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Table of Content
1. ABC of Budget
2. From the MD’s desk
3. Budget 2011-2012 at a Glance a. Key Takeaways from Pranab’s speech b. Budget & Economy c. Budget Implications for a Retail Investor d. Budget Implications for NRIs e. Budget for India Inc f. Taxation
4. After-Effects of Budget
a. Equity Markets b. Mutual Funds c. Forex d. Commodity
5. Industry and experts reaction
6. Economy scorecard
7. Rail Budget
8. Personality Check : P. Chidambaram vs Pranab Mukherjee
UNION Budget 2012-13
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ABC of Budget
Do we have enough cash? Are we spending a lot? Are we living beyond our means? So many questions but only one answer
which is- a ‘Budget’. In simple terms, a budget is a financial tool which tells us whether we will be able to achieve our planned
financial goals with our current strategies and helps us to establish control over our finances. It is a systematic plan used for
the projection of future income and expenditure. Budgeting is an important tool for decision making and plays a crucial role
in monitoring financial performance. The Union Budget, which is a comprehensive presentation of government’s finances, is
presented in the Lok Sabha by the Finance Minister normally on the last working day of February each year. The Union
budget is an elaborate account of revenues and expenses of the government from all sources and contains budgeted
forecasts for the next financial year. The Union budget allocates funds to various sectors of the economy and lays down the
means of raising funds for meeting the expenditure.
Constituents of the Union Budget
I. Revenue budget - It consists of revenue receipts of the government and the expenditure to be met from these revenues.
II. Revenue receipts - These are recurring in nature and are used for meeting the day to day expenses of the government.
They are divided into tax and non-tax revenue of the government.
Tax revenue- These include income tax, corporate tax, excise duties, customs and other duties levied by the government.
Direct taxes - These are levied on the income of individuals or organizations; example – income tax and corporate tax.
Indirect taxes - Taxes paid by consumers on the purchase of goods and services by them. These also include excise and
custom duties.
Custom duty - It is a charge levied on the import of goods to the country.
Excise duty - It is a levy paid by the manufacturer on goods manufactured within the country.
Non-tax revenue- Non-tax revenue consists of interest and dividend on investments made by government, fees and other
receipts for services rendered by the government.
III. Revenue expenditure -It is the payment made for the normal day-to-day running of government departments and various
services that it offers to its citizens. It also includes subsidies and interest payments made the government on its debt.
Subsidies - It is a financial aid provided by the government to a sector or a group of individuals to be more competitive. It may
be in the form of cash payments.
Capital receipts - These include loans raised by the government from public, borrowings by government from the RBI through
sale of treasury bills and loans received from foreign governments among others.
Capital payments - These consist of capital expenditure such as acquisition of assets like land, buildings, machinery,
equipments and loans granted by the central government to State and Union Territory governments.
Fiscal deficit -The excess of the government’s total expenditure over its revenue receipts.
UNION Budget 2012-13
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UNION Budget 2012-13
From the MD’s Desk…..
I am highly delighted to welcome you to the world of Union Budget. Before taking a quick walk
around the budget, I wish to extend my gratitude to the senior editors’ team at the Choice India
and all the members of the budget project as they were the backbone of this Big-Budget
endeavour. I could not envisage presenting this newsletter and the complete budget coverage
without the support and professionalism of our creative team who have made this budget
project a complete success.
Somebody has rightly said, “A budget should reflect the values and priorities of our nation and its people.”
This truly, has been reflected in the country’s 81st Union Budget presented by our respectable Finance Minister Pranab
Mukherjee on March 16. For a person who can visualize the situation of Indian economy-- that is more critical than it was in
2008—the finance minister did his job of balancing all the heads. Of course, we can say that, India won that budget game
though finance minister might have faced some criticism for delaying reforms agenda.
Our finance minister faced the situation of balancing the tight fiscal situation and at the same time enhancing consumption
and investment in the economy. Mukherjee, by rolling back excise duty benefits and increasing service taxes, made the
economically sound decision and for that the budget could not termed as populist, at least.
The move to widen the tax bracket would be positive for India in the long run as India currently stands way behind in terms
of tax-to-GDP ratio. In fact, the only thing that could deter the growth might be the slippage in subsidy targets set by FM.
Subsidies in fuel and fertilizers appeared to be under-stated and any slippage on such accounts might choke the target to
achieve fiscal deficit at 5.1 per cent by next fiscal end.
All the things set apart, Mukherjee made no mistake in boosting the investor sentiments by announcing reforms like
reduction in STT, introduction of Rajiv Gandhi Equity Saving Scheme, doubling the infrastructure tax free bonds, among
some others. Also in the light of threats to the reserves of India, FM’s decision to levy 2 per cent extra duty on gold imports
emerged as a positive sign.
Mukherjee Sir also announced a package of measures in a bid to stimulate the dipping industrial production, especially in
infra sector. The reduction of withholding tax for interest payment on ECBs from 20 per cent to 5 per cent reflected the
right approach of finance minister this time. Another aspects that sounded lucrative were the liberalization of venture
capital funds industry, higher depreciation rates to boost investments, reduction of import duty on coal, and an ambitious
plan for the infra sector in the upcoming five-year plan.
My message to the consumers, investors and corporate is just that the Union Budget of 2012-13 was limited by some
economic fundamentals and political constraints and our finance minister finally took some baby steps to revive growth
that could have been taken much earlier.
Hope that the Union Budget 2012-2013 revives the confidence of our countrymen in the growth story of our own India
which still remains intact.
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UNION Budget 2012-13
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Budget at a Glance: Pranab Mukherjee’s risk-aversion turns out a
damp squib
The risk aversion of Finance Minister Pranab Mukherjee has prevailed in Budget 2012
– 13. The flat Budget has come as a disappointment, to say the least. In its last
budget before the election year, the government shied away from making any
structural reforms that could have given a boost to India’s economy. The
disappointed equity markets ended the day in red with the Sensex losing 209.65
points and Nifty losing 62 points.
The Economic Survey 2011-12 of yesterday identified six areas of focus for rapid
economic growth. These are: efficient contracts; minimal intervention in fixing
prices; acquisition of land by government for industrial projects; giving subsidies
directly to users, and a fixed subsidy on diesel. Out of these six areas today’s Budget
only mentioned giving direct subsidy while remaining silent on all the others.
UNION Budget 2012-13
What’s taking over the sleep of
Pranab Da:
I had to bring the economic
growth back on track.
Secondly, I had focus on bringing
the inflation down, which has
weighed over the growth of India
for over two years.
Last but not the least; I had to
bring the fiscal consolidation. We
can’t allow fiscal profligacy.
Mukherjee, as expected could not come out of political gimmicks and ended up with large subsidies to the most stressed
nerves of India currently. Fuel, fertilizers, and food subsidies proposed for FY13 have instead of paving the way for
government to rein in fiscal deficit, would now only do the job of raising the yields on 10-year government bonds. The
threat of the populism show by Pranab, turned into reality today.
Dirty Picture at a glance
9.6% 9.3%
6.7%
8.4% 8.4%
6.9%7.6%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 (BE)
GDP growth rate
3.3%
2.5%
6.0%
6.5%
4.8%
5.9%
5.1%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 (BE)
2012-13 (BE)
Fiscal Deficit
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Key take-aways from the budget
Pranab sets the fiscal projections right, finally!
The fiscal deficit projections for 2012 – 13 have been conservative and this has
restored some of the credibility of Finance Minister. The government has
missed its fiscal deficit target by a great margin. Fiscal deficit for 2011 – 12 stood
at 5.9 per cent against the target of 4.6 per cent set in Budget 2011 – 12. The
failure at the disinvestment front and the burgeoning populist subsidies spoiled
the fiscal deficit calculations of the central government.
For 2012 – 13 the finance minister has projected fiscal deficit at 5.1 per cent of
GDP. The fiscal deficit is the difference between the expenditures and revenues
of the government. A higher fiscal deficit projection for 2012 – 13 means that
the borrowings of the government are bound to go up. Net market borrowing
required to finance the deficit has been estimated at Rs 4.79 lakh crore in 2012-
13. The yield on 10-year government bonds was already up to 8.9 per cent after
the Finance Minister’s Budget speech
“For the better part of the past two
years, we had to battle near double
digit headline 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.”
-- Pranab Mukherjee
The effective Revenue Deficit for 2012-13 has been estimated at 1.8 per cent of GDP. Revenue deficit is the excess of
revenue expenditures over revenue receipts.
Current Account Deficit: India in dark with overseas
The Current Account Deficit for 2011 – 12 stood at 3.6 per cent of GDP. The reduced capital inflows because of decline in
foreign institutional investments and foreign direct investments during the second and third quarters of 2011-12 financial
year put severe pressure on the current account situation and consequently on the exchange rate of rupee
GDP: Pranab Da aims to come back on path of higher growth trajectory
The Gross Domestic Product (GDP) for 2011 – 12 has been estimated at 6.9 per cent, much below the projections in Budget
2011 – 12. The Budget has projected GDP growth of 7.6 per cent for 2012 – 13.
However, in the mirror of the real factsheet, this dream of Pranab Da seems to be far from reality. But, dear finance
minister, there is a silver lining for you to make-up for the losses in this budget. The inflationary pressures have started
coming down, and fortunately in the comfort zone of RBI. This now makes the room for monetary easing in a gradual
manner.
“Taking a bird’s eye view of the entire economy and keeping in mind the difficult global environment, I expect India’s GDP
growth in 2012-13 to be 7.6 per cent, +/- 0.25 per cent”.
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Pranab tweaks the 60-year old I-Tax Act. DTC not on cards yet!
Budget 2012 – 13 has raised the tax exemption limit to `2 lakh from the current `1.8 lakh. Income between `2 lakh and `5
lakh will be taxed at 10 per cent; between `5 lakh and `10 lakh will be taxed at 20 per cent; and above `10 lakh will be
taxed at 30 per cent. The higher exemption limit will have an adverse impact on the revenues of the government. On the
positive side it may increase the savings rate in the economy.
The corporate tax rate has been kept unchanged at 30 per cent giving great relief to the corporate sector. The government
has restrained itself from increasing the tax burden of the companies for financing its wasteful expenditure on subsidies.
Subsidies: FM could bite the bullets, but he didn’t!
The Union Budget 2012 – 13 has proposed to keep central subsidies under 2 per cent of GDP. The Finance Minister said that
fuel subsidies will be trimmed. The Budget didn’t detail how the subsidies will be brought down. The fuel subsidies are
bound to exceed `150,000 crore while those on urea will be exceeding `100,000 crore.
The Budget has proposed direct transfer of subsidy on food and fuel to beneficiaries as a way to bring down the subsidy bill.
Finance Minister Pranab Mukherjee conceded that the subsidies were having an adverse impact on the financial health of
the country. However he still didn’t shy away from committing full subsidy support for the food security, the pet project of
UPA chairperson Sonia Gandhi.
“Fiscal consolidation calls for efforts both to raise the tax-GDP ratio and to lower the expenditure. In this context, we
need to take a close look at the growth of our revenue expenditure, particularly on subsidies.”
Revenues and Expenditures: Optimistic targets not backed by desired plan, again!
Direct tax collection fell short by `32,000 crore in financial year 2011 – 12. The slower than expected GDP growth rate was
the main reason for this. The Budget projects gross tax receipts of `10,77,612 crore for 2012 – 13. Non-tax Revenue
Receipts are estimated at `1, 64,614 crore. Total expenditure for 2012-13 has been budgeted at `14,90,925 crore. Non-plan
expenditure has been estimated at `9,69,900 crore. It will be a challenge for the government to check the growth in non-
plan expenditure. `3,65,216 crore is estimated to be transferred to States including direct transfers to States and district
level implementing agencies.
The Central Government debt has been estimated at 45.5 per cent of GDP in 2012-13 as compared to Thirteenth Finance
Commission target of 50.5 per cent.
Indirect Taxes
The Budget proposes to tax all services except the seventeen on the negative list. Service tax has also been raised from 10
per cent to 12 per cent. The government expects to generate additional revenues of `18,660 crore from this hike in service
taxes.
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Budget & Economy
The Union Budget of 2012-13 and the plans chalked by the government to walk the
desired lines would be the health of Indian economy after a year. The budget task of
every fiscal starts with finance minister’s consistent efforts to formulate tangy reforms
that translate the failures of previous fiscal in to the success in upcoming fiscal. There are
always some questions that the finance minister needs to address. What is the health of
economy now? What chapters were left unread during the year that translated into
failure? And finally they have to decide what’s more important; populism or reformism?
How the government generates revenue and spends it affects everyone directly in the
short term as consumers, investors and taxpayers, and indirectly, over the long term,
through the direction in which these proposals move the economy.
Budget 2011-12 and Indian economy
The finance minister, Pranab Mukherjee, gave his 7th Union Budget speech on March 16,
2012, that was found inspired from history of worst budgets. But if, compared to his
previous budget speech, Mukherjee played safer and cleaner this time.
Mukherjee, in his 2011-12 budget speech, was betting high on revenue side with equally
sharp expenditure plans. As expected, Pranab’s partially thought-full budget of 2011-12
turned out to be a mass disaster that was fired by lack of policy initiatives to back feel-
good plans. The budget of 2011-12, if analyzed on the parameters of success, shows that
it was a big failure. The economic growth targeted at 9 per cent is now finally ready to
choke below 7 per cent. The fiscal deficit targeted at 4.6 per cent has now finally settled
with 5.9 per cent.
“The word Budget
was derived from
the Middle English
bowgette, which
came from Middle
French bougette,
which in turn is a
diminutive of bouge,
meaning a leather
bag.”
In other words, the entire credit of deadly results should not go to the global economic weakness during 2011. But the credit
partially and significantly goes to the long saga of populism shown by Pranab Mukherjee in his past three budgets. Since the
first budget of latest three, Mukherjee has made his intentions clear that goals would remain same as long as they are not
achieved.
