UNION BUDGET2012-13

E c o n o m i c A ffa i r s a n d R e se a r c h D i v i si o n

UNION BUDGET

HIGHLIGHTS

Fiscal deficit projected at 5.1% of GDP in 2012-13: Based on a projected buoyancy in non-tax revenue and indirect taxes The nominal growth rate of GDP is expected to be 14% for 2012-13: This translates into a 6.5% inflation rate, assuming a 7.6% GDP projection in the next fiscal Exemption limit for general category of individual taxpayers has been raised from Rs1.8 lakh to Rs 2 lakh Growth impulse could be dampened by the 2% hike in excise duty and service tax: These hikes are expected to add to inflationary pressures and would work against budget expectations of lower inflation Over the medium term, the Government believes to bring down fiscal deficit further and has targeted a reduction in fiscal deficit to 4.5% by FY2014 and 3.9% by FY2015: Fiscal consolidation will remain a challenge Budget targets to contain the central subsidies under 2% of GDP in 2012-13: It will be a difficult task Gross market borrowings will finance 93% of the fiscal deficit in 2012-13: Indication of government borrowing to finance non-plan expenditures The Government did not enunciate any actionable roadmap for implementation of either the GST or the DTC No revival of investment allowance, no restoration of tax exemption on dividend income or capital gains for infrastructure capital fund / company and no hike in depreciation rate in budget Reduction in withholding tax on interest payable on External Commercial Borrowings (ECBs) in certain sectors and extension of concessional tax treatment on the repatriation of overseas dividends are welcome: The raising of the ECB limit for infrastructure sector will also encourage investment in the sector. The removal of cascading impact of DDT, which was recommend by FICCI is most welcome. The extension of tax benefit period for companies engaged in in-house R&D activities may also provide some relief to the companies. Provision of extension of 200% weighted deduction for R&D expenditure is specially welcome as it has been announced for a period of 5 years 150% weighted deduction for agricultural extension will hopefully encourage private sector investment in agriculture and raise crop yields For the power sector besides access to low cost funds the Budget has also extended the sunset date by one year until March 31, 2013 by claiming 100% deduction of profits for 10 years along with an additional distribution of 20%. This measure would encourage investment in power generation.

UNION BUDGET MACROVIEW

FICCI had ex pec ted and r ec om m ended that the budget would inc lude m eas ures f or prom oting inves tm ent led gr owth. T his was s pec ially reques ted in the c ontex t of ongoing s lowdown of ec onom ic gr owth whic h c ould be lower than 6.9% in 2011 - 12. T he nom inal gr owth r ate of G DP is ex pec ted to be 14% f or 2012 - 13. T his trans lates into a 6.5% inf lation r ate, as s um ing a 7.6% G DP proj ec tion in the nex t f is c al. It is not c lear if the higher gr owth r ate wo uld s ee a s trong revival of the m anuf ac turing s ec tor. T he G over nm ent has budgeted a f is c al def ic it target of 5.1% of G DP in FY2013 as agains t an es tim ated 5.9% of G DP (was budgeted at 4.6% of G DP) in FY2012.T his is bas ed on a pr oj ec ted buoyanc y in non - tax revenue (32% budgeted growth in 2012 - 13 agains t a 5 year c om pounded annual growth rate/ CAG R at 6.1%) , bas is Rs 40,000 c rore s pec tr um pr oc eeds in nex t f is c al. Net tax revenue to Centre is proj ec ted to c lim b by 20.1% ( 5 year CAG R at 9.9%). Net tax revenue in turn is bas ed on es tim ated buoyanc y in indir ec t tax es ( ex c is e tax proj ec ted to grow by a s harp 29%, agains t a 5 year CAG R at 5% and s er vic e tax es at 30.5% agains t a 5 year CAG R at 16.7%). T he G over nm ent has tak en s everal m eas ures to augm ent indirec t t ax es . O n the s ervic es tax f r ont, the tax bas e has been inc reas ed through the introduc tion of the negative lis t. T he lis t now c ontains 17 item s , whic h im plies that every other s ervic e would be tax ed. Apar t f r om this , there is a propos al to rais e the s ervic e tax rate to 12% f rom 10% ear lier , br inging it to the pre - c ris is level. O n the ex c is e duty f r ont, the s tandard rate on non - petroleum goods is propos ed to be inc reas ed to 12%. It had been reduc ed to 8% during the peak of the las t global f inanc ial c r is is an d s inc e then th e G overnm ent has been rolling it bac k in s tages . It has been pr opos ed that c us tom s duty on gold bars , c oins and platinum would be inc reas ed f r om 2% to 4%. Duty on nons tandard gold is to be doubled to 10% f rom 5% earlier. Ex c is e duty on gold has als o been inc reas ed to 3% f rom 1.5% earlier. T he G over nm ent did not enunc iate any ac tionable roadm ap f or im plem entation of either the G ST or the DT C . G rowth im puls e c ould be dam pened by the 2% hik e in ex c is e duty and s ervic e tax . T hes e hik es ar e ex pec ted to add to inf lationary pres s ure and would work agains t budget ex pec tations of lower inf lation. As f ar as per s onal inc om e tax es are c onc erned, the ex em ption lim it f or general c ategory of individual tax payer s has been rais ed f rom Rs 1.8 lak h to Rs 2 lak hs . O ver the m edium ter m , the G overnm ent believes to bring down f is c al def ic it f urther and has tar gete d a r educ tion in f is c al def ic it to 4.5% by FY2014 and 3.9% by FY2015. FICCI believes f is c al c ons olidation would c ontinue to be one of the m aj or c hallenges . T he dis inves tm ent tar get at Rs 30,000 c rores is an am bitious one. Additionally, as m entioned ear lie r , the budgeted s pec trum proc eeds at Rs 40,000 c rores f or the nex t f is c al as s um es will be dif f ic ult to ac hieve. T he G over nm ent has als o pr opos ed rationalis ation of tax provis ions that ac c rues f rom overs eas tr ans f er of s har es holding underlying as s ets in India. T he propos ed rationalis ation will ef f ec t r etr os pec tively f rom April 11962. FICCI believes that any polic y c hanges s hould always be f orward look ing and not with retros pec tive im pac t as it hurts the inves tm ent c lim ate and the bus ines s s trategies f or the inves tors .

