Dun & Bradstreet (D&B) has come out with its report on Union

Budget 2011-12.

Union Budget 2011-12:

The Union Budget FY12 has been presented at a time when the Indian
economy is heading towards a high growth trajectory, albeit certain
challenges such as elevated inflation, high Current Account Deficit
(CAD), and moderating growth of industrial production, which have
surfaced in the recent past. At the current juncture, what was required
from the Budget was to address the issue of inflation and support
growth momentum, while maintaining the focus on fiscal consolidation
and continuing ahead on the reform agenda. Increased allocation of
planned resources towards infrastructure projects along with the
proposals to direct foreign funds and private saving towards
infrastructure sector will unlock much of the growth potential of the
sector.

Although the continued thrust on infrastructure along with agriculture

and education sectors is expected to provide significant impetus to
economic growth in the medium-term, measures to control inflation in
the immediate future were missing in the budget announcements.
Having said that, the emphasis on addressing structural concerns such
as weak supply chain linkages, and shortcomings in distribution and
marketing systems of agriculture commodities is expected to provide
long term solution to these issues, which have been contributing to
high inflation in the past. Nonetheless, effective and timely
implementation of proposed initiatives remains the key to tackle these
long pending issues in the agricultural supply chain.

Even as the Budget FY12 reinforces the need for continuation of the
reform agenda, it lacks major announcements on this front. While the
emphasis of the budget on active consideration of a new fertiliser
policy for urea, direct transfer of cash subsidy to BPL people for better
delivery of kerosene, LPG and fertiliser, further liberalisation of the FDI
policy, et al is definitely positive, how these proposals fare on the
implementation front remains to be seen. Rescheduling the
implementation of Direct Tax Code (DTC) and Goods and Service Tax
(GST) by April 2012 does spell out some concerns on the governance
front, but were much anticipated. The decision to propose the revised
Companies Bill in the current parliamentary session and intention to
introduce the National Food Security Bill (NFSB) during the course of
this year are indeed welcome.
On the fiscal deficit front, the budgeted fiscal deficit of 4.6% for FY12,
below the Finance Commission’s target of 4.8% for the same year
reiterates the Government’s commitment on the fiscal consolidation.
This augurs well for India’s growth prospects, given that it enlarges the
resource space for private enterprises.

Fiscal Arithmetic for FY12:

For FY12, total expenditure is budgeted to increase by 3.38% to Rs

12,577.29 bn as compared to the revised estimates (RE) of Rs
12,165.76 bn for FY11. As in the last budget, the Plan expenditure
received a major boost with an allocation of Rs 4,415.47 bn, an
increase of 11.78% over the FY11 RE. The non-plan expenditure,
however, is budgeted to register a marginal decline compared to the
revised estimates of FY11; the expenditure on this front is slated to
decline by 0.65%. The subsidy burden is budgeted to decline by
12.54% during FY12 over FY11 (RE), owing to relatively lower budgeted
fertiliser & petroleum subsidy burden and decline in budgeted
payments to lending institutions against debt waiver and debt relief
scheme for farmers. It is important to note here that if the international
crude oil prices continue to rise unabated, the strain on petroleum
subsidy might increase.

The expectations regarding the economy moving back to the high

growth trajectory of pre-crisis period seem to have guided the revenue
target for FY12. Gross tax revenue for FY12 is budgeted to increase by
17.88% over the FY11 RE, driven by a 19.42% increase in direct tax
revenue coupled with 17.36% increase in revenue from indirect taxes.
On the direct tax front, improvement in corporate profitability along
with marginal increase in the rate of minimum alternate tax (MAT) to
18.5% from 18% is expected to garner higher revenues from the
corporate sector; revenue from corporate tax is budgeted to increase
by 21.46%. Despite the broadening of the income tax slabs, the
personal income tax collection is budgeted to increase by 15.40% in
FY12 over the FY11 RE. Within indirect taxes, revenue from customs
and excise duty is budgeted to increase by 15.10% and 19.12%
respectively. The widening of the service tax gamut to include new
services is expected to augment service tax revenue, which is
budgeted to increase by around 18.16% over the FY11 RE.

Non-tax revenue, on the other hand, is budgeted to record a significant

decline of 43.02% during FY12 compared to the RE of FY11. This
decline is primarily due to substantially higher non-tax revenue
collections during FY11 backed by one-time revenue gain from the 3G
spectrum auction. Disinvestment proceeds, however, will play a role in
augmenting revenue collections; proceeds from ‘disinvestment of
equity in public sector enterprises’ is budgeted to increase to Rs 400
bn in FY12 from Rs 221.44 bn in FY11 RE. Further, market borrowings
are slated to come down by around 6.68% and be around Rs 4,171.28
bn during FY12 as compared to Rs 4,470.00 bn in FY11 RE.

However, in the current scenario, fiscal deficit target though

encouraging seems highly ambitious. Continuing its focus on the fiscal
consolidation, the Budget has set the rolling targets at 4.1% and 3.5%
for FY13 and FY14 respectively. Moreover, the decision to introduce an
amendment to the FRBM Act, laying down the fiscal road map for the
next five years during the course of the year reiterates Government’s
commitment towards fiscal prudence in the years to come.