Mukherjee has tried to keep economic growth at close to double digits, ensure that fiscal health remains in control and
finally some systems that define inclusive growth in the country. The goals of Mukherjee were always complete but never
had the right approach to meet them.
UNION Budget 2012-13
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UNION Budget 2012-13
Budget 2012-13 and the Indian economy
Had there been a performance appraisal of Pranab Mukherjee after every budget then he would have definitely scored an
extra mark this time than the last one. The extra mark to the FM would have come for the realistic budget he has presented
despite of the pressure to save government’s lost credibility in UP elections. The finance minister came up with plans to
nurture growth in gradual manner with emphasis on domestic sectors to drive growth. Moreover, he actually opened the
right door where problems are lying, though he made little efforts to break the door.
Firstly, he projected the fiscal numbers right at 5.9 per cent for current fiscal and 5.1 per cent for next fiscal. He mentioned
the need to revive private investments in the economy. He also expressed desire to reduce subsidy burden and address
challenges of subsidy leakages and subsequently check the black money and corruption in the economy. Moreover, he again
tried to address concerns of supply bottlenecks in the economy in sectors like agriculture, energy, national highways, and
some others.
But it remains to be seen how this changed approach works in favour of UPA government that faced criticism for huge
subsidies, reckless spending on social programmes and policy paralysis. The strategy of spending without concrete plans to
boost revenues worked fine till 2008, but it has now transformed into a poor combination of growth falling apart and
inflation rising up. The GDP growth and headline inflation have exchanged places that demand the courage to bite bullets to
get them back on their positions.
The Congress government seems like, failed to leverage upon its star chance to save its lost credibility in the previous year
and recently in the UP elections. The government could neutralize the negative by announcing bold reforms that would raise
business confidence and put the economic growth on track again. But nothing like that actually happened. From tax reforms
to the land acquisition, reforms remained only on promises and could not come on papers.
The economic growth goes for a toss now. Even if in the coming few months, the government tries to take bold steps and
show case its intentions to rein in fiscal deficit, it is very next to impossible to re-create the confidence in industry that has so
far found holes in the plans of government.
And finally the Manmohan Singh & Co, now have very small chance to revive its fortunes before they go to fields again to
muster the votes for upcoming general elections of 2014. This budget of March 16 is a signal that the party is on the edge to
lose the elections with significant gap.
Highest budget deficit among BRICS shows India’s worsening public finances!
The Indian government’s failure to rein in spending and implement bold structural reforms has seen the nation post the
widest fiscal gap among the BRICS countries.
The Indian government expects to post a fiscal deficit of 5.9 per cent of the nation’s GDP in 2011-12, well above the
targeted 4.6 per cent.
Next fiscal, the budget deficit is expected to be 5.1 per cent of the nation’s GDP.
Compared to its BRICS peers, namely Brazil, Russia, China and South Africa, India has the widest fiscal shortfall.
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Budget impact on Retail investors
Budget 2012-13 was reform-less event that lasted for more hours than it was worth. But
still it offered some reasons to the retail investors to cheer. Retail investors cheered the
steps like reduction in securities transaction tax (STT) by 20 per cent on delivery
transactions, the introduction of Rajiv Gandhi Equity Saving Scheme, increase in the tax
exemption limit by `20,000 and an increase in limit for tax free bonds to `60,000 crore. But
as said earlier, the budget was disappointment for everyone, and retail investors too were
in the picture. The small benefits that retail investors and individuals would get from such
schemes and proposals, would get offset by the rise in expenses due to 2 per cent rise in
service and excise taxes.
Impact of STT cut
Pranab Mukherjee announced the plan to cut the securities transaction tax (STT) by 20 per
cent to 0.1 per cent. But the disappointing factor was that the cut would apply only on
delivery transactions. These delivery transactions account for only 35 per cent of the nearly
8 per cent cash based transactions in the total stock exchange volumes. Although it was a
welcome move, but still there would be very marginal benefit of such STT cut.
IPO process simplification
The budget has proposed to simplify the process of Initial Public Offers (IPO) issues that will
boost the retail investor participation in the stock markets. FM announced the plans to
make it mandatory for the companies to issue IPOs of `10 crore or more in electronic form.
Under the new mechanism, the IPO would be uploaded by companies electronically on the
stock exchange platform, which can be accessed through brokers. This would be positive for
retail investors who might find investing in an IPO easier as it also reduces the chances of
error.
Infra-tax free bonds doubled
Moving a step closer to revive the infrastructure health of Indian economy, the finance
minister announced plans to double the infrastructure tax-free bonds to `60,000 crore in
the upcoming fiscal.
The National Highways Authority of India (NHAI), the Indian Railways Finance Corporation
(IRFC) and the India Infrastructure Finance Company Ltd (IIFCL) would now be able to raise
`10,000 crore each by issuing tax-free bonds in the next fiscal. Also at the current rates
when prices are low, these bonds would be very attractive to retail investors as well as high
net-worth individuals.
New Equity Scheme to
attract first time investors
to the market
If you are an investor, the
most exciting thing about
the budget 2012-13, which
otherwise was a damp
squib, should be the Rajiv
Gandhi Equity Saving
Scheme (RGESS).
The scheme is designed to
lure you out of your bank
account deposits and
mutual fund investments
towards direct equity
investments. RGESS is
tailor-made for individual
investors with income
below `10,00,000. The
scheme allows income tax
deduction of 50 per cent
on a maximum investment
of `50,000 and has a lock
in period of 3 years. So, if
you invest `50,000
(maximum allowed) you
can claim a tax deduction
of `25,000. Therefore, the
maximum saving for
people earning `10,
00,000 would be `5,000.
RGESS is designed to
encourage flow of savings
in financial instruments
and improve depth of the
domestic capital market. It
also has the potential to
bring in 1.5 crore new
investors to the equity
markets.
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Budget impact on foreign investors: A mixed bag for QFIs, NRIs and FIIs
Budget brings few cheers and many disappointments for the overseas community
Introduction
Budget 2012 – 13 held some cheers and many disappointments for non-resident Indians (NRIs), qualified foreign investors
(QFIs) and Foreign Institutional Investors (FIIs). Indian economy is a capital scarce one. By bringing in much needed capital
inflows, QFIs, FIIs and NRIs play a critical role in the growth of the economy. The stratospheric growth that the Indian
economy has witnessed since the economic liberalization of 1991 has mainly been due to the strong capital and technology
inflows from abroad that followed.
55.6
53.6
52.5
53
53.5
54
54.5
55
55.5
56
remittances from NRIs and overseas indians during first half
of 2011 -12 (in billion dollars)
remittances from NRIs and overseas indians during first half
of 2010 -11
Remittances continue to grow
Remittances from Non Resident Indians play
a crucial role in financing India’s current
account balance. During the first half of 2011
– 12 remittances from NRIs and Indians
working abroad stood at a whopping USD
55.6 billion – a year- on- year growth of 3.7
per cent. NRI deposits during the first half of
the financial year increased to USD 3.9 billion,
up from USD 2.2 billion in the corresponding
period of the previous year.
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3.9
2.2
0
0.5
1
1.5
2
2.5
3
3.5
4
4.5
NRI deposits during first half of 2011 - 12 ( in billion dollars)
NRI deposits during first half of 2010 - 11 ( in billion dollars)
NRI deposits
1.3
23.8
0
5
10
15
20
25
FII investments in first half of 2011 - 12 in billion dollars
FII investments in the corresponding period of 2010 - 11
Decline in FII investments
The objective of any budget of a developing
economy like India should be to encourage
foreign investments. Budget 2012 – 13
generally fails on this account. The finance
minister announced some minor measures
for increasing foreign investments but what
played the spoilsport was the
announcement to retrospectively tax cross-
border asset sales like that of Vodafone
from April 1st 1962.The intention of this
retrospective announcement seems to be
malicious and it intends to challenge the
Supreme Court judgement against
Vodafone. This will in general send a very
wrong signal among the foreign investor
community. It is reflection of the
arbitrariness and high-handedness of the
Indian government and the command
economy mindset of socialist India. The
announcement will affect many other
transactions including those of companies
like GE and AT & T.
Net Foreign Institutional Investment during
the first half of the financial year 2011 – 12
stood at USD 1.3 billion while foreign direct
investment during the period stood at USD
12.3 billion
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Some favourable announcements for QFIs and NRIs include the provision that opens up investment in corporate bonds for
foreign institutional investors (FIIs). Mandatory reporting of foreign asset provision can increase the reporting requirements
and psychic costs of NRIs.
Increase in customs duty on gold will discourage NRIs from bringing gold and gold jewellery into the country. The deferment
of the Direct Tax Code (DTC) comes as a favourable development for NRIs as the DTC proposes some harsh tax measures for
NRIs.
Allowing two-way fungibility of IDRs will encourage UK and foreign companies to raise money from Indian markets and get
their IDRs listed here. This two-way fungibility will allow foreign investors to buy Indian listed IDRs and sell them in the
London stock markets. However what would have really given a boost to sentiments was non-directional general fungibility
instead of two-way fungibility limited to London markets only.
Key takeaways for QFIs, NRIs and FIIs in Budget 2012 -13
Qualified Foreign Investors (QFIs): Silver lining in dark clouds
Investment in corporate bonds
Budget 2012 – 13 has proposed to allow qualified foreign investors (QFIs) to invest directly in corporate bonds of Indian
companies. Qualified foreign investors are foreign individuals, groups or association of persons registered outside India who
do not violate any eligibility norms for investment in Indian markets.
This measure will benefit both the QFIs and Indian companies as this will enhance the liquidity of the debt market and is likely
to bring down their cost of borrowing as well. Indian companies are currently paying one of the highest bond yields in the
world. Average yield on five year bonds of Indian companies during much of 2011 hovered at around 9.57 per cent. The
average yield on Chinese corporate bonds during this period was 4.88 per cent. QFIs can earn these high yields by investing in
corporate bonds of Indian companies. India’s bond market currently lacks the kind of depth which is necessary for an efficient
market and this move will go a long way in increasing it.
Non- Resident Indians:
Investment in corporate Bonds by QFIs
Non-Resident Indians too will benefit from the move to allow QFIs to invest directly in corporate bond markets. NRIs were
technically allowed to invest in Indian corporate bonds. However companies issuing bonds needed to take permission from
RBI for allowing subscription by NRIs. Now that QFIs can invest in corporate bonds, Indian companies will no longer have to
take special permission from NRIs. NRI investments in Indian corporate bond market will therefore see a rise.
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Mandatory foreign asset Reporting
Budget 2012 – 13 has proposed mandatory foreign asset reporting by Indian residents. This announcement may affect those
Non – Resident Indians who have returned to India after long stints abroad. They will have to report any foreign assets that
they acquired during their stay abroad.
Also the budget has raised the retrospective tax investigation limit to 16 years. This means that income tax authorities can
now open tax investigations dating back to 16 years. This may again have some adverse impact over those NRIs who return
back to the country.
Deferment of the Direct Tax Code
The Direct Tax Code, which will replace Income Tax Act, 1961, will not be tabled in the Budget session of the parliament. This
is good news for NRIs. Some of the provisions of the current DTC code go against them. One of these provisions is that NRIs
and Persons of Indian origins (PIOs) will be classified as Indian residents if they stay in India during the financial year for more
than 60 days. They will also be classified as Indian resident if they stay for more than 365 days or more over a period of four
years prior to the assessment (financial) year. The classification as an Indian resident means that the global income of NRIs /
PIOs during the financial year in which they are classified as such will be taxed in India.
Increase in customs duty on gold
This states that NRIs who bring gold from abroad to India will find it more expensive to do so now. Since prices of gold and
gold jewellery is lower in many developed countries than in India (because of huge demand for gold in India), it has been a
usual practice by NRIs to bring gold into India while visiting it. The increase of customs duty on gold will discourage this
practice.
Foreign Institutional Investors and Foreign Companies
Two way fungibility of IDRs
Budget 2012 – 13 has proposed to allow two-way fungibility of Indian Depository Receipts (IDRs).This allows foreign investors
to buy Indian listed IDRs and sell them in the London stock markets. The move will encourage many UK and other foreign
companies to raise money from Indian markets by getting their shares listed in Indian markets through IDRs. However, the
government still shied away from proposing non-directional (not limited to some countries only) fungibility. For a capital –
scarce economy non-directional fungibility of IDRs is an indispensable requirement.
FIIs too will benefit from this provision because it will increase the investment avenues currently available to them in the
Indian markets. It will also increase the liquidity of the markets leading to a more efficient mechanism for price discovery.
After this announcement Standard Chartered’s IDR broke its circuit limit of 20 per cent and touched an intra-day high of
`94.20.
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Retrospective taxation of foreign asset transactions for assets located in India
The announcement to tax foreign asset transactions for assets located in India retrospectively from 1961 comes as a big jolt
to foreign investors. The proposal aims at overturning the Supreme Court verdict in the Vodafone case that had gone in
favour of the company and had raised the spirits of foreign investors.
Conclusion
The flat Budget has come as a disappointment, to say the least. In its last budget before the election year, the government
shied away from making any structural reforms that could have given a boost to India’s economy. The disappointed equity
markets ended the day in red with the Sensex losing 209.65 points and Nifty losing 62 points. For the overseas community,
which continue to pin their hopes on India, Budget 2012- 13 was one more disappointment in a long chain.
78.5
94.2
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20
30
40
50
60
70
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100
Price of Standard Chartered iDR before the Budget speech
Price after Budget
IDRs to benefit from Budget
Allowing Investments in long term infrastructure
bonds
Budget 2012 – 13 allows foreign institutional investors
to invest in long term infrastructure bonds. This is an
announcement in favour of Foreign Institutional
Investors as it will increase the investment
opportunities available to them in India.