UNION BUDGET

T able 1: Budget at a glance ( Rs crore and as a % of G DP)

2008-09 1 Revenue Receipts a. b. Tax Revenue (net to centre) Non-Tax Revenue 2009-10 2010-11 2011-12-RE 2012-13-BE

540,259
9.7%

572,811
8.9%

788,471
10.3%

766,989
8.6%

935,685
9.2%

Growth Rate 22.0 20.1 32.0 0.6 -18.3 93.6 -1.6 13.1 8.7 6.1 16.0 36.6 22.1 21.5 25.0 13.1 10.7

CAGR 10 CAGR 5 yrs yrs 14.2% 9.1% 16.7% 6.2% 13.1% -9.3% 19.4% 15.3% 13.7% 12.8% 13.2% 9.9% 25.9% -4.1% 21.9% 27.1% 13.7% 16.3% 9.9% 5.1% 34.1% 29.3% -20.5% 42.4% 16.6% 15.1% 18.0% 12.7% 33.5% -21.9% 25.2% 82.1% 16.6% 22.0%

443,319
7.9%

456,536
7.1%

569,869
7.4%

642,252
7.2%

771,071
7.6%

96,940
1.7%

116,275
1.8%

218,602
2.8%

124,737
1.4%

164,614
1.6%

1 Capital Receipts (5+6+7)$ 2.a. 2.b. 2.c. Recoveries of Loans Other Receipts Borrowings and other liabilities*

343,697
6.2%

451,676
7.0%

408,857
5.3%

551,730
6.2%

555,241
5.5%

6,139
0.1%

8,613
0.1%

12,420
0.2%

14,258
0.2%

11,650
0.1%

566
0.0%

24,581
0.4%

22,846
0.3%

15,493
0.2%

30,000
0.3%

336,992
6.0%

418,482
6.5% 15.9%

373,591
4.9%

521,980
5.9%

513,590
5.1%

3 Total Receipts (1+4) 4 Non-Plan Expenditure 4.a 4.a.1 4.b On Revenue Account of which, Interest Payments On Capital Account

883,956 1,024,487
15.8%

1,197,328
15.6%

1,318,720
14.8%

1,490,925
14.7%

608,721
10.9%

721,096
11.2%

818,299
10.7%

892,116
10.0%

969,900
9.5%

559,024
10.0%

657,925
10.2%

726,491
9.5%

815,740
9.2%

865,596
8.5%

192,204
3.4%

213,093
3.3%

234,022
3.0%

275,618
3.1%

319,759
3.1%

49,697
0.9%

63,171
1.0%

91,808
3.0%

76,376
3.1%

104,304
3.1%

5 Plan Expenditure 5.a. 5.b. On Revenue Account On Capital Account

275,235
4.9%

303,391
4.7%

379,029
1.2%

426,604
0.9%

521,025
1.0%

234,774
4.2%

253,884
3.9%

314,232
4.9%

346,201
4.8%

420,513
5.1%

40,461
0.7%

49,507
0.8% 15.9%

64,797
4.1%

80,404
3.9%

100,512
4.1%

6 Total Expenditure (9+13) 6.a Revenue Expenditure (10+14)

883,956 1,024,487
15.8%

1,197,328
0.8%

1,318,720
0.9%

1,490,925
1.0%

793,798
14.2%

911,809
14.1%

1,040,723
15.6%

1,161,940
14.8%

1,286,109
14.7%

Of Which, Grants for 6.a.1 creation of Capital Assets 6.b. Capital Expenditure (12+15)

87,487 90,158
1.6%

137,505 156,780
1.5%

164,672 204,816
1.6% 19.8 30.6 7.0% 4.2% 3.8% 31.4%

112,678
1.7%

156,605
1.1%

7 Revenue Deficit (17-1) 8 Effective Revenue Deficit (17-18)# 9 Fiscal Deficit {16-(1+5+6)} 10 Primary Deficit (20-11)

253,539
4.5

338,998
-5.2

252,252
-3.3

394,951
-4.4

350,424
-3.4

164,765
-2.1

257,446
-2.9

185,752
-1.8

-27.8 -1.6 -21.3 15.3% 27.7% 42.4% na

336,992
6

418,482
-6.4

373,591
-4.9

521,980
-5.9

513,590
-5.1

144,788
2.6

205,389
-3.1

139,569
-1.8

246,362
-2.8

193,831
-1.9

Memoranda Nominal GDP Growth rate 5,582,623 6,457,352 7,674,148 8,912,178 10,159,884 Growth 12.0 15.7 18.8 16.1 14.0 Source: Budget documents N o t e : F i g u r e s b e l o w t h e e s t i m a t e s a r e e xp r e s s e d a s a % o f G D P

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T able 2: Direct and Indirect t axes (Rs crore and as a % of G DP)

2012-13 vis--vis 2011-12 growth CAGR 10 CAGR 5 rates yrs yrs 19.5% 17.2% 11.0%

2008-09 1 Gross Tax Revenue 2 Direct Tax 2.a. 2.b. Corporation Tax Taxes on Income Other than Corporation Tax 213,395 3.8% 106,046 1.9% 3 Indirect Taxes 3.a. 3.b. 3.c. Customs Union Excise Duty Service Tax 99,879 1.8% 108,613 1.9% 60,941 605,299 10.8%

2009-10 624,528 9.7% 244,725 3.8% 122,475 1.9% 83,324 1.3% 102,991 1.6% 58,422

2010-11-RE 2011-12-BE 786,888 10.3% 296,377 3.9% 141,566 1.8% 131,800 1.7% 137,263 1.8% 69,400 901,664 10.1% 327,680 3.7% 166,679 1.9% 153,000 1.7% 150,075 1.7% 95,000

