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Transcript of UNION BUDGET 2012- HIGHLIGHTS FORCASC WEBSI¢  Web view UNION BUDGET 2012-13 March 19 2012...




March 19


Union Budget 2012-13: A Financial Analysis


Union Budget is a comprehensive demonstration of the Government’s finances which is the most important economic and financial event in India. The Finance Minister puts down a report that contains Government of India’s revenue and expenditure for one fiscal year that runs from April 01 to March 31. The Union Budget is preceded by an Economic Survey which outlines the broad direction of the budget and the economic performance of the country. The Budget is the most extensive account of the Government`s 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.

Economy of India – Overview

India is developing into an open-market economy, yet traces of its past autarkic policies remain. Economic liberalization, including industrial deregulation, privatization of state-owned enterprises, and reduced controls on foreign trade and investment, began in the early 1990s and has served to accelerate the country's growth, which has averaged more than 7% per year since 1997. India's diverse economy encompasses traditional village farming, modern agriculture, handicrafts, a wide range of modern industries, and a multitude of services. Slightly more than half of the work force is in agriculture, but services are the major source of economic growth, accounting for more than half of India's output, with only one-third of its labor force. India has capitalized on its large educated English-speaking population to become a major exporter of information technology services and software workers.

In 2010, the Indian economy rebounded robustly from the global financial crisis - in large part because of strong domestic demand - and growth exceeded 8% year-on-year in real terms. However, India's economic growth in 2011 slowed because of persistently high inflation and interest rates and little progress on economic reforms. High international crude prices have exacerbated the government's fuel subsidy expenditures contributing to a higher fiscal deficit, and a worsening current account deficit. Little economic reform took place in 2011 largely due to courruption scandals that have slowed legislative work. India's medium-term growth outlook is positive due to a young population and corresponding low dependency ratio, healthy savings and investment rates, and increasing integration into the global economy. India has many long-term challenges that it has not yet fully addressed, including widespread poverty, inadequate physical and social infrastructure, limited non-agricultural employment opportunities, insufficient access to quality basic and higher education, and accommodating rural-to- urban migration.

In 2011-12, India found itself in the heart of these conflicing demands. The Indian economy is estimated to grow by 6.9 per cent in 2011-12, after having grown at the rate of 8.4 per cent in each of the two preceding years. This indicates a slowdown compared not just to the previous two years but 2003 to 2011 (except 2008-9). At the same time, sight must not be lost of the fact that, by any crosscountry comparison, India remains among the front-runners. With agriculture and services continuing to perform well, India’s slowdown can be attributed almost entirely to weakening industrial growth. The manufacturing sector grew by 2.7 per cent and 0.4 per cent in the second and third quarters of 2011-12. Inflation as measured by the wholesale price index (WPI) was high during most of the current fiscal year, though by the year’s end there was a clear slowdown. Food inflation, in particular,

has come down to around zero, with most of the remaining WPI inflation being driven by non-food manufacturing products.

· Budget 2011-12: Revenues: $218.7 billion Expenditures $311.2 billion

· GDP: Real Growth Rate: 7.8% (2011) Country Comparison to the world: 12

10.1% (2010)

6.8% (2009)

· GDP: Composition by Sector: (2011)

Agriculture : 18.1%

Industry : 26.3%

Services : 55.6%

· Labor Force:

Agriculture: 52%

Industry: 14%

Services: 34% (2009)

· Unemployment rate: 9.8% (2011) Country comparison to the world: 109

10% (2010)

· Population below poverty line: 25% (2007)

· Investment (gross fixed): 30.7% of GDP (2011) Country comparison to the world:28

· Taxes and Other revenues: 11.9% of GDP (2011) Country comparison to the world: 199

· Budget Surplus or Deficit: -5% of GDP (2011) Country comparison to the world: 148

· Public Debt: 51.6% of GDP (2011) Country comparison to the world : 148

· Inflation Rate:

6.8% (2011)

12% (2010)

· Industrial Production Growth Rate: 6.7% (2011) Country comparison to the world: 41