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UNION Budget 2012-13
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UNION Budget 2012-13
Budget and India Inc
India Inc stands at such a phase of economic growth
that even a small kick of poor reforms could push them
into a dark and bottomless pit and there would be no
traces of the confidence and optimism again. India Inc,
crushed between global economic woes and policy
paralysis at home, have found the FM’s speech high on
promises and low on reforms. All the wishes were torn
apart and the additional burden of tax hikes could be
the next big setback for the Indian corporate.
India Inc struggles hard to meet borrowing needs as
high interest costs as well as plunging profits hits all the
targeted goals during the year. Moreover, un-clarity in
the government laws continued to hamper the
investment plans of India Inc.
Now with the new budget plan in hand, India Inc might
feel the crunch of confidence that the new tax
provisions of Mukherjee aim to achieve. The
unchecked and liberalization handed over to tax
authorities in this budget could lead to many more
stand-offs between the government and India Inc in
the coming months. The budget of March 16 increased
service taxes and excise taxes by 2 per cent each and
gave almost super-natural powers to tax authorities
that shows the intent of government to boost revenues
without considering the damage it might cause to the
plans to India Inc.
Cooking the chaos…
1.Proposal
All persons,
whether resident or
non-residents,
having business
connection in India
will be required to
deduct tax at
source and pay it to
the government
even if the
transaction is
executed on a
foreign land.
Impact
Vodafone could
face a tax bill of at
least $2 billion for
the near $11.2-
billion deal with
Hutchison in 2007.
Other deals like
AT&T and Idea
cellular might also
come into court.
2.Proposal
Proposal to amend
section 9 (1) (1) to
state that the
payment for use of
computer software
in businesses is a
kind of royalty and
thus taxable.
Impact
Going to affect all
the firms that have
been using
softwares in
conducting
business.
3. Proposal
FM proposed to
amend section 40
(A) of the T-Tax act,
thus empowering
tax officers to
decide on taxability
of expenditure
incurred on
transaction
between group
companies.
Impact
Will make the
process
burdensome for
such companies
that have
transacting on
routine basis.
4.Proposal
To raise the excise
rates and service
taxes by 2 per cent
each.
Impact
The proposal will
only fuel
inflationary
pressures and will
put additional
burden on India Inc
who have been
struggling with
rising input costs as
well as high interest
costs.
"It is not going to stimulate the economy,"
--said FICCI President R V Kanoria.
Mukherjee, in his 7thbudget, gave powers to the tax
authorities to check all the transactions between
companies and its subsidiaries, investors and foreign
partners for taxation eligibility.
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UNION Budget 2012-13
Budget Impact on Various sectors
Auto Sector
Ensuring a smooth long drive for the auto sector, the Finance Minister Pranab
Mukherjee in his Union Budget 2012-13, speech announced that no additional tax
will be imposed on diesel cars from various sections.
No addition in tax or excise duty on diesel vehicle
Car makers heaved a sigh of relief post budget announcement as there was
speculation in the corporate lobby that additional tax or excise duty would be
levied on diesel vehicles to reduce the subsidy burden on diesel.
With the announcement of Union budget, the wait for Indian car makers to chalk
the investment plans has got over. Car makers like Maruti Suzuki, Hyundai Motors
are now likely to speed up investments in diesel cars over the period as finance
minister dashed the demands of additional tax on diesel cars from various sections.
Driving into GST, not sure!
The Auto players and even most
of the industry players are
subject to multiple taxes in the
forms of customs, excise and
service taxes. A simplified and
effective tax system as proposed
under GST law could have been a
big victory for such auto players,
but Pranab Mukherjee
announced the bill to be effective
from August 2012.
Everyone knows that unless
there is a consensus between
centre and states and the
political logjam is resolved,
implementation of the GST will
not move forward.
The possibility of diesel tax and lack of certainty in diesel pricing before the budget
announcement had led the auto makers to hold their investment plans of more
than `3,000 crore in India. Diesel cars have enjoyed high sales during the past few
years as the regulated fuel costs much lower than the petrol. Due to rising
demands for such diesel cars and subsequent subsidy burden, there was a strong
demand from various sections for an additional tax on diesel cars.
Maruti Suzuki, India’s largest car maker, which has also been awaiting clarity on
the issue, is now likely to launch some new models as well as finalize the plan to
kick-start a new diesel engine manufacturing facility in India. Some media reports
have stated that Maruti Suzuki would spend around `1,000 crore in diesel engine
manufacturing.
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UNION Budget 2012-13
Hike in the excise duty from existing 10% to 12%
However, hike in the excise duty from existing 10 per cent to 12 per cent will
negatively impact the already struggling automobile sector. The proposed
enhancement in the excise duty will adversely impact the prices of vehicles and
in turn sales, while the industry is already struggling with sluggish demand
during the current financial year due to rising fuel prices, inflation and high
interest rates.
Increase in customs duty on the 'flat-rolled' steel from 5% to 7.5%
Further, increase in customs duty on the 'flat-rolled' steel from 5 per cent to
7.5 per cent may unfavourably affect the auto component sector as this is one
of the key input materials for the auto industry.
Flat rolled steel is used in sheet metal works that goes into many parts of a
vehicle like body panels and chassis.
Hike in the custom duty on import of large cars/UVs costing above USD
40,000 from 60 per cent to 75 per cent
The finance ministry has also proposed hike in the custom duty on import of
large cars/UVs costing above USD 40,000 from 60 per cent to 75 per cent. This
would lead to the increase in the price of the luxury car such as BMW,
Mercedes over `60,000 in India.
All in one, the key highlights of
Automobile sector in Union budget
2012-13 are:
Excise duty raised from 10
per cent to 12 per cent
across segments
Custom duty on import of
large cars/UVs costing above
USD 40,000 from 60 per cent
to 75 per cent
Flushing the market
expectations, no additional
tax or excise duty levied on
diesel vehicles
Customs duty on the 'flat-
rolled' steel increased from 5
per cent to 7.5 per cent
“The Budget is the most extensive account of the Government finances,
in which revenues from all sources and expenses of all activities
undertaken are aggregated. It comprises the revenue budget and the
capital budget. It also contains estimates for the next fiscal year
called budgeted estimates.”
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UNION Budget 2012-13
Banking sector: a mixed bag!
Pranab Sir probably tried to make some directional changes for banking sector by
announcing reforms for power sector which are high on NPAs in banking right now.
Also the capital infusion in public sector banks came at the right time as even most of
the banks are riding much slow in capital adequacy limit coupled with falling asset
quality.
However banks might miss the Pranab’s efforts to reduce fiscal deficit that were
largely missing. High deficits are expected to haunt banking stocks as it puts pressure
on inflation directly and interest rates indirectly. The union budget for the banking
sector was a mixed bag as it had some positives as well as negatives for the banking
sector.
Capital will not be inadequate anymore!
FM proposed to provide the sum of`15,888 crore for capitalization of public sector
banks, regional rural banks and other financial institutions that also include NABARD.
In the previous year, the budget had estimated the capital infusion of `6,000 crore
but due to consistent liquidity crunch and rising bad loans, the government is now
close to infusing over `16,000 crore in the banks during 2012-13.
FM has proposed to develop a central Know Your Customer (KYC) depository in 2012-
13. The depository is aimed at avoiding multiplicity of data and loss of data. The
proposed plan is aimed at making the banks maintain a systematic record of their
customers.
Fiscal pressure on govt, would be something that may matter!
Banks are under consistent pressure to finance the rising fiscal deficit of the
government which is slated to touch 5.9 per cent during the current fiscal and 5.1 per
cent during the next fiscal. The government is expected to borrow `4,79,000 crore in
the upcoming fiscal to finance its deficit in FY13.
Something that’s Okay with
banks!
Creation of public financial holding
company to raise resources for the
PSU banks which need capital for
their operations. The creation of
such an entity is not likely to have
an immediate impact, although it
would be positive in the long term.
This budget is a good friend of
banks!
Capital infusion support from the government.
Promotion of private sector investments
Steps to remove infra bottlenecks
Allow to raise funds via long term infrastructure bonds that qualify for a deduction under sec 80CCF.
Banks demanded that provision for non-performing assets (NPAs) should be allowed for full deductions.
Higher borrowings of the government are likely to push interest rates up as they are
already close to double digits. It might also block the path of RBI to consider interest rates
reversal in the April month.
Overall the budget 2012-13 was mixed bag for banking sector and it now depends upon
the finance minister whether his promises would remain on paper or they would turn
into reality. It seems like Pranab Mukherjee has again rolled the ball into the RBI’s court
to decide about interest rate and inflation movements.
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UNION Budget 2012-13
Infrastructure: FM presents a new wine and a new bottle this time
Someone has rightly said that one hundred rupees spent in infrastructure activities
can create one thousand opportunities for the economy. So, infrastructure
development is very crucial for the development for the economy. Unfortunately,
the sector has witnessed lacklustre development during the past few years as
government struggles with high fiscal deficit as well as high interest rates. This
budget of 2012-13 made right steps towards increasing infrastructure activities in
the coming period as even Mukherjee said that there was a great need to remove
infrastructure bottlenecks in the economy.
The budget showed the intention of FM to boost infrastructure spending during the
12th five year plan. FM proposed the investment of `50 lakh crore during the
upcoming five year plan with equal participation from public and private sector.
FM’s budget exercise showed that he made a concrete effort to reduce funding
constraints for the sector. Infrastructure spending in the economy has increased to 8
per cent in FY11 as compared to 5.7 per cent in FY07, while Pranab Sir has aimed to
achieve the target of pushing the number to 9-10 per cent by the end of 2012-13.
Manmohan Singh
during his speech for
the 1992-93 Budget,
said, "It is said that
child is the fatherof the
man, but some of our
taxpayers have
converted children into
tax shelters for their
fathers."
Doubled tax free infra bonds, another ray of hope for country’s infra sector!
Infra tax free bonds limit doubled to `60,000 crore: As earlier said, the
government has tried to ease the funding constraints for the infrastructure sector.
Most crucial in this direction, FM raised the tax free bonds limit to `60,000 crore
from `30,000 crore earlier. Also in an attempt to reduce the cost of funding for
some ailing infra sectors, FM announced the rate of withholding tax on interest
payments on ECBs to 5 per cent from 20 per cent.
Addressing the need for increasing the infrastructure benefits to more sectors of
economy, FM announced the plans to bring sectors like irrigation, oil and gas
storage, fertilizers and telecommunication towers under Viability Gap Funding
scheme.
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UNION Budget 2012-13
Incentives for Rural Development: Finance Minister announced the proposal to enhance the allocation under Rural
Infrastructure Development Fund to `20,000 crore. The allocation is aimed at bringing more inclusive growth as well as
employment in the country.
Road development with higher allocation: FM announced the proposal to cover roads of length 8,800 kms under the
National Highways Development Project in 2012-13. For this the finance ministry has allocated the `25,360 crore for next
fiscal reflecting an increase of 14 per cent.
Removal of high custom duties on imported equipments: FM proposed the complete exemption from basic custom
duties, countervailing duty, and special additional duties on the import of equipments used by various infrastructure
sectors. The development is likely to benefit both small as well as large infrastructure players.
Some missed spots!
The benefits offered above are likely to take a hit from 2 per cent hike in excise duties which might raise the costs of raw
materials used in various projects including steel, cement. And lastly, the burden of government’s high borrowings and
high interest rates are likely to be a major road block for infrastructure development in the country.
“The precedent for the convention of the budget speech started at 5:00 pm was set
by Sir Basil Blackett in 1924. According to him, this was done to give some relief
to officials who worked all night to present a financial statement”
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UNION Budget 2012-13
Realty Sector
Balancing reality with hope, the Finance Minister Pranab Mukherjee in his Union
Budget 2012-13, speech announced mixed bag for the realty players. The budget
cheers the real estate firms on some points while hurts on setback of some
demands.
External commercial borrowings (ECBs) allowed in the low-cost housing segment
Addressing the shortage of housing for low income groups in major cities and
towns, the finance minister has proposed allowing external commercial borrowing
(ECB) for low cost housing projects. This move will give fillip to the already
struggling sector and will help in filling the shortage of 26.3 million housing units in
the country.
Tax exemption on interest paid on housing loans raised to up to `2 lakh
Giving much-needed respite to the home buyers, the Finance Minister has raised
the tax exemption on interest paid on housing loans to up to `2 lakh annually from
the existing limit of `1.5 lakh this budget.
Proposal to reduce withholding tax on ECB interest from 20 per cent to 5 per cent
Ensuring liquidity, the Finance Minister has also proposed reduction in the withholding tax on ECB interest from 20 per
cent to 5 per cent for three years. The reduction would help the sector in assessing cheaper funding.
Establishment of Credit Guarantee Trust Fund
The Finance Minister has set up Credit Guarantee Trust Fund to ensure better flow of institutional credit for housing loans.
This new initiative may be useful in the long run, however, it will have no immediate impact on the housing loan scenario.
Increase in service tax and excise duty from 10 per cent to 12 per cent
With the proposed hike in the excise duty and service tax by two per cent each to 12 per cent from the earlier 10 per cent,
property prices will rise by a minimum of two per cent. This has dented the sentiment of the industry, which is already
struggling with persistent inflation, high interest rate and rising prices. The budget does not hold much hope with high
property prices will significantly slow down housing demand.
However, service tax was exempted on construction activities in specified infrastructure, canals, irrigation works, post-
harvest infrastructure, residential dwelling and low-cost mass housing up to an area of 60 sq meters under the affordable
housing scheme in partnership.