2012-13 1,077,611 10.6% 373,227 3.7% 189,866 1.9% 186,694 1.8% 193,729 1.9% 124,000

13.9% 13.9%

24.3% 18.3%

14.2% 12.9%

22.0% 29.1% 30.5%

14.6% 6.9% 41.7%

10.1% 5.0% 16.7%

1.1%

0.9%

0.9%

1.1%

1.2%

Source: Budget docum ents N o t e : F i g u r e s b e l o w t h e e s t i m a t e s a r e e xp r e s s e d a s a % o f G D P

It m ight als o be noted that the c apital ex penditure is budgeted to go up by 31% in the year 2012 - 13. But the gr owth in non - plan c apital ex penditure is es tim ated to be m uc h higher than the gr owth in plan c apital ex penditure. Henc e an im petus to growth through pum p pr im ing c apital ex penditure is dif f ic ult to envis age . T able 3: Expendit ure t rends ( Rs crore and as a % of G DP)
1 Non Plan Expenditure 1.a. Interest payments 1.b. Defence Expenditure 1.c. Subsidies 1.d. Other Non Plan Expenditure 2 Plan expenditure 2.a. on Revenue Account 2.b. on Capital Account 3 Total Expenditure 3.a. on Revenue Account 3.b. on Capital Account 2008-09 608,721 10.9% 192,204 3.4% 114,223 2.0% 129,708 2.3% 172,586 3.1% 275,235 4.9% 234,774 4.2% 40,461 0.7% 883,956 15.8% 793,798 14.2% 90,158 1.6% 2009-10 721,096 11.2% 213,093 3.3% 141,781 2.2% 141,351 2.2% 224,871 3.5% 303,391 4.7% 253,884 3.9% 49,507 0.8% 1,024,487 15.9% 911,809 14.1% 112,678 1.7% 2010-11 818,299 10.7% 234,022 3.0% 154,117 2.0% 173,420 2.3% 256,740 3.3% 379,029 4.9% 314,232 4.1% 64,797 0.8% 1,197,328 15.6% 1,040,723 13.6% 156,605 2.0% 2011-12-RE 892,116 10.0% 275,618 3.1% 170,937 1.9% 216,297 2.4% 229,264 2.6% 426,604 4.8% 346,200 3.9% 80,404 0.9% 1,318,720 14.8% 1,161,940 13.0% 156,780 1.8% Growth CAGR 10 2012-13 BE Rate yrs 969,900 8.7% 12.8% 9.5% 319,759 16.0% 9.9% 3.1% 193,407 13.1% 13.3% 1.9% 190,015 -12.2% 19.5% 1.9% 266,719 16.3% 11.7% 2.6% 521,025 22.1% 16.1% 5.1% 420,513 21.5% 19.1% 4.1% 100,512 25.0% 8.1% 1.0% 1,490,925 13.1% 13.8% 14.7% 1,286,109 10.7% 14.7% 12.7% 204,816 30.6% 8.6% 2.0% CAGR 5 yrs 15.1% 12.7% 16.9% 32.1% 7.1% 20.1% 18.8% 26.4% 16.6% 18.2% 7.3%

Source: Budget documents N o t e : F i g u r e s b e l o w t h e e s t i m a t e s a r e e xp r e s s e d a s a % o f G D P

T hough the budget tar gets to c ontain the c entral s ubs idies under 2 % of G DP in 2012 13, and br inging them down f r om the c urrent 2.4% will not be eas y. T his is bec aus e 4

UNION BUDGET
im plem entation of f ood s ec ur ity bill will alone am ount to a m inim um of 0.7% of G DP and c ould be as high as 1.5% of G DP. W e believe that the es tim ates of f ood s ubs idy m ay have a downwar d bias , as it does not inc lude s ubs idy s torage and trans port, leak age c os ts etc ( f ood s ubs idy is proj ec ted to inc reas e by only 3% in 2012 - 13, agains t a 5 year CAG R at 22.1%) Als o, the budgeted f igures f or oil s ubs idy indic ate a dec line by about 12% or Rs 24,901 c rores . H owever there has been no word on the propos ed der egulation of the s ec tor or an inc reas e in dies el pric es . W e hope that the m uc h requir ed der egulation of the petroleum s ec tor is tak en f orward in the right earnes t. T able 4: Subsidy t rends ( Rs crore and as a % of G DP)
2012-13 vis--vis 2011-12 growth CAGR 10 CAGR 5 rates Years Years -12.2% -9.3% 3.0% -36.4% 37.6% 24.5%

2008-09

2009-10 141,351 2.2% 61,264 0.9% 58,443 0.9% 14,951 0.2% 2,686 0.0% 4,006 0.1%

2010-11 173,420 2.3% 62,301 0.8% 63,844 0.8% 38,371 0.5% 4,680 0.1% 4,223 0.1%

2011-12 RE 2012-13 BE 216,297 2.4% 67,199 0.8% 72,823 0.8% 68,481 0.8% 5,791 0.1% 2,002 0.02% 190,015 1.9% 60,974 0.6% 75,000 0.7% 43,580 0.4% 7,968 0.1% 2,493 0.02%

1 Total Subsidies 1.a. 1.b. 1.c. 1.d. 1.e.

Fertiliser Subsidy Food Subsidy Petroleum Subsidy Interest Subsidies Other Subsidies

129,708 2.3% 76,602 1.4% 43,751 0.8% 2,852 0.1% 3,493 0.1% 3,009 0.1%

19.2% 22.3% 13.0% 30.4% 25.2% -1.9%

31.9% 21.4% 22.2% 120.7% 19.6% -0.8%

Source: Budget documents N o t e : F i g u r e s b e l o w t h e e s t i m a t e s a r e e xp r e s s e d a s a % o f G D P

