UNION BUDGET 2012- HIGHLIGHTS PART 1

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

MOTIVATION

We have all heard about motivation. Motivation in literal terms means willingness to do. It is an inner urge which triggers an action within us. We all need motivation at different phases. We may be down with confidence, moral and so on. At these times we all need to uplift ourselves and perform better.

I always believed that determination, motivation & will power go hand in hand. Determination is your goal. It is what you want to achieve. Your path to achievement may not be easy. There will be obstacles, both big & small in your path. When you see an obstacle on your way, one shouldn’t be demoralized or feel that it is difficult to cross the obstacle. This is where motivation comes in to play. We always need to be motivated that we can, we can. Once we believe that we can, our perception changes.  We need tremendous amount of will power to achieve what we want. Will power is required to work/study day in and day out. We must be able to perform to the best of our abilities everyday in our life.

I would like to say a few things about how I moved about during my study leave and used determination, motivation & will power to sail me through. When I went in to my study leave the first question I asked myself am I game for this? I got an answer within saying no. But I didn’t feel letdown just because of one answer. I wanted to turn the table around and say yes, maybe a few days before the exam.

As my studies progressed I started to feel good and confident. But whenever I was down and negative thought came in to my mind saying that I can’t do it. I closed my books and for a moment I thought of good things in my life. I had thoughts about my class 10, class 12, B Com, CA foundation and CA inter. Thinking about how I managed to sail through this made me feel good.  When I studied I believed if I can’t do this then no one else can. Every day I used to visualize and dream about being a Chartered Accountant. I used to think about the number of opportunities I ll have being a CA. Also the amount of pleasure we ll get by adding CA before our name. This attitude and line of thinking helped me a great deal during my study holidays.

The greatest motivation one can have is the willingness to do well not only for yourself but for your parents. I always believe that hard work pays off.  As long as a person has a desire/ Hunger to know what he/she wants, one can surely achieve it. It all depends on how hungry you are to achieve what you want. One must always remain focused in what he/she wants and must not divert from it. Consistency and hard work is the order of the day.

Happiest moment for me in the past two years is when I saw the happiness in my parents face when I cleared the exam.  All of us really work hard to make our parents feel proud. We must always make our parents proud in things we do and we must do it in the right way. Today whatever we are is because of our parents. We have an identity today because of our parents. Today we are known as son/daughter of so & so. We do not have an identity of our own at this point of time in life. But it is essential that all of us have an identity of our own. Now people tell my parents that they are parents of a Chartered Accountant. What else can we ask for?  These are the moments which will be cherished for life time. Small things can sometimes make big differences. This is possible only if we achieve our goals in life. The society looks up to us. That can be the greatest motivation ever.

People should take steps to create a branding for themselves. This can be done through acquiring knowledge, work ethics, and good social life and over and above a good national citizen of the country. This branding takes time to build and once created it can leave tremendous amount of goodwill.

These 3 words assume great significance on our journey in life. Be determined to achieve what you want. To achieve one must always be motivated and must have the will to do it. The following words assume great significance in life

I will

I can

I want to do it

At the same time always remember maintain the highest standard of professional ethics and never compromise it in life. Once you compromise on ethics, it will haunt lifetime. Friends nothing is impossible in life as long as one has the desire & will to achieve what he/she wants to achieve.

WHY SHOULD I PAY TAXES ?

Income tax is what crosses our mind when we start earning. We normally plan for our funds and accordingly try to reduce our taxes. However despite all the efforts we cannot escape from taxes. We pay taxes for the development of country as a whole such as infrastructure, rural development, industrial development, social development, security and in many other areas.

But the question that arises is the tax which we are paying for the aforesaid areas above is being actually utilized effectively. The answer to this is not a difficult one.  Taxpayer’s money is not being utilized by both central and state governments for the development of country as a whole. It’s very disheartening to see our very own hard earned income go down the drains.

The money is spent by the government for increasing their vote banks by giving free rice, TVs, mobile phones and so on.  This is a very unfortunate situation of our country. Over the past couple of years we have seen many scams erupt in the country such as the commonwealth games, 2G spectrum scam, INSAT spectrum scam, mining scam and on and on. The list seems never to end. The parliament disruption leads to chaos and costs the ex chequer. 

Any scheme launched by the government, only 16% of it reaches the ultimate beneficiary. The remaining amount is siphoned off by the bureaucrats and corrupted middlemen. This is a very sad state of affairs in India. India, undoubtedly is one of the most corrupted countries in the world and the taxpayers as well as India as a country suffers it the most.

The income tax department of the country works in a very unusual way. A person who pays very minute amount as tax, is sent a show cause notice as to why an action should not be taken against him for a small error in the total income statement which may not even have an impact on the tax liability. On the other hand we have people like Hasan ali, raja, kalmadi and many others who have managed to siphon off huge amounts of money from India to tax heavens. Despite having sufficient proof against them, no action is taken. This is income tax department.

The government of India is no different. GoI is aware of the illegal mining happening in the states of Goa, Karnataka and various other places across the country. However no action is taken by it to protect the interest of the country. 26/11 Terrorist Ajmal Kasab is still alive even after 3 years of the brutal terror attack India has ever seen.  A huge amount is incurred everyday for his protection. Why a person like him should be given security who has taken lives of so many ? This is ridiculous as the taxpayer’s money is being spent to protect a terrorist. Remember all the tax payers are contributing a small portion towards his protection.