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UNION Budget 2012-13
FMCG and cigarettes: What the Budget 2012 – 13 really means for them
The increase in excise duty from 10 per cent to 12 per cent in Budget 2012 - 13 will
inflate the price of fast moving consumer goods as manufacturers are likely to pass the
burden to the customers. The margins of FMCG companies are already under pressure
and they are not in a position to absorb a hit in margins because of increase in general
excise duty.
The Budget by reducing customs duty on imported cigarettes sent a psychological
message that the government is not all out after the cigarette industry because of the
general health hazard that it poses. That explains the rise that ITC shares saw
immediately after this announcement in the Budget.
However, the Budget will make domestically manufactured cigarettes dearer. An ad valorem duty (based on prices) has
been levied on 50 per cent of the Maximum Retail Price of filter cigarettes of length greater than 65 mm. The net impact of
this will be that the overall tax burden of domestic cigarette manufacturers like ITC and Godfrey Phillips India will increase
by somewhere between 15 per cent and 16 per cent. Cigarette prices are therefore likely to go up by around 10 per cent at
least in the near term as manufacturers will pass on chunk of the increase in duties to customers. Empirical evidence
suggests that cigarette has a very low price elasticity of demand in the short term and cigarette manufacturers will take
advantage of this.
Budget 2012 – 13: What it means for metal and steel companies
The increase in excise duty from 10 per cent to 12 per cent will affect metal and
steel companies. They are likely to pass some or all of the cost increase brought by
this price hike to the end customers. The proportion that the manufacturers will be
able to pass on to customers will depend on their respective price elasticity of
demand.
Another budget provision that has gone in favour of the domestic steel industry is
the increase in import duty on non-alloy flat-rolled steel to 7.5 per cent from 5 per
cent. This will make imported flat-rolled steel dearer and increase the
competitiveness of the domestic steel companies that manufacture flat – rolled
steel.
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UNION Budget 2012-13
Oil & Gas
Despite of the role that the oil and gas sector plays in the development of India, there was not much stimulus for the sector
in the India’s 81st Union budget. Brent oil surged above USD 125 a barrel on February 24 touching its 10-month high after
the International Atomic Energy Agency (IAEA) said Iran had sharply stepped up work on nuclear programmes. With the
Iranian crisis pushing up the global oil prices, the benchmark Indian crude oil basket is expected to hit the highest level since
2008.
Also if the current rally in the oil and gas sector continues unchecked, it is expected to widen the gross revenue loss of oil
marketing companies (OMCs) even way more than the earlier estimations of `1,40,000crore for 2011-12. Adding fuel to the
fire, the value of the rupee has also depreciated much during the year. It now stands at around `49 a dollar as compared to
about `44 during April 2011.
Key announcements for the Oil and Gas sector
Roll back of custom duty on imported gas or LNG.
FM proposed to extend the viability gap funding for various oil and gas installations, pipelines and LNG storage
terminals.
FM proposed to rationalize the excise duty structure on most petroleum products. FM also announced an ad
valorem levy of duty at the rate of 14 per cent on most products.
The increase in cess on oil produced from `2,500 per tonne ($6.8 per barrel) to `4,500 ($12.3 per barrel).
The general increase in excise duties / service tax rates shall definitely increase the overall costs for the sector also
set to impact the sector
Feeling the Pinch…
Hike in cess on oil producers to
`4,500 per barrel would be a
blow to ONGC, Oil India and Cairn
India. ONGC’s annual cess
spending likely to go up by
`4,600 crore.
Cess hike to hit ONGC hard…
Proposal to increase the rate of
cess to `4,500 per tonne on crude.
The profitability of ONGC likely to
take hit as it already faces the
burden of share in subsidies.
ONGC’s subsidy burden in
December month rose to as high as
`12,536 crore.
No fuel to the expectations….
The industry was hoping that the tax holiday provisions will be extended.
The sector had expected complete deregulation of diesel, freedom to revise petrol prices, removal of excise duties and special duties prevailing on branded fuels.
Companies sought clarity on deduction available in expenditure on exploration activities for the Indian Companies having overseas production blocks.
De-regulation of diesel and LPG to ease the rising pressure of under recoveries.
Hindustan Petroleum (HPCL),
Bharat Petroleum (BPCL) and
Indian Oil Corp (IOC) were hoping
to see diesel and LPG de-
controlled but nothing of the sort
was highlighted in the Budget.
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UNION Budget 2012-13
Budget Winners and Losers
Sector Winner/Losers Agri Input
FM exempted the sector from paying custom duty;
further increased capex deduction to 150 per cent
Major Players such as Chambal, Tata Chemical, RCF,
National Fertiliser, Zuari welcomed the changes
announced
Automobiles
The sector remained neutral after Budget
increased excise duty to 12 per cent on CVs and
levied additional 3 per cent for the vehicle from
chassis form.
In case of UVs, excise duty was changed to ad
valorem rate of 27 per cent.
Large vehicles/UVs above USD 40k attract 60 per
cent-75 per cent custom duty on imports.
The announcement brought cheers to Ashok Leyland due
to higher production from tax free Plants, while UV
manufacturers remained stressed. M&M reflected a
neutral reaction while Tata Motors expressed a bit
dismay
Banking and Financial Services
Recapitalization fund of `159bn
Proposed two way fungibility in IDRs
No mention of Rs20,000 deduction in taxable
income u/s80CCF
Positive for PSU banks primarily those
constrained with Tier I Capital - , UNBK, CBI, BOI,
SBI, IDBI, IOB
Big positive for StanChart IDR
Negative for IDFC
Cement
Removing the currently existing differential
rates, Budget 2012-13 levied a unified excise
duty of 12 per cent + `120/t for large cement
plants.
Duty to be charged on the Retail Sale Price less
abatement of 30 per cent
The sector is to gain further from the
abolishment of 5 per cent import duty on coal
The sector will see some positive development following
the reduction in effective excise duty by Re Re1/bag or
`20/ton.
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Consumers
Reduced import duty by 250 bps to 7.5 per cent
on Titanium dioxide
Enhanced custom duty on standard gold bar to
4 per cent, non-standard gold to 10 per cent and
excise duty on refined gold to 3 per cent
Positive for Asian Paints and Berger Paints,
Gives gross margin lever of 50 bps
Negative for Titan and other branded gold
companies
Metals & Mining
Full exemption of basic custom duty and
reduction in CVD to 1 per cent on thermal coal
Cess on crude oil production increased to `4575
per ton
Positive for Nalco, Sterlite Ind, Hindalco, Tata
Steel and JSW Steel by 0.2 per cent to 1.3 per
cent
Cairn India’s EPS to be down by 11 per cent - to
have negative impact on fair value of Sesa
Sterlite and thus to Sterlite Industries
Oil & Gas
Custom duty on LNG 5% to Nil
Cess on crude oil production increased to `4575
per ton
Positive for Petronet LNG and GAIL as they
import LNG and Gas Transmission companies
like GSPL & GAIL as transmission volume would
increase in the future.
Negative for Oil Producers like ONGC, OIL and
Cairn India
Pharmaceuticals
AMT rate applicable for Partnership Firms based
in SEZs
Negative for Sun Pharma & Cadila Healthcare.
Applying 20 per cent MAT on profits from
partnership firms, the additional tax burden will
impact FY13 EPS by `2.5 for Sun Pharma and by
`4.4 for Cadila.
Power
0 per cent basic customs duty and 1 per cent
CVD on imported coal
Positive for JSW Energy (7%), CESC (1.5%), Lanco
(3.5%), IB Power (1.5%), NBVL (4.5%), KSK (1.5%)
UNION Budget 2012-13
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UNION Budget 2012-13
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UNION Budget 2012-13
Taxation announcements at a glance
Direct Taxes
Taxation remained the major attraction in Budget 2012-13 with Pranab Mukherjee
announcing some revision in outlining Direct Taxes Code 2010 (DTC) and others. Direct
taxes are generally the taxes that are directly paid to the government. The tax is
imposed on one’s property or income.
For Corporate
Although no major tax changes were announced in corporate sector, some minor
changes were as follows:
With no change in corporate tax rate and MAT rate, Sec 80-IA was extended by
one year till March 31, 2013.
STT was reduced by 20 per cent (from 0.125 per cent to 0.1 per cent) on all
cash delivery transactions
Benefit of additional depreciation of 20 per cent on new acquired assets w.e.f.
Apr 1, 2013 was announced for power companies
For infrastructure sector, affordable housing, fertilizers and dams, rate of
withholding tax was reduced from 20 per cent to 5 per cent on ECB
R&D expenditure for in-house facility, which has weighted deduction of 200 per
cent, extended for 5 more years
Weighted deduction of 150 per cent on expenditure incurred for agri - related
services
Tax rate on dividends received by an Indian company from its foreign subsidiary
for FY13 marginally extended to 15 per cent
Increase in investment linked deduction of capital expenditure from 100 per
cent to 150 per cent for services such as cold chain facility, warehouses for
storage of food grains, hospitals, fertilizers, affordable housing
Levy of Alternate Minimum Tax (AMT) on all persons other than companies and
individuals, claiming profit linked deductions.
DTC to get implemented at
earliest: FM
With a notion that ‘Budget is
all about taxes’, the Finance
Minister Pranab Mukkerjee
spoke in bit details about the
tax reforms to be introduced in
the upcoming fiscal. Though, at
the end the Budget turned out
to be a non-event, it tried to
show some move towards the
tax reforms. Direct Taxes Code
(DTC) bill which was designed
to replace the existing Income
Tax Act, would be imposed at
the earliest, said Mukherjee, in
his budget speech.
“Last year, I had set the
compass for movement
towards the DTC in Direct
Taxes… My tax proposals for
fiscal year 2012-13 mark
further progress in that
direction,” said Mukherjee.
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Direct Tax proposals: For Individuals
The main attraction in the segment was the introduction of the Rajiv Gandhi Equity Savings Scheme with a lock in period of
3 years. Other major announcements that hogged the limelight were as follows:
Rajiv Gandhi Equity Savings Scheme to allow deduction of 50 per cent to new retail investors who invest up to
Rs.50,000 directly in equities & whose annual income is below `10,00,000
The extension of basic exemption limit from `1.8 lakh to `2 lakh
Upper end (20 per cent bracket) has been raised to `1,000,000from `800,000
Individual tax payers granted a deduction of up to `10,000 for interest from savings bank account
Preventive health check up to get deduction of up to `5000
Exemption from Capital Gains tax on sale of residential property, if sale consideration is used for subscription in
equity of a manufacturing SME for purchase of new plant and machinery
The renewed tax slab stands as below
Old slab Tax rate New slab proposed
Up to Rs 180,000 0 Up to Rs 200,000
`180,000 to `500,000 10 `200,000 to `500,000
`500,000 to `800,000 20 `500,000 to `1,000,000
Above Rs 800,000 30 Above `1,000,000
FM’s tax proposals for INVESTOR?
Reinvest in Start-ups to Save Tax
Individuals and HUFs can invest their gains from selling residential
property in start-ups to save on tax. But these small enterprises
will have to use the money to buy plant and machinery. This can
pave the way for new type of entities. At present, such gains have
to be parked in certain bonds or reinvested in properties
Property Deals to Come Under TDS Bracket
A property buyer has to deduct 1% tax if a deal exceeds
`50 lakh for urban properties and `20 lakh in other
areas. So, for a `1crore transaction, the seller will
receive `99 lakh while a tax of`1 lakh will be deposited
by the buyer
Gain in STT, Lose in Services
The proposed 20 per cent cut in securities transaction tax (STT) on
delivery-based cash trades fell short of expectations. The market
had expected a 40-50% reduction across transactions — delivery
and non-delivery cash, futures and options. At the new rate, STT
will be charged at 0.10%, or 10,000 per 1-crore turnover on both
purchase and sale against the existing 0.125 per cent, or 12,500.
But the net impact will be insignificant as the service tax that
brokers recover from investors will go up to 12 per cent from 10
per cent.
Cash Purchases of Gold to be Taxed
All cash transactions for buying gold will come under the
tax net. This move may discourage hoarding in gold. A
seller of bullion or jewellery will collect 1 per cent tax
from the buyer if the deal value exceeds `2 lakh. Tax has
to be paid even if the seller is not a trader or a jeweller
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Budget and Indirect taxes
Unlike direct tax, Indirect tax is applicable on intermediary such as a retail store, from the person who bears the ultimate
economic burden of the tax such as the consumer. It can broadly be divided into service, excise and custom tax.
Service tax
The sector remained a great concern and major point of discussion for the finance minister while presenting the budget.
The major announcement in the segment was the increase of service tax from 10 per cent to 12 per cent. The other
proposals announced in the segment were:
Target of `186 billion for FY13 set as additional tax revenue
Total 290 definitions under exemption list.
Full exemption for the items 17 categorised under negative list, which includes entertainment and amusement,
renting of residential dwellings, urban railways and metered cabs and others.
Exemption for services such as health care, service by charities, few professions (individuals), animal care, car
parking and insurance.
Excise duty
It is inland tax where the tax is applicable on a good produced for sale, or sold, within a country or licenses for specific
activities. Therefore, the proposal announced in Budget 2012-13 under Excise duty are as follows:
Hike in excise duty and service tax from 10 per cent to 12 per cent remained one of the highlights of the budget.
Hike from 22 per cent to 24 per cent on larger cars/UV.
For the CV sols in Chassis form, 3 per cent additional duty in place of specific additional duty of Rs10,000/unit.
Branded clothes to bear excise duty of 12 per cent, while branded jewellery to attract extra 1 per cent excise duty.
Imposition of unified rate of 12 per cent + `120/t for large plants, while 6 per cent+ `120/t for mini cement plants in
case of cement industry.
Increase in cess on domestic oil Production from `2500/ton to `4500/ton.
Excise duty on paper and formulation increased from 5 per cent to 6 per cent, while on API from 10 per cent to 12
per cent.