T he gros s m ar k et bor r o wings f or the year 2011 - 12 have been revis ed upwards by 22% f rom Rs 41 71 billion ( BE) to Rs 5100 billion (RE). T his f igure is f urthe r ex pec ted to go up to Rs 5696 billion in 2012- 13. Suc h a high level of borrowing will c ontinue to ex ert pres s ure on inter es t r ates . Apart f rom dated s ec urities , the G overnm ent is als o s c heduled to bor r ow Rs 900 billion through t reas ury bills . However the dec reas e in interes t rates on EPFs is an enc ouraging m ove . T able 5: G ov ernment Borrow ings (Rs crore and as a % of G DP)
2012-13 vis--vis 2011-12 growth CAGR 10 CAGR 5 2011-12 RE 2012-13 BE rates yrs yrs 510,000 5.7% 73,586 0.8% 436,414 4.9% 569,616 5.6% 90,616 0.9% 479,000 4.7% 9.8% 18.1% 34.9% 23.1% 11.6% 19.3% 11.7% 16.9% 32.0%

2008-09 Gross Market Borrowings Less repayments Net Market Borrowings 273,000 4.9% 39,370 0.7% 233,630 4.2%

2009-10 451,000 7.0% 52,576 0.8% 398,424 6.2%

2010-11 437,000 5.7% 111,586 1.5% 325,414 4.2%

Source: Budget documents N o t e : F i g u r e s b e l o w t h e e s t i m a t e s a r e e xp r e s s e d a s a % o f G D P

Interes tingly, as table 6 s hows , the huge inc reas e in gros s borrowings f or the governm ent in 2012 - 13 m ay c r owd out c redit to private s ec tor. For ex am ple, the ratio of gros s bor r owings to non - f ood c r edit in 2011 - 12 was 1. 14 indic ating that f or every rupee of non- f ood c r edit , ther e is a c onc om itant borrowing of Rs 1.14 by the G overnm ent. Inter es tingly, the r atio of redem ption to gros s borrowings (indic ating f or every rupee o f G over nm ent borrowing, the am ount that is going purely to repay 5

UNION BUDGET
previous gover nm ent debt ) was 43 pais e in 2004 - 05, that had dec lined to 16 pais e in 2012- 13. By this logic , the governm ent borrowings s hould have dec lined in 2012 - 13. However, in c ontr as t, in the nex t f is c al, the m ark et borrowings will f inanc e 93% of the f is c al def ic it as c om par ed to 84% las t year. T his c learly indic ates that the G overnm ent is now bor r owing pur ely to f inanc e non - plan ex penditure, as revenue growth has dec elerated in the las t c ouple of years . T able 6: G ross borrow ings, crow ding out and redempt ion Gross Redemption Borrowing/ / Gross Non Food Market Credit Borrowings
2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13
Source: Budget documents

0.88 1.03 0.29 0.37 0.35 0.39 0.66 0.97 0.64 1.14

0.22 0.35 0.43 0.27 0.24 0.22 0.14 0.12 0.26 0.14 0.16

UNION BUDGET SECTOR ANALYSIS

T able 7 gives us an im pac t of budget on the dif f erent s ec tors . As c an be s een f rom the table, m os t of the i s s ues whic h were in the wis h lis t have not been f ulf illed. Sec tors lik e ins uranc e, r etail, war ehous ing, environm ent & c lim ate c hange and c hem ic al are the ones wher e is s ues have not been addres s ed ex tens ively . A m ore detailed im pac t of the budget has been pr ovided below bas ed on dif f erent s ec tors . T able 7: FICCIs Scorecard of W ish list & Budget Impact
Wish-list Sector No of wishes 15 6 & 3 3 8 3 7 21 4 8 1 1 4 5 1 4 Addressed 2 1 Not Addressed 13 5 3 3 8 2 3 16 3 4 1 1 3 5 & 10 8 2 4 11 7 3 4 4 1 7 145 3 3 3 1 2 1 7 45 100 53 21 3 2 2 5 10 6 2 4 8 4 5 4 2 10 1 3 2 1 4 5 7 2 2 1 7 Budget Impact +ve 7 3 -ve 1 1 2

Chemical FMCG Energy, Defense Aerospace Oil & Gas Retail Medical Devices Technical Textiles Warehousing MSME Power Infrastructure Homeland Security ICT Agriculture Environment Climate change Textiles Gems & Jewellery Wellness Health Human Resource Banking Insurance & Pensions Health Insurance Microfinance Capital Markets Total

Source: FICCI Research F o o t n o t e : c o u n t s o f A d d r e s s e d a n d N o t A d d r e s s e d wi s h - l i s t a d d s u p t o t h e n u m b e r o f wi s h e s m a d e i n e v e r y s e c t o r . H o we v e r , c o u n t s f o r B u d g e t I m p a c t wi l l n o t a d d u p t o t h e n u m b e r s o f wi s h e s a s r e s t o f the impact are neutral

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Agriculture

The budget has plac ed a m aj or em phas is on agric ulture by way of announc ing
right polic ies that would ens ure m ore inves tm ents in agric ulture ex tens ion, developm ent of agr i m ar k eting inf ras truc tur e, inc reas ing agri c redit availability to the f ar m er s , etc . FICCI welc om es thes e initiatives , as they will give a big pus h to agr ic ultur e gr owth