We have also seen innumerable delays in various projects the government has undertaken in construction of over bridges, railways, highways, other infrastructure projects, loss making PSU such as Air India, oil marketing companies, rising fiscal deficits and inflation is leading to escalation in cost thereby increasing the cost to ex chequer.

Despite all the negative on utilization of taxpayers’ money, being citizen of the country, we must pay taxes because after all it’s our India, My India.  I want to see India rise to the top very soon. For this we must contribute in our own very way by paying taxes honestly and do things which bring laurels for our country. Undoubtedly corruption, bureaucracy are few of the major factors which lead to misutilisation of our tax money.  In some way we have also contributed to this since we let it happen and did not stop the same.

As Mahatma Gandhi said “be the change you want to see in the world”. We must change and pay taxes to see our country reach on the top.  A small change in each one of us can bring about changes in many others. Also paying taxes helps our health since one can have a very good sleep night not worrying at all.  Pay taxes and all is well my friends.

INDIA’S UNUTILISED WEALTH?

India is a country which was or is being exploited by empires from different parts of the world. Be it the Mughals, Portuguese, British or today’s politicians.  People have ruled us. We have been slaves to the colonial regime.  We still haven’t learnt our lessons today. People across the world say that we are a poor country. A country with 1.2 Billion people and over 40% of them do not have access to basic needs. Why is that we have such a situation today?

First of all we have got to realize that we are not a poor country. Our country is very rich. A country rich in diversity, culture, history, heritage, population, minerals and of course wealth.

India has amazing amount of wealth. Corrupt people, institutions are exploiting it or rather not using it in the way it should be used for the development of the country. According to several economists and financial experts, bank deposits in the territory of Switzerland by nationals of India total upwards of $1.4 billion. That is close to the nominal GDP of India today. It kind of gives credence to the widely held belief that $1.456 trillion of Indian money is parked in Swiss bank vaults. This is only in Switzerland. What about the other Tax heavens.  We do not have a count of it, neither is the government willing to bring back those money to India because it knows if the details are obtained, then the government would fall the very next day.

Padmanabhaswamy temple Trivandrum

Over Rs 1, 00,000 crore worth of wealth is accumulated in Padmanabhaswamy temple in Trivandrum, unknown amount of wealth in Tirupati temple which is the richest temple in India, Baba Ramdevs trust which has again added over thousands of crores to its kitty. We must also consider amount of unutilized wealth lying in different temples, churches, institutions across the country. All the amounts mentioned above are estimates. Nobody knows the actual figures. To add to this the hard earned tax payers money is also not being properly channelized by the government. We have seen this in 2G mess, CWG mess, space spectrum mess and so many other such misappropriations.

Imagine if all this money was properly utilized by the Indian government. There would be no stopping India. India would be one of the richest countries in the world. Take a look at the situation by yourself.

With the amount of this wealth, our fiscal deficit would be completely wiped off. What it means is that as a country we will be free from all debts and interest payments.  The wealth would take care of our country’s, defence budget, railways, social budget such as food including malnutrition, scientific research, electricity, water, fertilizers, agriculture, infrastructure, education and so many others. The cost of oil, LPG would decrease. The rates of Income tax and indirect taxes could also be further reduced.

When the money is added to the kitty of GoI, the spending by the government will increase. This in turn will generate employment opportunities, world class infrastructure, increase the earnings of people, who in turn will spend and lead to growth of GDP. Our GDP will touch double digits without any difficulty. We would emerge as powerhouse in the world.  The money is also enough to feed 45 crore poor people in India. The wealth would also enable India to create a strong military base and protect its people from rising threat of its neighbors.

The total amount of this wealth contributes nearly 40-50% of Indias GDP. This means even if we don’t pay tax for next 15 years, Indian government can still run efficiently. Over 15,000 new education institutions can be opened like the IIMs or IITs. There wouldn’t be a requirement to pay electricity bill, India will be financially very strong, 2000 hospitals with all facilities can be made and services can be provided at free of cost. Our GDP growth is now 6.1% as per the latest report and our economy is slowing down. But if the wealth is properly utilized, then our economy will never ever slowdown.

At the same time what I don’t understand is what are individuals who are having lot of money are going to do with it. Or even for the matter Padmanabhaswamy temple/ Tirupati temple will do with so much of wealth.  There is no point accumulating such massive wealth and not spending on a noble cause. People, government have to wake up. There is no point locking the gold back in to the vault. Use it. Use it for the welfare of people. Padmanabhaswamy temples wealth if properly used can change the face of Kerala or even southern India.

Should the temple now repay this charity by encashing some of the precious stuff to do something good for society? Or should it hold on to what it has because it's all too ancient and holy to be measured, valued and sold? Consider the second option first: the gold, diamonds and so on that have been discovered will eventually have some number pasted on them, only to be thrown back into the dungeons and locked up for a couple of centuries more.

My humble request is that it is time for the government realizes the magnitude of the situation and act upon sooner than never. So till the government actually swings into action, which is highly unlikely, all this is entirely in the realm of speculative fantasy. But just because our government fails to fulfill our wishes, we should not stop having them.