6 specified lifesaving drugs/vaccines granted full exemption from Excise duty/CVD
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Custom duty
Opposite to excise duty, custom charges are applicable on borders and imposed on goods of international trade. It is of two
kinds: import duty, which is applicable on goods that are imported from other countries and export duty, which is applicable
on the goods exported out of the country.
Basic custom duty on thermal coal, natural gas, LNG removed, further reduction in CVD from 5 per cent to 1 per cent
Gold to attract double import duty
Paint companies granted relief as Titanium dioxide to bear reduced duty from 10 per cent to 7.5 per cent
Coal mining equipment gets full exemption from custom duty
Duty reduced from 10 per cent or 7.5 per cent to 2.5 per cent in case of an imported plant and machinery for
surveying and prospecting for mining, while it was cut from 10 per cent to 5 per cent on tunnel boring machines and
parts, fertilizer plant equipment, aircraft parts
Customs duty was cut from 10 to 7.5 per cent on specified high speed rail equipments, minerals surveying &
prospecting equipment
Custom duties: Finally rich won’t get richer anymore
A customs duty is a tariff or tax levied on the import of goods and sometimes on exports also. If any businessman in India
wants to sell the imported products, then he would have to pay custom duty to the government for importing it. However,
with the recent budget of Pranab Mukherjee, it seems like the common man got some relief finally while rich class would
have to pay more for the luxury.
Good for common man, Pranab proposed ‘no change’ in peak rate of custom duties of 10 per cent on non-agriculture goods.
Also basic customs duty has been reduced for certain agricultural equipment and their parts.
Not just that, common man’s health has also been taken care of by reducing the basic customs duty on Iodine. Also the basic
customs duty has been reduced on Soya products to address protein deficiency among women and children.
However, there were certain proposals that might weigh on the rich this time. Gold, the much sought after precious metal,
would now be dearer as FM has proposed to increase the import duty on the yellow metal to 4 per cent from the earlier 2
per cent.
Be it imported car or imported bi-cycle, it is the time to pay more. In the budget, Mukherjee proposed increasing the
customs duty on import of completely built cars and SUVs to 75 per cent from 60 per cent earlier.
UNION Budget 2012-13
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Taxation explained with impact on a Common Man and a Home Maker
The common man has bitten the bullet in the battle of expectations after the Finance Minister Pranab Mukherjee, in its
Union budget 2012-13, overlooked the grievances of the 120 crore Indians and bombarded them with a number of Tax
proposals. His kindness came largely in the form of I-T exemption limit that was extended to `2 lakh from the existing `1.8
lakh, giving a relief of `20,000. However, playing it smartly, FM has taken more than what he has been given by imposing
‘Vicious Tax Circle’ of service Tax, Excise and Custom duty.
With the spiral of Tax regime, Finance Minister Pranab Mukherjee had made the life of common man even more difficult,
who was already buried under rising prices of food grains, household goods, LPG cylinders, and fuel prices.
In a nut shell, with marginal increase in income tax limit and additional burden of service tax and excise duty further bringing
down disposable and investable income, it may well prove to be a setback to demand, with budget bringing hardly any
cheers to ‘aam-aadmi’!
The increase of excise duty and service tax from 10 per cent to 12 per cent will straight away affect the end consumer, right
from lower middle class to upper class of the society.
UNION Budget 2012-13
The finance minister turned a deaf ear to household -cries. The budget proposals to increase tax rates will hit households as
early as this week with a host of products and services set to cost 2-5 per cent more:
Buying of consumer electronics like LCD TV, LED TV, air-conditioners, refrigerators, washing machine and microwave
ovens become costlier by 2-4 per cent.
The glitter of gold will not attract anymore, as import duty on gold doubled from 2 to 4 per cent and for non-standard
gold from 5 to 10 per cent.
Dreams for a car will rest for a while as increase in the excise duty will hike the prices of vehicles like Maruti Suzuki,
Mahindra & Mahindra and Honda.
Get ready to pay more on everything as service tax raised from 10 per cent to 12 per cent
Even buying a bi-cycle will become costlier by more than Rs 100 per unit due to 1 per cent increase in excise duty and
2 per cent hike in basic excise duty and the service tax.
The chance to refresh the mood with ice cream and flavoured milk will be costlier by about 5 per cent.
Personal computing gadgets and accessories, including desktops, laptops, tablets, printers, UPS and mobile phones,
will cost more thanks to a hike in excise duty. The prices of all PCs will rise by 2 per cent, for say `25,000 PC will now
cost an extra `500.
Visiting a doctor will make a hole in your pocket as consultation fee of the Doctor and prices of life saving drugs have
been increased.
Quenching thrust with cold drink will also cost 4 to 5 per cent more as top beverages maker Coca-Cola, Thumbs Up
and Sprite plan to increase the prices in a month.
Air travel or hiring a law firm to become dearer after hike in the service tax
Adding fire to the fuel for common man, mobile calls, dine-outs, and all the other services would now cost more after
the levy of additional service tax
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UNION Budget 2012-13
However, to accomplish the dream of ‘Rising India’ under the regime of United Progressive Alliance (UPA), the Finance
Minister Pranab Mukherjee has proposed number of plans to cheer the common man.
Buying of imported LCD and LED TV panels of over 20 inch become cheaper
Making branded silver jewellery and garments in reach of every woman's dream, as the FM has fully exempted the
excise duty from branded silvery jewellery and garments.
Mobile phone parts will become cheaper as excise duty has been cut to 2 per cent from the existing 10 per cent.
This clearly suggests that the Budget 2012-2013 miserably failed in benefitting the ‘aam aadmi’, already suffering from
the policy paralysis of the government.
Though Union Budget may not prove tonic for the struggling economy constrained with basic economic fundamentals, but
putting forward the policies like Goods and Services (GST), Direct Tax Bill (DTC), and the Fiscal Responsibility and Budget
Management Act, 2003 (FRBM Act) at Centre and state level can surely help tackle slowdown.
Take a look at how much more you will pay every year as service tax and other indirect taxes increases.
Items Expenses Service Tax Pre-Budget Post-Budget 10% 12%
Mobile bills 20,000 2,000 2,400
Restaurant bills 25,000 2,500 3,000
Coaching classes 20,000 2,000 2,400
Gym 10000 1000 1,200
Rent 60,000 6,000 7,200
Cable charge 6000 600 720
Healthcare 5,000 500 600
Beauty parlor 10,000 1,000 1,200
Parties (catering, tent, musician, photography)
20,000 2,000 2,400
Hiring of car 10,000 1,000 1,200
Jewellery 20,000 2,000 2,400
Entertainment 10,000 1,000 1,200
Hotel room 1,000 100 120
Air ticket 5,000 500 600
Rail ticket 1,000 100 120
Fuel cost 10,000 1,000 1,200
LPG cylinder 5000 500 600
Real estate Agent 10,000 1,000 1,200
Total Expenses 248,000 24,800 29,760
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UNION Budget 2012-13
Pranab bites the
common man, instead
of bullets!
Starting with the tax
exemption limits,
which the finance
minister raised to `2
lakh from `1.8 lakh
earlier, providing a tax
relief of just `2,000,
dashed the hopes of
common man. The sad
story of budget,
however, does not
end here.
Common man had
expected the minister
to increase the limit to
at least `3 lakh as
average income of
such class lies
between `2.5-3 lakh.
So the tax exemption
on additional `20,000
would not go well with
the common man.
Moreover the
additional 2 per cent
service tax charge
proposed by the
finance minister would
add fire to the fuel for
common man of India.
Get ready to pay 2 per cent extra service tax
Common Man’s extra burden!
10% Current rate of
service tax
Proposed rate of
service tax 12%
All services, except 17, would be taxed now!
Govt aiming to mop up additional revenues of `18,660 crore in the
upcoming fiscal.
Cases where higher %age of service might are proposed to come under tax
30
50
50
40
60
60
0 10 20 30 40 50 60 70
Eating out in Restaurants
Outdoor catering service
Hotel stay
Proposed
Current
Some services which will get costlier now….
Insurance Policy
DTH services
Air travel
Mobile bill
Phone bill
Cab rental
Cab parlour gym
Broadband charges
Services which were not taxed earlier, but are proposed to be taxed now!
Travelling in AC and
1st class by train
Museum tickets
to be taxed
Fee paid to various
agents
One time use of
libraries..
Competitive
exams TOEFL
Transport Hired
for Tourism
New-comers to the service tax class!
Actors, Translators,
Catering Services
Brand endorsement
Biz renting
Non-compete fee,
Non-government
events e.g. IPL
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UNION Budget 2012-13
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Freaky Friday for D-Street!
Investors stayed away from their desks on March 16 after Pranab Mukherjee announced his 7th Union budget. It could have
been possible that the investors who were hoping for the FM to score a century, decided to chase cricket rather than a ‘non-
event’ budget. The 30-share benchmark index of BSE, Sensex, ended up the day with 1.19 per cent decline to close at
17,675.85, while the broader 50-share index of NSE, Nifty, closed with the decline of 1.16 per cent at 5,317.9 on Friday.
Pranab’s largely muted budget failed to meet most of the market expectations and apart from projecting the fiscal numbers
right, he didn’t give any surprises. During the whole budget game, his political acumen was completely missing, rather he
played safe game by not announcing any bold reforms.
Most of the sectors found their hands on their heads after the budget, as shown by stocks reaction. Apart from Auto,
Consumer Durables, IT and TECk stocks, all the sectoral indices ended up with significant losses. The BSE Banking closed
down lower by 1.92 per cent despite some capital infusion plans into public sector banks. Banking stocks, struggling to bring
down their bad loans, were battered by the proposal to increase agriculture loans.
Situation was no better for the capital good stocks that plunged 2.94 per cent as there was no oxygen for such stocks.
Mukherjee failed to provide them the much needed cushion by hiking excise duty for cheaper imports from China
particularly in Power space. Besides, the excise duty has been raised by 2 per cent, which again, would be a dampener for the
companies.
No respite to health care companies too. The BSE HealthCare closed down by 2.02 per cent as investors hoped the
government to increase the spending in the sector. The proposal to hike MAT, services tax, and excise duties fell heavily on
the face of investors in stocks like Cadila, Sun Pharma and Torrent Pharma.
Metals finally found rust in government’s intention to revive the ailing sector. The BSE Metal closed down 2.22 per cent even
as the reduction in basic custom duty in Coal mining & Iron ore would have positive impact on steel players. The sector was
largely disappointed by the FM’s creaky plans to boost the infrastructure sector.
Besides, the Oil and Gas, Power PSUs all ended up with declines in the range of 2-3 per cent as the broader disappointments
on the economic fundamentals made investors doubt the economic growth projections ahead. Bullets like FDI in retail and
aviation, which Pranab could bite, were also missed by investors.
The dismal performance of Indian markets on March 16 showed the falling confidence of investors in the credibility of the
government to lead the economic recovery ahead.
UNION Budget 2012-13
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UNION Budget 2012-13
Indices Prev. Close
(Mar 15,
2012)
Last Close (Mar
16, 2012)
% Chg Impact
Sensex 17675.85 17466.2 -1.19 Broader market shed 444 points during intraday trade on
below expected budget outcome. ▲
Nifty 5380.5 5317.9 -1.16
Reduction in the Securities Transaction Tax (STT) by 20 per
cent on delivery transactions from 0.125 per cent to 0.10 per
cent.
▲
BSE Mid Cap 6405.36 6361.59 -0.68 Broad based selling pulled midcap companies lower.
AUTO 10,132.48 10,154.48 0.22
The increase in excise duty by 2%, hit the auto industry as it
would impact demand, however an increase in import taxes
for assembled SUVs and utility vehicles costing more than
$40,000, seen as positive for car makers.
◄►
BANKEX 12,203.29 11,969.50 -1.92
The proposal to inject about`16,000crore worth of capital is
certainly a positive for the industry, especially so for smaller
banks. However, the proposal to increase agricultural loans
made investors sceptical about the rise in bad loans.
▲
Consumer
Durables 6,522.24 6,486.73 -0.54
The increase in tax slabs for individual tax payers and hopes
of early implementation of GST will marginally affect the
industry.
▲
Capital
Goods 10,556.58 10,246.18 -2.94
Nothing major was there for the Capital Good Companies as
the budget didn’t provides them the much needed cushion
by hiking excise duty for cheaper imports from China
particularly in Power space. Besides all this excise duty has
been raised by 2 per cent would also be dampening for the
companies.
◄►
FMCG 4,206.64 4,287.16 1.91
Reduction the custom duty on cigarettes will improve
demand. A hike in excise duty on beedis and tobacco
products will result in rise in prices.
▲
Health Care 6,485.22 5,354.34 -2.02
The implementation of Alternative Minimum Tax (AMT)
would negatively impact stocks like Cadila, Sun Pharma and
Torrent Pharma due to increased tax outgo, as they would
have to pay 18.5 per cent MAT on book profits earned for
the fiscal year. Besides, the hike in excise duty will further
put additional burden on pharma companies.
▼
Information
Technology 6,080.88 6,069.03 -0.19
Reforms missed in the budget while implementation of
technology is the key focus which is positive for the sector.
For UID project, `14,000crore is approved. Other projects in
focus are DTC and GST Bills, Introduction of mobile-based
Fertilizer Management System, A central “Know Your
Customer” depository to be developed in 2012-13.
▲
METAL 11,776.91 11,515.35 -2.22 Reduction in basic custom duty in Coal mining & Iron ore
would have a positive impact on Steel players. ▲
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UNION Budget 2012-13
OIL &GAS 8,523.55 8,240.78 -3.32
Oil & gas sector would be affected negatively as the
budget proposed to raise cess on crude oil to `4,500 per
tonne from `2,500 per tonne but from an Indirect tax
perspective removal of customs duty on LNG, coal etc
are steps in the right direction but the general increase
in excise duties / service tax rates shall definitely
increase the overall costs for the sector.