T he long s tanding dem and of FICCI that 150 per c ent weighted deduc tion of ex penditur e be ex tended to inves tm e nts m ade in the ex tens ion s ervic es has been c ons ider ed. T his is a very pos itive m ove as it will lead to m ore inves tm ents by the pr ivate s ec tor in agric ulture ex tens ion, whic h will res ult in inc r eas ing yields . T he gover nm ent has c ons idered FICCIs s ugges tion to ex tend interes t s ubvention f or pos t har ves t loans agains t warehous e rec eipts . T his will reduc e the dis tr es s s elling by the f arm ers . FICCI als o welc om es the dec is ion to enhanc e the inves tm ent link ed deduc tion f or war ehous es and c old s torages to 150 per c ent. T his would attrac t large private inves tm ents in the c old c hain ac ros s the c ountry whos e dem and f ar outs tr ips the pr es ent handling c apac ity. T he enhanc ed c old c hain and war ehous ing f ac ilities would im m ens ely c ontribute to the governm ent c of f ers as thes e would r educ e hor tic ultural produc e was tages to an ex tent of 30 %. Apart, s ignif ic ant alloc ation was m ade f or inc reas ing the warehous ing c apac ity in the c ountr y. Sever al announc em ents m ade on indirec t tax es f ront by way of reduc tion in im por t duty on f ar m equipm ent, green hous es , water s oluble f ertilizers would als o r es ult in lower input c os ts f or f arm ers . G over nm ents dec is ion to s et up a c om pany to f inanc ing m inor irrigation work s and inc luding ir r igation pr oj ec ts under v iability gap f unding is an innovative as it would enc our age s ever al private c om panies to enter into the bus ines s of developing ir r igation f ac ilities . Rs 200 c r or e f or Res earc h Rewards break thr oughs is yet another innovativ e gover nm ent f or agric ultural res earc hers f or polic y approac h adopted by the

Chemicals An es tim ated 40 % of the f r uit and vegetable produc tion in India goes was te due to lac k of s tor age, c old c hain and trans port inf ras truc ture. T o addres s thes e is s ues , dur ing 2011 - 12, approval is being given to s et up 15 m ore Mega Food Par k s . Spec ialty c hem ic als will be part of this f ac ilitation. T o attr ac t inves tm ent in this s ec tor, henc ef orth, c apital inves tm ent in the c reation of m oder n s tor age c apac ity will be eligible f or viability gap f unding s c hem e of the Financ e Minis try. It is als o p ropos ed to rec ognize c old c hains and pos t - har ves t s tor age as an inf ras truc ture s ub - s ec tor. In or der to give a boos t to inf ras truc ture developm ent in railways , ports , hous ing and highways developm ent, tax f ree bonds of Rs 30,000 c rores to be is s ued by var ious G over nm ent undertak ings in the year 2011 - 12. T his inc ludes Indian 8

UNION BUDGET
Railway Financ e Cor por ation Rs 10,000 c rores , National Highway Author ity of India Rs 10,000 c r or es , HUDCO Rs 5,000 c rores and Ports Rs 5,000 c rores . Polic y ex pec ts to tak e the s hare of m anuf ac turing in G DP f rom about 16 % to 25% over a per iod of ten years . A G roup of Minis ters has been s et up to c ons ider all is s ues r elating to rec onc iliation of environm ental c onc erns em anating f r om var ious departm ental ac tivities inc luding thos e relat ed to inf r as tr uc tur e and m ining. T his G roup will als o s ugges t c hanges in the ex is ting s tatutes , r ules , r egulations and guidelines and m ak e its rec om m endations in a tim e bound m anner . T his will benef it the c hem ic al indus try als o. W eighted deduc tion on paym ents m ade to National Laboratories , univer s ities and Ins titutes of tec hnology, f or s c ienti f ic res earc h, enhanc ed f rom 175 % to 200%. Mic r o- ir r igation is an environm ent - f riendly and ef f ic ient m eans of irrigation es pec ially f or dr y land f ar m ing. I t is propos ed to reduc e the bas ic c us tom s duty on m ic r o- ir r igation equipm ent f rom 7.5 % to 5%. T his is an opportunity f or the Plas tic s indus tr y. Full ex em ption f r om bas ic c us tom s duty and a c onc es s ional CVD of 1% to s team c oal f or a per iod of two years till Marc h 31, 2014

FM CG Direc t tax : Ex em ption lim it of pers onal inc om e tax inc reas ed, will be leading to augm entation in the dis pos able inc om e: Should give s tim ulus to the dem and of FMCG pr oduc ts . Cas c ading ef f ec t of dividend dis tribution tax rem oved: T o benef it Ind ian MNCs G ST networ k ex pec ted im plem entation tim eline. to roll out by Augus t 2012: No c larity on the

Standar d r ate of ex c is e inc reas ed f rom 10 % to 12%, the m erit rate f rom 5 % to 6%, and the lower m er it rate f rom 1 % to 2%: c ould lead to inc reas e in the produc t pr ic e and would have inf lationary im pac t Inc r eas e in bas ic ex c is e duty on c igarettes of m ore than 65m m length by adding an ad valor em c om ponent of 10 % to the ex is ting s pec if ic rates . T he ad valorem duty would b e c har geable on 50% of the Retail Sal e Pric e dec lared on the pac k : Pric es will inc r eas e of c igarettes m anuf ac tured dom es tic ally. Inc r eas e in bas ic ex c is e duty on hand - rolled bidis f rom 8 to 10 per thous and and m ac hine - r olled bidis f rom 19 to 21 per thous and, however ex is ting ex em ption avail able to hand - rolled bidis f or c learanc es up to 20 lak h bidis per annum is being r etained: It is an ef f ort to gain revenue and s truc ture the unor ganis ed s ec tor .

UNION BUDGET
Energy, Def ense and Aerospace T he budget has not addr es s ed any of the is s ues whic h are plaguing the growth of the pr ivate s ec tor in def enc e. No s tep is being tak en in the direc tion of c reating a level playing f ield f or the private s ec tor. Private s ec tor c ontinues to be on an uneven f ooting unable to c om petitively bid agains t the DPSUs and the O EMs owing to the is s ues s uc h as FERV, and uneven tax es and duties . Although the gover nm ent has approved the guidelines f or es tablis hing the j oint ventur e c om panies by def enc e PSUs in PPP m ode, it c ant be c laim ed that s etting of guidelines alone will boos t s e lf relianc e and indigenization. T he guidelines will ens ur e tr ans parenc y in s etting up of J VCs and not direc tives to DPSUs to f or m s J Vs with private s ec tor. As DPSUs order book s are f ull with order s and over f lowing in s om e c as es , the intent to f orm J V in D PSUs is not ther e.

