at this juncture in our development are inevitable.
· Government will restrict the expenditure on Central subsidies to under 2 per cent of GDP in 2012-13. Over the next three years, it would be further brought down to 1.75 per cent of GDP. Subsidies related to food and for administering the Food Security Act will be fully provided for. Effort now will be directed towards better targeting and leakage proof delivery of the subsidies. However concrete measures have not been brought up by the government to reduce subsidy.
· Mobile- based Fertiliser Management System (mFMS) has been designed to provide end-to-end information on the movement of fertilisers and subsidies, from the manufacturer to the retail level. This will be rolled out nation-wide during 2012. This scheme will benefit 12 crore farmer families, thereby curtailing misuse of fertilisers.
CAPITAL MARKET AND FINANCIAL SECTOR
· To encourage flow of savings in financial instruments and improve the depth of domestic capital market, it is proposed to introduce a new scheme called Rajiv Gandhi Equity Savings Scheme. The scheme would allow for income tax deduction of 50 per cent to new retail investors, who invest up to Rs50,000 directly in equities and whose annual income is below Rs10 lakh. The scheme will have a lock-in period of 3 years.
· Allowing Qualified Foreign Investors (QFIs) to access Indian Corporate Bond market.
· Simplifying the process of issuing Initial Public Offers (IPOs), lowering their costs and helping companies reach more retail investors in small towns.
· Providing opportunities for wider shareholder participation in important decisions of the companies through electronic voting facilities.
· Permitting two-way fungibility in Indian Depository Receipts subject to a ceiling with the objective of encouraging greater foreign participation in Indian capital market.
TEXTILES
· The Government has recently announced a financial package of Rs 3,884 crore for waiver of loans of handloom weavers and their cooperative societies.
· Government proposes to provide assistance in setting up of dormitories for women workers in the 5 mega clusters relating to handloom, power loom and leather sectors.
· 500 crore pilot scheme in the Twelfth Plan for promotion and application of Geo-textiles in the North East Region.
· To address the need of the local artisans and weavers, government proposea to set up a powerloom mega cluster in Ichalkaranji in Maharashtra with a Budget allocation of Rs70 crore.
TRANSPORT: ROADS AND CIVIL AVIATION
· Government proposes to set a target of covering a length of 8,800 kms under NHDP next year. The allocation of the Ministry has been enhanced by 14 per cent to Rs 25,360 crore in 2012-13.
· To encourage public private partnerships in road construction projects, I propose to allow ECB for capital expenditure on the maintenance and operations of toll systems for roads and highways so long as they are a part of the original project.
· To reduce the cost of ATF, Government has permitted direct import of ATF by Indian Carriers, as actual users.
· To address the immediate financing concerns of the Civil Aviation sector, permit ECB for working capital requirements of the airline industry for a period of one year, subject to a total ceiling of US Dollar 1 billion.
· Proposal to allow foreign airlines to participate up to 49 per cent in the equity of an air transport undertaking engaged in operation of scheduled and non-scheduled air transport services is under active consideration of the Government.
EDUCATION
· The Right to Education (RTE) Act is being implemented with effect from April 1, 2010 through the Sarva Shiksha Abhiyan (SSA). For 2012-13, Rs25,555 crore is allocated for RTE-SSA. This is an increase of 21.7 per cent over 2011-12.
· In the Twelfth Plan, 6,000 schools have been proposed to be set up at block level as model schools to benchmark excellence. Of these, 2500 will be set up under Public Private Partnership.
DEFENCE
· In the Budget for 2012-13, a provision of Rs 1,93,407 crore has been made for Defence Services which include Rs79,579 crore for capital expenditure. As always, this allocation is based on present needs and any further requirement would be met.
· But this amount does not include the pension paid to Defence personals. Pension paid is included in civil servants list.
· Defence expenditure is nearly 2% of our GDP. Allocation for the current year has increased by nearly 18% but amount is still far behind China.
BLACK MONEY
· Government has outlined a five pronged strategy to tackle the malaise of generation and circulation of black money and its illegitimate transfer outside India. Government has taken a number of proactive steps to implement this strategy. As a result:
o 82 Double Taxation Avoidance Agreements (DTAA) and 17 Tax Information Exchange Agreements (TIEA) have been finalized and information regarding bank accounts and assets held by Indians abroad has started flowing in. In some cases prosecution will be initiated
o Dedicated exchange of information cell for speedy exchange of tax information with treaty countries is fully functional in CBDT;
o India became the 33rd signatory of the Multilateral Convention on Mutual Administrative Assistance in Tax Matters; and
o Directorate of Income Tax Criminal Investigation has been established in CBDT.
o White paper on Black Money
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