▼
POWER 2,258.76 2,191.42 -2.98
Full exemption from basic customs duty and a
concessional CVD of 1 per cent to steam coal for a
period of two years till March 31, 2014 will help thermal
power companies in mitigating higher coal prices.
Allowing power companies to tap ECB to part re-finance
rupee debt on power plants and increasing power
sector's tax-free bonds limit to `10,000 crore from
`5,000 crore will help in raising money. Full exemption
from basic duty will help reduce costs for power
generation. Withholding tax on interest payment on ECB
would be cut to 5 per cent from 20 per cent for 3 years,
which would reduce overall debt cost. To seek tax
holiday, the last date for power generating projects has
been extended by one more year till March 31, 2013,
which will help in reducing costs
▲
PSU 7,684.01 7,481.78 -2.63 `30,000 crore to be raised through disinvestment,
keeping 51 per cent stake with Government. ▲
REALITY 1,821.35 1,798.33 -1.26
Through PPP, investment in infrastructure could go upto
`50 lakh crore. In addition to this, tax free bonds of
`60,000 crore to be allowed for financing infrastructure
projects.
▲
TECK 3,567.40 3,546.61 -0.58
The rise in Service Tax from 10 per cent to 12 per cent
will increase cost of services to customers and also
impact the P&L of telecom companies.
◄►
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UNION Budget 2012-13
Impact on Commodities market
Pranab Mukherjee’s 7th Union Budget was a mixed bag for the commodity markets
though it was fairly successful in making the right moves at the capital markets. Apart
from some equity market reforms, Pranab Da made the bold moves required in
commodities market as well. Pranab Da rightly proposed some starter reforms
required for reducing current account deficit. FM announced the plans to increase
custom duty on gold imports from 2 per cent to 4 per cent in an effort to check the
hurting love affair of country with the yellow metal.
Moreover the finance minister also gave surprise to the commodities market by
keeping the demands of commodities transaction tax (CTT) on hold. Some experts
had demanded the re-introduction of CTT as it would improve the transparency and
speculation from the system. However there was no such proposal in Pranab Da’s
budget.
“The Ministry of Finance,
Planning Commission,
Administrative
Ministries and the
Comptroller & Auditor
General are the main
players in the
declaration of the Union
Budget.”
The Golden move
India is the world’s largest bullion consumer and in 2010, it imported almost 958 MTs of
Gold which rose to approximately 1000 MTs in 2011. With the rising deficit concerns on
account of overseas balances, the finance minister made the economically right
decision to announce the hike in custom duty on gold by 2 per cent.
At USD 1730 per ounce, India imported gold worth USD 57.56 billion! Compare this with
India’s fiscal deficit for the 2011 which is expected to be around USD 91 billion with
India’s GDP at USD 1.4 trillion. This means that around 60 per cent of India’s fiscal
deficit goes to propel the world economy and only the remaining is used to push India’s
domestic demand. It can be easily deduced then, that the deflationary impact on our
economy is due to our rising gold imports which have continuously risen with the rising
gold prices since 2008.
Gold imports have overtaken software exports and is said to be more than the total
investment that comes into the Indian economy.
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UNION Budget 2012-13
Budget bite for Mutual Fund Industry
The Finance Minister, Pranab Mukherjee in its seventh Union Budget 2012-13, ‘lost the
opportunity’ to address the long due concerns that threaten the longevity of the
mutual fund industry. The budget does little to address the structural concerns, long
terms capital inflows and incentives to keep investor’s funds locked-in for an extended
period of time.
Proposal to remove the Dividend Distribution Tax (DDT) in a multi-tier corporate
structure
Mutual fund industry got little soap from Finance Minister, Pranab Mukherjee this
budget. Impact on the Mutual Fund industry is very specific by way of the proposed
Dividend Distribution Tax (DDT) from June 01, 2011.
The Finance Minister in Union Budget 2012-13 said, “The restriction on Venture Capital
Funds to invest only in nine specified sectors is proposed to be removed. It is further
proposed to remove the cascading effect of Dividend Distribution Tax (DDT) in a multi-
tier corporate structure.”
This particular measure would lead to stiff competition for corporate investments in
money market and liquid funds from banks fixed deposits.
Further, proposal to allow repatriation of dividends from foreign subsidiaries of Indian
companies to India at a lower tax rate of 15 per cent as against the tax rate of 30 per
cent for one more year might boost investments from foreign investors in mutual funds
equity schemes. It may set to grow with the new proposal on the same which is a
rainbow on the competitive horizon.
Post budget, we expect government to explore for opening up fund flow channels like
allowing provident funds to invest in the markets through mutual funds, which could
be seen as an opportunity to systematically increase exposure in the industry.
Finance minister also came up
with the reduction in Securities
transaction tax (STT) on delivery,
which was first introduced in
2004. Pranab Mukherjee
announced a 20 per cent
reduction in STT to 0.1 per cent
from earlier 0.125 per cent. STT
is generally considered as the big
concern for the investors, as
according to some estimates it
accounts for 51 per cent of
transaction cost on selling and
buying of the stocks.
The move will provide some
assistance to the industry which
has witnessed a tough past in the
light of shrinking global
economies.
ICICI Prudential AMC Managing
Director and Chief Executive
Nimesh Shah said “the
introduction of the Rajiv Gandhi
Savings Scheme is a clear
positive for the equity market by
way of increased long-term
investor participation. In
addition, reduction in STT on
delivery by 20 per cent has
added to the investors' return
potential for equity.”
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UNION Budget 2012-13
Impact of Union Budget 2012-13 on rupee
The general verdict for the Budget was neutral as the government refrained from any severe measures that could affect the
economy or push foreign investors at a time of global uncertainty. Inflation, budget deficit and interest rate structure
continue to be the key areas of focus. The government remains determined to cut down deficit from 5.9 per cent of GDP to
5.1 per cent in 2012-13. The move seems difficult with higher crude oil price and thereby bulging subsidy bill. In the absence
of new solutions for addressing the country’s fiscal constraints, the only positive news for domestic currency were rise in
import duty on gold, and proposals to allow overseas borrowing for more sectors.
After the Budget, the Indian Rupee, on Friday, ended on a positive note against the U.S. dollar in the domestic currency
market as Budget proposals to allow overseas borrowing for more sectors and doubling import duty on gold boosted the
sentiment on domestic currency. In futures trading, USDINR for March 2012 contract appreciated as much as 26.50 paise to
`50.285 per dollar, and settled at `50.3250, up by 0.44 per cent, on MCX-SX. While, Rupee spot appreciated as much as 20.5
paise to `50.165 per dollar, and settled at `50.165, up by 0.41 per cent.
Investor’s sentiment firmed on proposals to allow External Commercial Borrowing (ECBs) for aviation, power, road and
other sectors which raised hopes of more fund flows to the country. In the Union Budget 2012-13, union Finance Minister
Pranab Mukherjee citing "financing concerns" of airline companies, proposed external commercial borrowings for them
(ECBs) in the new financial year with a cap of US$1 billion.
Apart from this, the government’s move to hike import duty on gold also boosted the rupee sentiment on expectation that
increased tax on gold impact the gold import and reduce dollar demand. India, the world’s biggest bullion buyer, increased
import duty to 4 per cent on gold for the second time this year after record purchase of gold which widened the current
account deficit.
However, Indian subsidy burden will continue to remain high and this will keep pressure on the Indian currency. The
uncertain outlook for global economies will also weigh on the currency. Hence, forex dealers are expecting that rupee could
trade in the range of 52-49 in short term as quarter end in the month of March may encourage the investors to pull out their
funds from the financial markets in search of better earning avenues, and the Reserve Bank of India (RBI) may go for
monetary easing over coming months to ease up liquidity.
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UNION Budget 2012-13
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UNION Budget 2012-13
Industry reactions
The objective of the union budget 2012-13 was to come up with structural reforms and give a boost to India’s economy and
reduce fiscal deficit. Given the slow global economic recovery, budget 2012-13 was also the best vehicle that could have been
used to attract a lot of foreign investment. But, alas! Pranab Da failed to match the industry expectations. Below are the
industry wise reactions to the Budget 2012-13.
Below are the industry wise reactions to the Budget 2012-13
Aviation. Finance Minister gave all the necessary positive signs that the sector wanted. He
said that the government was considering a proposal on FDI in the sector and also allowed the
airlines to raise working capital through External Commercial Borrowings (ECB’s).
Welcoming the move, Vijay Mallya, Chairman Kingfisher Airlines, said, “ECB’s for working capital are
very welcome. Interest rates and hedging costs will be much less than Indian rupee denominated
costs.” Further expressing his views on FDI, Mallya said, “Permitting foreign airlines to invest up to 49
per cent as and when implemented will be very welcome... direct import of fuel was earlier
announced, but now confirmed, will greatly reduce net fuel cost.”
FMCG. Finance minister proposed a hike in excise duty and service tax, from 10 to 12 per
cent. The hike is seen as an attempt to move closer to the GST regime but common man is
wary of its inflationary impact.
Speaking on the government’s move Godrej Consumer Products Managing Director, A
Mahendran, said, “I expect this Budget to have a slightly inflationary effect due to the
cascading effect of companies passing on the excise duty increase to consumers.”
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Information Technology. IT industry has been left high and dry by the FM’s budget. The sector was
expecting reduction in Minimum Alternate Tax (MAT) and clarity on the application of tax laws.
Terming the budget as “lost opportunity” National Association of Software and Services
Companies (NASSCOM) expressed its disappointment with the Union Budget Proposals 2012-
13. On the issue of Advanced Pricing Scheme NASSCOM said, “The APA is a long drawn out
process and it is not clear how the current issues will be resolved.”
Auto. Finance Minister has proposed to increase basic excise and custom duties to make
foreign car makers to indigenize completely.
Reacting to the budget, Head Audi India, said “The increase in excise and customs duty on
large cars in this Budget is very surprising. This increase comes at a time when the Indian
automotive industry was finding favour with customers looking for better and efficient cars.
We may now need to re-evaluate our pricing strategy in India.”
Real Estate. The budget has been a mixed bag for the sector as nothing much has been done to boost
either demand or supply. The sector was looking at fiscal incentives enabled by development and
regulatory environment
Anshuman Magazine, Chairman & Managing Director CBRE South Asia Pvt Ltd, said “the
budget was a balancing act when bold steps were required. I hope post budget the
Government focuses on timely implementation of infrastructure projects and various other
schemes announced in the budget and more importantly announce major economic reforms
required to stimulate the economy for a higher growth
UNION Budget 2012-13
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Banking and Financial Services. Bankers, for the most part, gave thumbs up to the budget and
termed it pragmatic and growth-oriented with focus on fiscal consolidation.
ICICI Bank Managing Director and Chief Executive Officer Chanda Kochhar said that "the
Budget is aimed at growth and stability in the backdrop of the challenging year gone by.”
Oil &Gas. Budget has proposed to enhance cess on crude petroleum oil produced in India by 80
per cent to `4500 from `2500 per metric home.
Essar Oil Managing Director and CEO L K Gupta said, “We are slightly disappointed that the
government has overlooked the sector by delaying any announcement on fuel price deregulation
which could have provided level playing field to the private oil marketing companies.
Telecom. Union budget had nothing for telecom companies except for the proposed a 2 per cent
service tax which would increase the mobile bills.
CEO of Bharti Airtel, Sanjay Kapoor said, “The telecom sector is already burdened with multiple
and high tax levies which account for 30 per cent of the telecom services revenue. The rise in
Service Tax from 10 per cent to 12 per cent will increase cost of services to customers and also
impact the P&L of telecom companies.
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Indian Economic Survey 2011-12: Ambitions, achievements, lost opportunities and hopes of
future
The Indian Economic Survey of 2011-12 has estimated GDP growth rate of 6.9 per cent for the Indian economy during the
fiscal year 2011 – 12. It has forecasted GDP growth rate of 7.6 per cent for 2012 – 13 and 8.6 per cent for 2013 – 14.
At 6.9 per cent, it was the slowest pace of growth for the Indian economy since 2008 – the year marred by the global
financial crisis. The Economic survey noted that the International Monetary Fund has projected a 7 per cent growth rate for
the Indian economy in the medium term. This will make India the second fastest growing economy in the world after China.
The Economic Survey has estimated fiscal deficit for 2011-12 at 4.8 per cent of Gross Domestic Product. This is still below
the 4.6 per cent fiscal deficit target set in Budget 2011 – 12. The Survey, however notes that fiscal deficit has come down
considerably from 6.5 per cent of GDP in 2009-10. The Economic Survey informs that the states have performed better
than expected on the fiscal deficit front. This is likely to keep in check the combined deficit of the state and centre for 2011
– 12. The Economic Survey goes on to add that the fiscal consolidation process will be prolonged because of failure in
achieving of fiscal deficit targets due to endogenous and exogenous factors.
The Survey concedes that the projected growth rate of 16 per cent envisaged in Budget 2011 – 12 will not be achieved
because of slowdown in the GDP growth rate. It attributes the slowdown partly to the contractionary monetary stance of
the central bank, which affected the growth rate of the economy in the short term, the Economic Survey noted.
The Economic Survey has reiterated the importance of allowing FDI in multi-brand retail in giving a long term
boost to the Indian economy. It advocates direct cash transfer of fuel and other subsidies. It also cautions that
escalation of the Iranian situation may spoil the fiscal deficit calculations by increasing the fuel subsidy bill of
the government.
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Some choked nerves found in the survey.....
Inflation
Headline WPI inflation remained persistently high and relatively sticky at around 9 per
cent during 2011. The economic survey estimates that wholesale price inflation will
come down to 6.5 - 7 per cent by March 2012. It attributes the moderation in inflation
to lower global food prices, global economic slowdown and the contractionary
monetary policy that is being pursued for the last two years by the central bank.