Retail Direc t tax : Ex em ption lim it inc reas ed, although a tok en inc reas e yet will be leading to augm entation in the dis pos able inc om e : Should give s tim ulus to the retail s ales Indir ec t tax : Ser vic e tax inc reas ed f rom 10% to 12%: Foo d s ervic es retailing to have an im pac t; eating out would be ex pens ive. In addition inc reas e in s ervic e tax on r entals of c om m er c ial prem is es would lead to inc reas e in c os t f or the retailer s . DT C def er r ed no c lar ity on G ST tim elines Ef f or ts to c ontinue to build a c ons ens us in c ons ultation with the State gover nm ents . : No f r es h air f or m ulti - brand retailing in this res pec t Inves tm ent link ed deduc tion of c apital ex penditure inc urred in the c old c hain bus ines s is pr opos ed to be provi ded at the enhanc ed rate of 150% , as agains t the c ur r ent r ate of 100% : W ill attrac t inves tm ent in c old c hain inf ras truc ture and im pr ovis e the s upply c hain W eighted deduc tion of 150% on ex penditure inc urred f or agri - ex tens ion s ervic es whic h will tr ic k le down to give boos t to f ood retailing s ec tor as well Conc es s ional im por t duty to be available f or ins tallation of Mec hanis ed Handling Sys tem s and Pallet Rac k ing Sys tem s in m andis or warehous es f or hortic ultural produc e: Mec hanis ation would lead to reduc tion in was tage

M edical Dev i ces T he im pac t of c us tom d uty reduc tion will be f ar reac hing in c utting down the c os ts of m edic al devic es and equipm ents where titanium diox ide is us ed as an input.

T echnical T ext iles T he us e of r ight m ix of f ibr e as is the trend worldwide 10

UNION BUDGET
Lik ely to enc o ur age m anuf ac turing of tec hnic al tex tiles item s lik e bullet proof helm ets in the c ountr y and m ak ing them c om petitive G eo- tex tiles m anuf ac tur ing will get a boos t in the c ountry if the dom es tic ally produc ed item s ar e enc our aged under the Rs 500 c rores s c hem e announc ed f or Nor th- Eas t f or applic ation of geo - tex tiles R&D is m us t f or tec hnic al tex tiles , henc e the budget will have s alutary im pac t on the s ec tor G reen hous e c over s c an be im ported at bas ic im port duty of 5% now as agains t 10%. May dis inc entive lo c al m anuf ac turing here W eaving is weak link in the tex tiles value c hain and needs to be m odernis ed. Henc e, c us tom duty ex em ption on s huttles loom s will help the s ec tor in upgr ading the tec hnology

W arehousing T he pr opos al f or s etting up the national f ood Proc es s ing Mis s ion is a welc om e m ove whic h will def initely c ontribute to enhanc ed growth of the s ec tor on ac c ount of im pr oved c entr e s tate c oordination and ex ec ution of polic ies . T he inc r eas e in ex c is e duty ac r os s c ategories ranging f rom 1 - 2% will c ontrib ute to inf lationar y pr es s ur es and we s eek a roll bac k . Sinc e the indus try is low m ar gin and high volum e the roll bac k bec om es even m ore pertinent. Enhanc em ent in inves tm ent link ed deduc tion of c apital ex penditure towards c old c hain f ac ility, war ehous es i s a pos itive m ove towards inc entivizing f low of m oney in thes e ar eas . Creation of 2 m illion tonnes of s torage c apac ity in the f orm of m odern s ilos has already been appr oved. Nearly 15 m illion tonnes c apac ity is being c reated under the Pr ivate Entr epr eneu r s G uarantee Sc hem e, of whic h 3 m illion tonnes of s tor age c apac ity will be added by the end of 2011 - 12 and 5 m i llion would be added nex t year T he r educ tion in c us tom s duty on probiotic s and Soya protein c onc entrate and is olated s oya pr otein as well as re duc tion in ex c is e duty on all proc es s ed s oya f ood pr oduc ts , as als o the reduc tion in c onc es s ional bas ic c us tom s duty along with r educ ed ex c is e duty of 6 % on iodine, is a s tep in the right direc tion towar ds ac hieving nutr ition and health goals

M SM E Inc r eas e in Com puls or y audit lim it of s m all bus ines s will help c urtail c os t of hiring auditor s / legal ex per ts In or der to enhanc e availability of equity to MSME s ec tor, s etting up of Rs . 5,000 c r or es India O ppor tunities Venture Fund with SIDBI is a welc om e s te p. T his will help MSMEs f unding requirem ent during their s tart- up as well as growth s tage

11

UNION BUDGET
For the year 2012 - 13, tax - f ree bonds f or Rs . 5000 c rores were announc ed f or f inanc ing in f r as tr uc tur e pr oj ec ts f or SIDBI In addition to 4 m ega handloom c lus ters alre ady operationalis ed, the announc em ent of two m or e m ega c lus ters , one to c over Prak as am and G untur dis tr ic ts in Andhr a Pr ades h and the other f or G odda and neighbouring dis tric ts in J har k hand is a welc om e m ove f or prom oting c lus ter developm ent f or MSMEs . Als o pr oviding as s is tanc e in s etting up of dorm itories f or wom en work ers in the 5 m ega c lus ter s r elating to handloom , power loom and leather s ec tors would inc r eas e em ploym ent opportunities f or wom en. T he alloc ation f or Pr im e Minis ters Em ploym ent G eneration Program m e ( PMEG P) has been inc r eas ed by 23% f rom Rs . 1,037 c rore in 2011 - 12 to Rs . 1,276 c r or e in 2012 - 13. T his would eventually help in broadening entr epr eneur s hip bas e and thereby inc reas ing the em ploym ent opportunity in the MSME s ec tor . In or der to pr o vide im petus to the MSME engaged in produc tion of low - c os t m edic al devic es , a r educ ti on on bas ic c us tom s duty to 2.5% with c onc es s ional CVD of 6% on s pec if ied parts , c om ponents and raw m aterials f or the m anuf ac tur e of s om e dis pos ables and ins trum ents was a nnounc ed. Als o, f ull ex em ption f r om bas ic c us tom s duty and CVD is als o being ex tended to s pec if ied raw m ater ials f or the m anuf ac ture of c oronary s tents and heart valves . T hes e c onc es s ions would be s ubj ec t to ac tual us er c ondition. T his announc em ent will help Indian m anuf ac tur er s to bring out indigenis ed produc ts at low c os t.