· Current Account Balance: -$62.96 billion (2011) country comparison to the world: 192

-$51.72 billion (2010)

· Exports: $298.2 billion (2011) country comparison to the world: 21

$225.6 billion (2010)

· Exports - commodities:

Petroleum products, precious stones, machinery, iron and steel, chemicals, vehicles, apparel

· Exports - partners: US 12.6%, UAE 12.2%, China 8.1%, Hong Kong 4.1% (2010)

· Imports: $451 billion (2011) Country comparison to the world: 13

$357.7 billion (2010)

· Imports - commodities: Crude oil, precious stones, machinery, fertilizer, iron and steel, chemicals

· Imports - partners: China 12.4%, UAE 6.5%, Saudi Arabia 5.8%, US 5.7%, Australia 4.5% (2010)

· Reserves of foreign exchange and gold: $345.8 billion (31 December 2011) country comparison to the world: 7 $287.1 billion (31 December 2010)

· Debt - external:

$267.1 billion (31 December 2011)

country comparison to the world: 30

$251.9 billion (31 December 2010)

· Stock of direct foreign investment - at home:

$225 billion (31 December 2011) Country comparison to the world: 21

$188.6 billion (31 December 2010)

· Stock of direct foreign investment - abroad:

$114.2 billion (31 December 2011) Country comparison to the world: 25

$91.86 billion (31 December 2010)

· Exchange rates:

Indian rupees (INR) per US dollar -

50.05(2012) 44.64 (2011) 45.726 (2010) 48.405 (2009) 43.319 (2008) 41.487 (2007)

UNION BUDGET 2012-13 was presented by the Finance Minister of India Shri. Pranab Mukherjee on 16th March, 2012.

· For Indian economy, recovery was interrupted this year due to intensification of debt crises in Euro zone, political turmoil in Middle East, rise in crude oil price and earthquake in Japan.

· GDP is estimated to grow by 6.9 per cent in 2011-12, after having grown at 8.4 per cent in preceding two years.

· India however remains front runner in economic growth in any cross-country comparison.

· Monetary and fiscal policy response for better part of past 2 years aimed at taming domestic inflationary pressure.

· Growth moderated and fiscal balance deteriorated due to tight monetary policy and expanded outlays.

· Indicators suggest that economy is turning around as core sectors and

manufacturing show signs of recovery.

· At this juncture, it is necessary to take hard decision to improve macroeconomic environment and strengthen domestic growth drivers.

· Twelfth Five Year Plan to be launched with the aim of “faster, sustainable and more inclusive growth”. Five objectives identified to be addressed effectively in ensuing fiscal year.

· If India can build on its economic strength, it can be a source of stability for world economy and a safe destination for restless global capital.

An Overview:

· GDP growth estimated at 6.9 per cent in real terms in 2011-12. Slowdown in comparison to preceding two years is primarily due to deceleration in industrial growth.

· Headline inflation expected to moderate further in next few months and remain stable thereafter.

· Steps taken to bridge gaps in distribution, storage and marketing systems have helped in more effective management of inflation.

· Developments in India’s external trade in the first half of current year have been encouraging. Diversification in export and import market achieved.

· Current account deficit at 3.6 per cent of GDP for 2011-12 and reduced net capital inflow in the 2nd and 3rd quarters put pressure on exchange rate.

· India’s GDP growth in 2012-13 expected to be 7.6 per cent +/- 0.25 per cent


· Some subsidies, while being inevitable, may become undesirable if they compromise the macroeconomic fundamentals of economy.

· Subsidies related to administering the Food Security Act will be fully provided for.

· Endeavour to keep central subsidies under 2 per cent of GDP in 2012-13. Over next 3 year, to be further brought down to 1.75 per cent of GDP.

· Based on recommendation of task force headed by Shri Nandan Nilekani, a mobile-based Fertilizer Management System has been designed to provide end to-end information on movement of fertiliser and subsidies. Nation-wide roll out during 2012.

· All three public sector Oil Marketing Companies have launc