The Economic survey notes that India’s wholesale price inflation was in line with the
trend in other Emerging and Developing Economies (EDEs). Average consumer price
inflation in EDEs during 2011 was 7.2 per cent while that for Advanced Economies
(AEs) it was 2.7 per cent.
"In India, the slowdown in GDP
growth witnessed over the last
two quarters is likely to extend
into the coming fiscal year
because of the weakness in
investment,"
--Organisation for Economic
Cooperation and Development
(OECD)
Supply side bottlenecks have long been a bane for India’s inflation situation. The country cannot achieve the ultimate
economic objectives of high economic growth and low price inflation without drastic supply side reforms.
The Survey proposes to control inflation in the medium through supply side measures and fiscal consolidation through
rationalization of subsidies.
Ballooning fiscal deficit- An issue in the sky
India’s fiscal deficit concerns have already taken the sleep of finance minister, Pranab Mukherjee. The deficit which
dropped to 4.8 per cent in 2010-11 from 6.5 per cent in 2009-10, is now again heading to the troubled level and the worries
are not mild this time. Government’s ballooning fiscal deficit has even become the centre of attraction for rating agencies
who have already warned India of ‘unwanted consequences’ in the future, if not corrected in time.
The matter has been taking heat from rising subsidies bills, unchecked leakages in the system, reckless spending on social
programmes, and in general, policy paralysis. Central government’s expenditure on social services and rural development
has increased from 13.38 per cent of total central government expenditure in 2006-7 to 18.47 per cent in 2011-12.
International Trade
India’s exports during the first half of the financial year grew by 40.5 per cent while its imports grew by 30.9 per cent. Total
value of the exports during the April- January period stood at USD 23.5 billion while total value of imports stood at USD
29.4 billion.
The Economic Survey notes that 2011-12 was a tough year for International trade with the fall in global world trade being
steeper than the decline in real Gross Domestic Product (GDP). India’s exports felt the heat of this slowdown in
international trade.
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Agriculture and Food
The Economic Survey 2011-12 estimates a growth rate of 3.28 per cent
against the target of 4 per cent for the agriculture sector during the current
five year plan period which will end on March 31st, 2012. The twelfth five
year plan (2012 – 17) has set a target growth rate of 4 per cent for the
Agricultural sector.
The Economic survey notes that without incremental productivity gains
and technology diffusion across regions, achieving this higher growth may
not be feasible. This will have serious implications for the macroeconomic
stability given the rising demand of the 1.2 billion people for food.
The Economic Survey predicts a growth rate of 2.5 per cent for the
Agricultural sector in the fiscal year 2011-12.
Manufacturing
Manufacturing sector has fallen from 9 per cent in April-December 2010 to
3.9 per cent in April-December 2011. Considered as a major source of
growth, the negative trend in the manufacturing sector has been mainly a
result of global economic slowdown and rising interest & input costs.
PE: Provisional Estimate
QE: Quick Estimate
AE: Advance Estimate
5.1%
4.2%
5.8%
0.1%
1.0%
7.0%
2.5%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
20
05
-06
20
06
-07
20
07
-08
20
08
-09
20
09
-10
(PE)
20
10
-11
(QE)
20
11
-12
(AE)
Rate of Growth of GDP at Factor Cost at 2004-2005 Prices
Agriculture, forestry & fishin
The Indian government needs to act fast and stop being lazy in policymaking. Need of the hour is a manufacturing policy that
spurs the sector by getting rid of infrastructural bottlenecks and facilitating growth in the manufacturing sector of the Indian
economy.
The Economic survey notes that industrial growth in the long run has lagged behind the growth in GDP. Long-term average
annual growth of industries comprising mining, manufacturing, and electricity, during the post-reform period between 1991-2
and 2011-12, averaged 6.7 per cent as against GDP growth of 6.9 per cent.
If the construction industry is included then this number will rise to 7 per cent. Manufacturing remained the most dominant
sector accounting for 14 per cent to 15 per cent of the total industrial output during the post-reform period. The Economic
Survey points out that this number is modest when compared to that of China (above 40 per cent) and some of the East Asian
countries (above 30 per cent).
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Ban on mining pulls the sector from posting growth
Dwelling with issue of illegal mining, which resulted in ban of mining activities
in many parts of the country, pushed mining sector to contract at -2.2 per cent
in FY12, as per Economic Survey 2011-12. The sector’s performance was
further affected by the ban and issues related to environmental concerns and
land and acquisition matter.
Mining sector has been posting a decline in its growth since FY 10 when it was
recorded growing at 6.3 per cent. It dipped to 5 per cent in the succeeding
fiscal and finally decelerated further at -2.2 per cent in 2011-12.
The sector currently is in need of urgent revamping and as the current methods
would lead to further environmental disasters.
Human Development
India continues to perform dismally on the human development front. In 2011,
it was placed at 134th rank in the Human Development Index (HDI) of
countries of the world. The Economic Survey says that performance on this
front can only be improved through a more equitable distribution of
development benefits and opportunities, better living environment and
empowerment of the poor and marginalized.
PE: Provisional Estimate
QE: Quick Estimate
32.8%
34.7%
35.7%
38.1%
34.3%
36.6%
35.1%
30.0%
31.0%
32.0%
33.0%
34.0%
35.0%
36.0%
37.0%
38.0%
39.0%
Ratio of Investment to GDP (at current market prices)
Balance of Payments
The current account deficit for the first half of 2011 – 12 stands at USD 32.84 billion. The Economic survey notes that higher
current account deficit can be attributed to declining capital inflows. Foreign Institutional Investment during the first half of
2011-12 came down to USD 1.346 billion from USD 23.796 billion in the corresponding period of the previous financial year.
Foreign Direct Investments during the first half of 2011-12, however, increased to USD 12.31 billion from USD 7.040 billion in
the corresponding period of the previous year.
The Economic Survey notes that a further deterioration in the current account deficit situation will put further pressure on
the value of rupee. The rupee touched its lowest ever value of `54.23 per US dollar on December 15th, 2011.
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Thumbs Up in the survey…
Services
The Economic Survey projects that the services sector is likely to grow by 9.4 per cent in 2011-12 and its share in GDP will go
up to 59 per cent.
The Survey says that the services sector has been a major and vital force steadily driving growth in the Indian economy for
more than a decade.
Energy, Infrastructure and Communications
The Economic Survey says that total investments in infrastructure during 2011-12 are expected to exceed 8 per cent of GDP.
The private sector is expected to be contributing nearly 36 per cent of this investment.
During the April- December 2011 period, power sector output grew by 9.3 per cent; coal sector output declined by 2.7 per
cent; finished steel industry output grew by 5.7 per cent of the output; fertilizer industry output declined by 0.5 per cent;
cement industry output grew by 5.1 per cent; crude oil output grew by 1.9 per cent; refinery output grew by 4.1 per cent
while natural gas output declined by 8.8 per cent.
Foreign exchange reserves shows increasing trend in FY12
World’s sixth largest foreign exchange reserves holder, India continues to be one of the largest holders of foreign exchange
reserves. A comparative picture of foreign exchange reserves in the revised estimates for the current fiscal 2011-12 shows
an increasing trend and reached USD 6.7 billion from USD 304.8 billion at end March 2011 to USD 311.5 billion at end
September 2011. Out of this total increase, USD 5.7 billion was on Balance of Payment (BoP) basis and the balance USD 1.0
billion was on account of valuation effect.
Financial Markets and Intermediation
The Economic Survey notes that the funding constraints in International Financial Markets could raise the cost of financing
for banks and Indian companies. Indian companies are already paying very high interest rates on their commercial
borrowings. Increased borrowings by the government are crowding out private investments. The Economic Survey makes a
case for further globalization, consolidation, deregulation and diversification of the Indian financial system. Bank credit till
December 16th 2011 grew year – on –year by 8.2 per cent to `39,42,083 crore. `82,905 crore of this went to food credit
while `41,84,077 crore went into non-food credit.
Demand deposits till December 16th 2011 decreased year – on – year by 12.7 per cent to `559,935 crore. Time deposits
during this period increased by 12 per cent to `51,12,657 crore. Investments by banks in government securities during the
year till December 16th 2011 increased year-on-year by 11.9 per cent to `16,75,247 crore.
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Manmohan Singh 1991-92: ‘Miraculous as a finance minister’
Manmohan Singh made history in 1991-92 by doing something that the entire
nation has, till now, enjoyed growth with both hands. In a single master budget,
he changed the entire picture of policy making process in India. Identifying the
concepts of fiscal stabilization and making the structural changes that
introduced Indian economy with the world, he did nothing less than a miracle.
Manmohan Singh, the then finance minister of India, simply changed the rules
of the game that India is now enjoying as the ‘third largest economy of Asia’.
Starting from economic administration, currency issues, licensing, export-
import policies, or simply the boldness, he opened them all.
.
With liberalized norms, the doors were opened for foreign investments first by Manmohan Singh and the foreign investment
limit in high-priority industries was raised to 51 per cent. Moreover, he altered the interest rate system so such that they
were left with greater flexibility and liberty to commercial banks to tweak on their own as per need.
Singh’s 1991-92 avatar was a master peace of imagination abilities, and for decades now, no one has been able to match up
to his level of political profile.
Time changed, position changed and so did Country’s fate. Manmohan Singh took oath as the Prime Minister in 2004 and
his success story as the country’s FM fell prey to the political gimmicks.
Prime Minister Manmohan Singh 2004-2012: An unending term of ‘leadership crisis’
Manmohan Singh, now going to complete his second term as the prime minister of India, is the only minister in history, who
has completed over 7 years at this post. However, with time his credibility has also got depleted. Singh, who was seen as ‘Man
of reforms’ then, is now seen as a roadblock to the reforms. His poor policy management body has done nothing but to throw
the country in a mess, creating head-ache for the reformists. A minister, if tries to make some reforms is discarded from the
cabinet, just to stay in the chair for whole term. Manmohan Singh, alone can’t be responsible for the political crisis in India
now, but his poor leadership skills have partially contributed to it.
India is now growing at 6.9 per cent, the slowest growth in three years. None of the
fundamentals are in shape including fiscal deficit, inflation, balance of payments,
exchange rate, and what not. Singh has struggled so far to bring reforms in the
economy ranging from FDI in retail, land acquisition bill, Goods and Services Tax
(GST), and some more.
The current situation of Indian politics shows India has been landing into a state of
‘political crisis’ rising from ‘leadership crisis’.
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RBI opts to test FM’s credibility again!
The waning confidence of RBI in the central government’s reform process was again visible in the Mid-quarter monetary
policy review on March 15. Reserve Bank of India (RBI) kept the repo rate and reverse-repo rates unchanged at 8.5 per cent
and 7.5 per cent under the Liquidity Adjustment facility (LAF). Repo rate is the rate at which RBI lends to commercial banks,
while reverse repo rate is that at which banks lend it back to RBI.
Now with the WPI inflation for February dipping below 7 per cent, RBI has ample space to reverse the interest rates. Even
RBI has already blown the whistle by slashing the CRR by 125 basis points in two tranches which also aimed at injecting Rs
80,000 crore in to the system. However, it seems like RBI has lost confidence in government and wants it to correct the
supply-bottlenecks that have distressed the inflation and has also triggered fiscal deficit.
Prospects ahead—Really shaky!
The prospects, no doubt, are related to how the global economies perform during the year ahead. The financial crisis in
Europe and certain exogenous shocks like the Japanese nuclear disaster, have resulted in a sharp global economic slowdown
during 2011-12. However it can’t be denied that current slowdown in India has partial roots in domestic causes. After 15
years of robust growth and nearly a decade of over 30 per cent investment rate, it seems like that the growth engine is
finally losing its steam.
The Rail minister recently has said in very bold terms that “Railways are going through very difficult phase and to avert
another crisis in the sector, we would have to bite the bullets”. The same holds true with Indian economy too.
“Vigilance will nevertheless be required and steps need to be taken to quickly deal with any unexpected developments
and global shocks such as increases in the price of crude oil”.
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Trivedi’s Maiden Rail Budget: A nice blend of smart
politics and good economics….
The youngest child of a Gujarati family and the Rail Minister, Dinesh Trivedi,
did a fairly good job in his debut budget on March 14. This time, after so
many years, industry saw a budget that was aimed at the welfare of 14 lakh
people of India rather than a few ministers. Right from the start, and till the
end, he stressed over hundred times on ‘Safety Concerns’ in the Indian
Railways. He proposed, for the first time in Indian history, to set up an
independent Railway Safety Authority to parallel the international
standards of safety.
Taking the theme of safety to next level, he calls for modernization of
Indian railways and proposed setting up of expert group under Sam Pitroda.
The group plans to spend `5.6 lakh crore in the modernization of Indian
Railways in the next five years.
I also have a clearer perspective of what
railways mean to the common man and how
the railways have been a true catalyst of
integration. Just as we cannot imagine India
without Himalayas, we cannot imagine India
without the holy river Ganga. Similarly we
cannot imagine India without Indian Railways.
The Railways are the symbol and substance of
India’s unity. Railways have their wheels on
earth, not in the sky or just urban streets. If
we do not strengthen Indian Railways, we
weaken our country.
--Dinesh Trivedi,
Union Railway Minister
Amidst such big-ticket plans, the rail minister didn’t miss the silver lining in expectation of gold. Taking a bold step and
daring to go against the wishes of his party chief Mamata Banerjee, he raised the passenger fares for the first time in last
ten years, aiming to help the government to rein in ballooning fiscal deficit. He also showed his eagerness to ‘bite every
possible bullet’ in order to bring down the operating ratio of railways from 95 per cent currently to 84.9 per cent in 2012-13
and 74 per cent by 2017. The operating ratio shows the amount spend to earn every single rupee.