Pow er Fuel r ef or m s : G over nm ents apprec iation f or the c onc erns of power s ec tor s tak eholder s par tic ular ly pertaining to the f uel is s ues is welc om e. T he ef f orts s tar ted by PMO by m anda ting Coal India Lim ited to s ign Fuel Supply Agr eem ents ( with under tak ings having s igned the PPAs and lik ely to c om m is s ion bef or e or by Marc h 31, 2015). T hes e have been f urther enhanc ed by f ull ex em ption of bas ic c us tom s duty and a c onc es s ional CVD of 1% on s team c oal f or a per iod of 2 years till Marc h 2014. O ther f uels us ed f or power gener ation s uc h as natural gas and LNG , uranium have als o been f ully ex em pted f r om bas ic c us tom s duty. T he propos ed c ons titution of an inter m inis ter ial gr oup to under tak e peri odic review of the alloc ated c oal m ines and m ak e r ec om m endations on de - alloc ations , if s o required is als o welc om e. T hes e m eas ur es c oupled with f ull ex em ption f rom bas ic c us tom s duty f or c oal m ining proj ec ts will c er tainly m ak e the proc es s m ore ac c ountable and hopef ully lead to greater dom es tic ex plor ation of c oal. Financ ing Im per atives : ECBs have been allowed to part - f inanc e Rupee Debt of ex is ting power pr oj ec ts and tax - f ree bonds am ounting INR 10,000 c rores have been pr opos ed f or the power s ec tor. For t he power s ec tor, bes ides ac c es s to low c os t f unds , the Budget has als o propos ed ex tens ion of the s uns et date by one year f or power s ec tor undertak ings s o that they c an be s et up on or bef ore Mar c h 31, 2013 f or c laim ing 100% deduc tion of prof its f or 10 year s . Additional depr ec iation of 20% in the initial year is propos ed to be ex tended to new as s ets ac quir ed by power gener ation c om panies . T he dec is ion to rem ove the c as c ading ef f ec t of Dividend Dis tr ibution T ax is als o welc om e.

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UNION BUDGET
Homeland Securit y Ef f or ts to i nc r eas e the availability of res idential quarters to f orc es . In 2012 - 13, it is envis aged to c ons tr uc t nearly 4,000 res idential quarters f or Central Arm ed Polic e For c es f or whic h 1,185 c rore s are propos ed to be alloc ated A pr ovis ion of 3,280 c r or es f or 2012 - 13 has als o been m ade f or c ons truc tion of of f ic e buildings inc luding land ac quis ition and barrac k s to ac c om m odate 27,000 per s onnel. T his will pr ovide better work ing environm ent and inc entive f or people to s er ve in var ious f or c es .

ICT Need to get f ur ther elabor ation on the viability gap f unding announc ed f or phone tower s . Som e m obile phone par ts have been ex em pted f rom bas ic c us tom s duty whic h is good news Inc r eas e in s er vic e tax will hit the end c us tom ers in telec om s ec tor, m ore s o when the indus tr y is f ac ing lots of unc ertainty Foc us on e - enablem ent by s tres s ing on enabling e - f iling, e - paym ent of tax es , c om puter ization of c om m er c ial tax es , Creation of online platf orm s etc . All thr ee public s ec tor O il Mark eting Com panies have launc hed trans par en c y por tals to im prove c us t om er s ervic e and reduc e leak age LPG

Mobile- bas ed s ys tem that gives all inf orm ation on f ertilizer and s ubs idies m ovem ents to be r olled out nation - wide is pos itive s tep Us e of Aadhaar as power f ul ef f ec tive tool in ac hieving good gover nanc e and m aintaining tr ans par enc y Endeavour to s c ale up and roll out Aadhaar enabled paym ents f or various gover nm ent s c hem es in at leas t 50 dis tric ts within nex t 6 m onths

Env ironment , Climat e Change & R enew able Energy No c hange in the ex is ting c ondition

T extiles Ex c is e duty on r eadym ade G arm ents f urther reduc ed: Ex c is e duty of 10% is applic able to br anded r eady- m ade garm ents with abatem ent of 55% f rom the Retail Sale Pr ic e. Along with inc reas e in duty to 12%, FM propos es to enhanc e the abatem ent to 70%. As res ult, the inc idenc e of duty as a perc entage of the Retail Sale Pr ic e would c om e down f rom 4.5% to 3.6%.In term s of im pac t, there would be m ar ginal benef it to tex tile c om panies in the higher end of the value c hain Autom ated s huttle loom s ex em pted f ro m c us tom s duty: Fully ex em pt autom atic s huttle - les s loom s f r om bas ic c us tom s duty of 5% would have the pos itive im pac t on weaving indus tr y and s pec ially Denim s ec tor

13

UNION BUDGET
Mor e Handloom c lus ter s : Setting up of two m ore handloom m ega c lus ters , one to c over Pr ak a s am and G untur dis tric ts in Andhra Prades h and other f or G odda and neighbor ing dis tr ic ts in J hark hand in addition to 4 m ega handloom c lus ters already oper ating. T hr ee W eaver 's Ser vic e Centers one eac h in Mizoram , Nagaland and J hark hand to be s et up f or pr oviding tec hnic al s upport to poor handloom weavers Setting up of dor m itor ies f or wom en work ers in the 5 m ega c lus ters relating to handloom , power loom and leather s ec tors Rs 500 c r or es pilot s c hem e in twelf th plan f or prom otion and applic ation of G eo tex tiles in the Nor th Eas t Region Reduc tion of bas ic c us tom s duty on raw m aterials Mega Power loom Clus ter: A Power loom Mega Clus ter will be s et up in Ic halk ar anj i in Mahar as htr a with budget alloc ation of Rs 70 c rores Relief to Silk indus tr y: Full ex em pt ion f rom bas ic duty is being ac c orded to autom atic s ilk r eeling and proc es s ing m ac hinery as well as its parts . It is als o propos ed to r es tr ic t thes e ex em ptions and the ex is ting c onc es s ional rateof bas ic c us tom s duty of 5 % only to new tex tile m ac hinery Sec ond- hand m ac hiner y would now attrac t bas ic duty of 7.5% T o r educ e bas ic c us tom s duty on wool was te and wool tops f rom 15% to 5% T o r educ e bas ic c us tom s duty on T itanium diox ide f rom 10% to 7.5%

G ems & Jew ellery Ex c is e duty s tays at 1% Cus tom duty on G o ld and Platinum duty has been inc reas ed f rom 2% to 4%. T his will af f ec t the end us er, s inc e the duty hik e will be pas s ed on to them Branded Silver J eweller y is ex em pted f rom ex c is e duty; as s uc h there is no branded s ilve r j eweller y available in m ark et

Cut and Polis hed c olor ed gem s s tone to attrac t bas ic c us tom duty of 2% at par with Diam onds . T his will have m arginal im pac t.

Health Inves tm ent link deduc tion of c apital ex penditure f or c ertain bus ines s es inc luding hos pitals pr opos ed to be provi ded at the enhanc ed rate of 150% whic h will inc lude hos pitals . T he m eas ure will inc rem entally inc entivize hos pital penetr ation into tier - II and tier - III c ities . However, the dem and f or Inf r as tr uc tur e Status has not been m et whic h would have a f ar greater im pac t on the ex pans ion of num bers of beds in T ier II - T ier III c ities .

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UNION BUDGET
W ithin the ex is ting lim it f or deduc tion allowed f or health ins uranc e, a deduc tion of up to Rs .5000 is being allowed f or preventive health c hec k ups . o T his would benef it the end c ons um er in a big way; the propos al would lead to m ove towar ds prevention and m anagem ent of dis eas es as als o health c ouns eling ins tead of j us t c urative healthc ar e whic h is the need of the hour Hos pitals and s tandalone diagnos tic s c enters would benef it through s ubs tant ial additional bus ines s . Health ins ur anc e indus try c an als o benef it indirec tly through better ris k pr of iling of c ons um ers and m ore s c ientif ic pric ing in the long run.

o o

Alloc ation f or NRHM pr opos ed to be inc reas ed f rom Rs .18,115 c rores in 2011 12 to Rs .20 ,822 c r or es in 2012 - 13. o Additional f unding will pos itively im pac t various public health initiatives of the G over nm ent at the rural level. National Ur ban Health Mis s ion is being launc hed. o T his will have a pos itive im pac t on inc luding the urban poor in the public health initiatives of the G overnm ent whic h was neglec ted until now

Human Resource G over nm ent has lar gely m is s ed out on the FICCI rec om m endations f or higher educ ation. Ex c ept f or the routine inc reas e in the f und alloc ation f or the s ec tor, ther e has not been any m aj or announc em ent m ade. In f ac t, the budget s peec h f inds no m ention of higher educ ation anywhere, thereby not giving a c lear pic tur e of the am ount alloc ated f or higher educ ation this year. Als o the m uc h awaited im pending Bills on higher educ a tion f ound no plac e in his s peec h whic h would f ur ther aggr avate the anx iety of s tak eholders , m ore s o f rom the f oreign higher educ ation pr ovider s .

Higher Educat ion G over nm ents pr opos al to c reate a Credit G uarantee Sc hem e f or educ ation loans thr ough bank s to ens ure better f low of c redit to des erving and m eritorious s tudents will def initely enhanc e the af f ordability of higher educ ation am ongs t the m iddle and low inc om e groups there by inc reas ing the G ER. T o pr om ote inves tm ent in res earc h and developm ent, t he governm ent has ex tended the weighted deduc ti on of 200% f or R&D ex penditure in an in - hous e f ac ility beyond Mar c h 31, 2012 f or a period of f ive years whic h c ertainly im pac t the R&D gr owth in univer s ities and res earc h c entres . G over nm ents announc em ent o f weighted deduc tion of 150% of ex penditure inc ur r ed on s k ill developm ent in m anuf ac turing s ec tor would partially help in addr es s ing s hor tage of s k illed m anpower in the m anuf ac turing s ec tor and would gener ate em ploym ent. FICCIs initiative of s etting up Na tional Knowledge Func tional Hubs ( NKFH) f or c reating a s us tained m ec hanis m f or indus try ac adem ia link age f oc us ing on c apital goods /m anuf ac turing will gain by

15

UNION BUDGET
attr ac ting c or por ate inves tm ent in the hub. Planning Com m is s ion is als o propos ing to integr ate thi s m odel in the 12th Plan. School Educat ion 21.7% inc r eas e in budget alloc ation ( Rs 25,555 c rores f or 2012 - 13) f or Sarva Shik s ha Abhiyan ( SSA) whic h is being c urrently im plem ented through Right to Educ ation ( RT E) would c ertainly help in m eeting the res our c e c runc h and help in inc r eas ing liter a c y level in the c ountry T he m ention of s etting up 6000 m odel s c hools is one of the elem ents f rom las t year s budget. 2500 m odel s c hools to be built in PPP a f ram ework has not tak en of f due lac k of c ons ens us between t he governm ent and the private s ec tor. Henc e, ther e is an ur gent need by the governm ent to ex pedite the proc es s s o that it f r uc tif ies in the 12th Plan period 29% hik e in f und alloc ation (Rs 3124 c rores ) f or Ras htriya Madhyam ik Shik s ha Abhiyan ( RMSA) whic h was launc hed in 2009 to enhanc e ac c es s to quality s ec ondar y educ ation is a good m ove f orward to arres t s c hool dropout rate at the m iddle s c hool level.

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