However what made him better Rail worker compared to few of his predecessors was the smart economics he tried to mix
with politics. He planned to go slower on expansion for the upcoming fiscal year, paving way for the government to control
deficits, inflation as well as give some room to RBI to start reversing the monetary policy.
Moreover, he understood the need to revive the creaky infrastructure of India and hence chalked out an investment plan of
USD 1 trillion in the infrastructure sector with half the investment or `25 lakh crore expected from private sector, and
remaining `25 lakh crore being planned by the government from its own resources. He desired `14 lakh crore investment
from the government in the next ten years to take the Indian Railways ahead of the time.
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Trivedi’s debut strokes, mastered the experience!
Dinesh Trivedi gets bolder by announcing rail fare hike after 9 years!
Bringing an end to the era of stagnant fares and going against the “Mamata-way”,
Dinesh Trivedi, in his first rail budget, took a bold step of hiking the passenger fares
after nine long years.
Stressing that there is “no steep increase in fares”, Trivedi announced the hike in
passenger fares ranging from 2 paise to 30 paise depending upon on the class and
distance travelled. Earlier, the rates were last revised in 2002-2003.
Ensuring smiles to over 1 lakh people in next fiscal!
Indian Railways plans to recruit over 1 lakh people in 2012, Dinesh Trivedi said while
presenting his maiden Rail Budget speech.
Trivedi said that the recruitment would not only generate employment in the nation,
but will also help railways to clear its backlog of vacancies. The recruitment will cover
the vacancies in the schedule cast, schedule tribes and critically challenged person
segment as well, he added.
“In today’s world, safety is driven by
improved technology. Hence safety
standards cannot be achieved
without modernization, as safety
and modernization are two sides of
the same coin. At the same time,
modernization cannot take place
without financial resources and
professionalization of manpower.
There is also an emergent need to
connect the remote and backward
areas through socially desirable rail
connectivity schemes to foster
growth”.
--said Dinesh Trivedi,
Union Railway Minister
Promises new lines of 725 Km in underdeveloped areas
In a bid to extend reach in the underdeveloped and underprivileged areas, Dinesh Trivedi in his rail budget speech, said that
725 km new lines will be constructed.
Disappointed with the plenty of projects lying pending with the Railways, he promised completing 45 new projects covering
700 km new lines in the fiscal year 2013.
Rail Budget 2012 – 13 emphasises the importance of PPP
Rail Budget 2012 – 13 proposed setting up of Indian Railway Station Development Corporation for redeveloping stations
through public private partnership (PPP) mode. The railway minister also announced that a Logistics Corporation will be set up
through PPP for development and management of existing railway goods sheds and multi-modal logistics park.
The Budget announced that private investments will be encouraged in wagon leasing, sidings, private freight terminals,
container train operations and rail connectivity projects. The huge investment plans that the Railways have set for themselves
cannot be achieved without effective participation from the private sector.
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Ambitious plans and the Minister…
After missing the surplus target, Rail Budget 2012 – 13 sets surplus target of `10476
crore
The Rail Budget 2012 – 13 has set an ambitious surplus target of `10,476 crore for the
next financial year. The Rail Budget 2012 – 13 has set gross tariff receipt target of
`1,32,552 crore. This is a year-on-year increase of 27.6 per cent over revenues of
2011-12.
The Rail Budget estimates that dividend payments of `6,676 crore will be made
during the year. The surplus is expected to be further depleted by the repayment of a
loan of `3,000 crore that was taken in 2011-12.
What experts have to say--
“The capital funding plan of
Trivedi showed that the
minister tried to settle short
term losses with long term
gains”.
“The minister tried not to
throw all the desired reforms
in one shot, rather adopted the
policy of generational
reforms”.
Trivedi aims to reduce operating ratio to 74% by terminal year of 12th Five Year Plan
Union Railway Minister Dinesh Trivedi said that he aims to bring down the operating ratio to 74 per cent by the terminal year
of 12th five year plan.
“I propose to bring down operating ratio from 95 to 84.9 per cent in 2012-13 and lower it to 74 per cent by terminal year of
12th plan,” Trivedi said.
“Be Ready to bite the bullets to modernize railways”
Kick-starting the bold reforms, Dinesh Trivedi said that “Be ready to bite the bullets to modernize railways”. The statement of
Trivedi reflected that despite of increase in fares, revenue crunch won’t be solved and modernization of railways would
require efforts of freedom fight.
Smart shift into generational reforms
Dinesh Trivedi’s rail budget is betting high on generational reforms in the sector rather than incremental annual changes.
Trivedi acted very smartly considering the ongoing tensions in the fiscal section of India. Currently, India faces shortage of
funds and along with that, it also faces high inflation.
Riding on the challenge to drive the growth without overburdening the financials of India, Trivedi planned to increase the
budgetary support by just `4,000 crore in upcoming fiscal as compared to previous fiscal. However, he demanded that `14
lakh crore would be required in the next ten years.
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In the right corner….
Railways passing through difficult phase, standing at a cructial juncture: Dinesh Trivedi
Under precarious financial position and creaky infrastructure, Indian Railways is passing through difficult phase, said Railway
Minister Dinesh Trivedi in its maiden Railway Budget.
In its maiden budget for 2012-13, the minister has breached the customary of ‘no hike in fare price’ by raising the fare prices
after 8 years. The department has also given an indication that fares may further increase in the future, depending on the rise
of fuel prices.
However, the railways posted a growth of 10 per cent in revenue between April 1, 2011 and February 29, 2012, said the data
released last week.
Railways Budget 2012-13: Railways partner with state govt to start new projects
Anchoring a significant role in social development of the country by providing rail connectivity to the remote, backward, and
tribal regions and generating employment opportunity to the local peoples, railways has signed Memorandum of
Understanding (MoU) with several state government.
The Railway Minister Dinesh Trivedi, in its maiden budget has urged State Governments to come forward for sharing cost of
new railway lines, gauge conversion and doubling projects which are considered important by them for development of the
state. As of now, 31 projects covering a length of more than 5000 km in 10 states are being executed with contribution from
state governments.
Railway ministry in partnership with Government of Chhattisgarh and user industries in the region has proposed to develop
three rail corridors in the northern part of the state for movement of passengers and freight, with the active participation of all
stakeholders.
Railways budget 2012: Budget bonanza for metropolitans
Railway Minister Dinesh Trivedi, in its maiden budget, has proved the spectators wrong by announcing a lot of plans for
metropolitan cities, other than Kolkata. There was speculation in the political arena that Trivedi will follow the footprints of his
boss Mamata Banerjee, but surprised everyone with his innovative plan, especially for Mumbai.
Extending the Kolkata Metro project started by Banerjee, the ministry has initiated some new projects to bring more areas in
the link of metro. Mr. Trivedi in his statement also added, “Works announced by Mamata Banerjee in previous two budgets,
are progressing satisfactorily.”
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A quick comparison of Trivedi’s debut budget with Mamata didi’s trash
“I am ready to
bite the bullets”
“We have tried to
meet”
Emphasis on strengthening Safety, Safety and Safety.
Setting up an independent Railway Safety Authority to
match Indian Railways with International Standards.
Proposal to invest USD 1 trillion in improving infrastructure,
with an equal participation from private sector.
Shifting the focus on safety, consolidation, decongestion,
and Modernization.
Bringing the operating ratio down from 95 per cent now to
84.9 per cent in 2012-13 and 74 per cent by 2017.
Opting for generational reforms rather than keeping the
railways in status quo mode.
Allocation of `4,410 crore in capacity augmentation.
Keeping the budgetary support lower at Rs 24,000 for FY13,
as against the need for Rs 45,000 crore.
Boosting the bilateral trade by enhancing the connectivity
with neighbouring countries.
Broad based IT reforms including GPS facility, SMS for e-
tickets, up-gradation of 929 stations.
Increased number of ‘Green Initiatives’ to comply with
environmental standards.
Recruitment to over 1 lakh people in FY13.
Focus remained on West Bengal, and the budget was
seen more as an election manifesto.
Fairs remained unchanged, despite the fact that Indian
railways continue to lose on operating profits.
Mamata failed to announce any provisions for then
going projects.
No efforts to bring the financial stress down.
Unreal targets missed the reality as planned capital
outlay remained on papers only.
Mamata failed to improve safety and hygiene factors in
the travel life of millions of Indians.
Mamata announced `1,700 crore (`17 billion) less as
dividend, in an attempt to show improved operating
ratio.
Dedicated Freight Corridor Project remained a dream in
Mamata’s budget.
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Trivedi’s first rail budget becomes his swan song; PM’s regretting eyes bid goodbye to Trivedi
The much beating around the bush finally came to an end, when Prime Minister Manmohan Singh finally announced the
acceptance of Dinesh Trivedi’s resignation. Trivedi, fulfilling his commitment, submitted his resignation on Sunday, in line
with the orders of his party chief. “I received late last night an email message followed by a formal letter from Dinesh
Trivedi tendering his resignation as Railway Minister. I regret the departure of Shri Trivedi who presented a Railway
Budget that had promised to carry out the Vision 2020 outlined by his predecessor," exclaimed Singh.
The resignation from Trivedi came at the backdrop of the order from his party chief Banerjee to submit his resignation,
after he denied rolling back the passenger price hike announced in Railway Budget 2012-13.
Singh further added that the resignation would be forwarded to President for the final acceptance.
Meanwhile, Singh added that the new railway minister would have to carry the load and responsibility of carrying forward
the challenging task of modernizing our railway system.
"A new railway minister will be sworn in shortly,” added Singh.
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Personality Check: P. Chidambaram vs Pranab Mukherjee
The comparison between Pranab Mukherjee and P Chidambaram, one an old warhorse who had to slog for decades to
rise to a position closer to Nehru-Gandhi family and other, a younger Harvard educated, P. Chidambaram who is also
politically astute, could make for a great case study for our next-gen political aspirants.
Both, Pranab Mukherjee and P. Chidambaram, have been the pillars for United Progressive Alliance (UPA) and have
sought the same chair in the government which has, more often than not, brought them on a collision course. Political
analysts, though, have always felt that none of them ever got their due.
A brief comparison below would give you an insight into their political life till date.
Pranab Mukherjee : Born on 11th December 1935 at
Mirati; West Bengal
P Chidambaram : Born on 16th September 1945 at
Kandanur; Tamil Nadu
1969: First elected as the member of Rajya Sabha from
the Congress Party.
1984: First elected as the member of Lok Sabha from the
Shivaganga constituency of Tamil Nadu.
1973: Joined the cabinet as Union Deputy Minister,
Industrial Development.
1985:Joined the cabinet as a Deputy Minister in the
Ministry of Commerce and then in the Ministry of
Personnel.
1982-1984: Served as the Finance Minister of India in
the Congress government
1 June 1996 – 21 April 1997: Served as the Finance
Minister of India in the United Front led coalition.
1986: Quits Congress after Indira Gandhi’s assassination
to form Rashtriya Samajwadi Congress (National
Socialist Congress) in West Bengal.
1996:QuitsCongress party and joins a breakaway faction
of the Tamil Nadu state unit of the Congress party called
the Tamil Maanila Congress
Rejoins Congress in 1989 Rejoins Congress in 2004
2004-2006 & 2006-2009: Minister of Defense &
Minister of External Affairs
2004-2008: Minister of Finance
24 January 2009- Till date: Minister of Finance 30 November 2008-till date: Minister of Home Affairs
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Pranab Mukherjee almost went the distance in 2004 before Manmohan Singh, backed by Sonia Gandhi, tipped him from
being India’s Prime Minister. Insiders too favoured Pranab over Manmohan Singh, but only in hushed voices. On the other
hand, Chidambram is a man who can sit and negotiate with the devil. But the recent 2G spectrum fiasco has kept him quite.
Pranab Mukherjee’s first stint as the Finance Minister, in 1982, got him the rave
reviews and he was featured in Euro money magazine as the best Finance
Minister of the world. Pranab Mukherjee presented his first annual budget as a
Finance Minister of India during the Indira Gandhi government. He again became
the Finance Minister in 2009 under Manmohan Singh’s government.
In his July 9, 2009 budget speech, Pranab announced several tax reforms and
implemented Goods and Services Tax. He also implemented several social sector
schemes, like the National Rural Employment Guarantee Act, girl's literacy, and
health care.
“I must be cruel only to be
kind.”
However during his time as a FM, the country’s fiscal deficit rose to the highest levels since 1991. He also presented
2010-11 budget and included the country's first explicit target to cut public debt as a proportion of GDP.
Finance Minister latest budget speech, 2012-13 has got the mixed reviews by both the industry and common man alike.
Lot was expected from Pranab Da, but he didn’t do much to push and stimulate the economy. Critics have termed the
budget as one that hints at the return of “License Raj.” The budget has granted more power to the government and has
brought in, as many as, 25 retrospective amendments.
How Stocks Fared During PranabDa’s Tenure
Pranab Mukherjee’s tenure has characterized by global economic crisis and he was tasked with the job of taking India
through the difficult times
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P. Chidambram, the savvy technocrat presented his first Union Budget as the Finance
Minister in 1997-98. It was widely termed as a ‘Dream Budget’ and was hailed by the
corporate houses. In his budget, he presented the roadmap for the economic reforms in
India. He lowered the income tax rates, removed the surcharge on corporate taxes, and also
reduced corporate tax rates.
From 2004-08, Union budgets presented by Chidambram were marked by stock market
exuberance and the gains in the sensex were better than ever before.
The tenure of P. Chidambram was, however, not clouded by economic slowdown but he
had left parties trying to choke any reformist move of the minister
"The more one does, the
more one attempts, the
more one is capable of
doing". "Can we do
better?” My answer would
be "we can and we
should."
How Stocks Fared During P. Chidambaram’s Tenure
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