Agriculture:

• The total plan outlay for agriculture & allied sector is to be

increased by 19.79% to Rs 147.44 bn.
• The target agricultural credit is proposed to be raised to Rs 4,750
bn in FY12 from Rs 3,750 bn in FY11.
• The Government raised the corpus of RIDF (Rural Infrastructure
Development Fund) XVII to Rs 180 bn in FY12 from Rs 160 bn in
FY11 wherein the additional allocation would be dedicated to
creation of warehousing facilities.
• Interest subvention proposed to be enhanced from 2% to 3% for
providing short-term crop loans to farmers who repay their crop
loan on time.
• In view of enhanced target for flow of agriculture credit, capital
base of NABARD to be strengthened by Rs 30 bn in a phased
manner.
• Rs 100 bn to be contributed to NABARD’s Short-term Rural Credit
fund for FY12.
• An allocation under Rashtriya Krishi Vikas Yojana (RKVY)
increased to Rs 78.60 bn in FY12 from Rs 67.55 bn in FY11.
• An allocation of Rs 17 bn for National Horticulture Mission
including Rs 5 bn for north east and Himalayan states.
• An allocation of Rs 13.50 bn for National Food Security Mission.
• An allocation of Rs 7.80 bn for Macro Management in Agriculture.
• An allocation of Rs 11.50 bn for National Mission on Micro
Irrigation.
• An allocation of Rs 7 bn for National Agricultural Insurance
Scheme including Rs 1.50 bn for Modified national Agriculture
insurance scheme.
• An allocation of Rs 5.50 bn for integrated oilseeds, oil palms,
pulses and maize development.
• Removal of production and distribution bottlenecks for items like
fruits and vegetables, milk, meat, poultry and fish to be the focus
of attention this year.
• To improve rice based cropping system in the eastern region, an
allocation of Rs 4 bn has been made.
• An allocation of Rs 3 bn made to promote 60,000 pulses villages
in rainfed areas.
• An allocation of Rs 3 bn to bring 60,000 hectares under oil palm
plantations - an initiative to yield about 3 lakh metric tonnes of
palm oil annually in five years.
• As an initiative on vegetable clusters, an allocation of Rs 3 bn
made for implementation of vegetable initiative to provide
quality vegetable at competitive prices.
• An allocation of Rs 3 bn provided to promote higher production of
Bajra, Jowar, Ragi and other millets, which are highly nutritious
and have several medicinal properties.
• An allocation of Rs 3 bn provided for Accelerated Fodder
Development Programme to benefit farmers in 25,000 villages.
• The Government to promote organic farming methods,
combining modern technology with traditional farming practices.
• An approval being given to set up 15 more Mega Food Parks
during FY12.
• Augmentation of storage capacity through private entrepreneurs
and warehousing corporations has been fast tracked.
• Capital investment in creation of modern storage capacity will be
eligible for viability gap funding of the Finance Ministry. It is also
proposed to recognize cold chains and post-harvest storage as
an
infrastructure sub-sector.
• In view of recent episode of inflation, need for State
Governments to review and enforce a reformed Agriculture
Produce Marketing Act been recognised.
• National Food Security Bill (NFSB) which will be introduced in the
Parliament during the course of the current year.
• Extended full exemption from excise duty to air-conditioning
equipment and refrigeration panels for cold chain infrastructure.
• Include conveyor belts in the full exemption from excise duty to
equipments used in cold storages, mandis and warehouses.
• Basic customs duty reduced for specified agricultural machinery
to 2.50% from 5% and the concession is also being extended to
parts of such machinery to encourage their domestic production.
• Basic customs duty reduced on micro-irrigation equipment to 5%
from 7.50%.
• De-oiled rice bran cake fully exempted from basic customs duty.
Simultaneously, an export duty of 10% to be levied on its export.
Positive+:

The slew of measures announced for the agricultural sector highlights

the Government’s thrust to facilitate storage and reduce the
production and supply chain bottlenecks in the agricultural sector
which played an important role in driving inflation in the economy.
While establishing an efficient supply chain and removal of production
and distribution bottlenecks, especially for food items which has led to
inflation has received the Government’s focus during the budget,
timely and effective implementation of the initiatives would not only
help in reducing the price difference between the whole sale and the
retail prices but also provide for better realisation of prices by the
farmers. It would also help in combating supply side driven food
inflation in the medium to long term. Moreover, if the Agriculture
Produce Marketing Act is reformed as highlighted in the budget it
would lead to further improvement in the supply chain linkages in the
agricultural sector.

In the budget the Government further enhanced its thrust to improve

the storage facilities in the agriculture sector by allocating funds for
creation of warehousing facilities. Facilitating for further private sector
participation will ensure reduction in wastage of farm output, thereby
enhancing greater food security going ahead. Moreover, in this budget
there has been announcement of new initiatives such as accelerated
Fodder Development Programme which bodes well for the sector.

While the Union budget for FY12 witnessed significant plan allocation,
the Government also placed due emphasis on resolving the supply
chain blockages in the agricultural sector which required serious
attention besides, considerably stepping up the credit flow. It was also
commendable that the Government placed emphasis on speedy
implementation on various schemes under the RKVY and also
recommended that the storage capacity through private entrepreneurs
and warehousing corporations to be fast tracked.

Fertiliser:

• Capital investment in fertiliser production proposed to be

included as an infrastructure subsector.
• Government actively considering extension of the Nutrient Based
Subsidy (NBS) regime to cover urea.
• To ensure greater efficiency, cost effectiveness and better
delivery for fertilisers, the Government will move towards direct
transfer of cash subsidy to people living below poverty line in a
phased manner.
 • Extension of benefit of investment linked deduction to
businesses engaged in the production of fertilisers.

Positive+:

The overall outlook on the fertiliser sector remains positive. The major
move in the sector which will drive investment is by including capital
investment in fertiliser production as an infrastructure sub sector which
will help to mitigate the risk of investing. Moreover, extending the
benefits of investment linked deduction to businesses engaged in the
production of fertilisers will increase
the flow of capital in the sector. The government’s intention to move to
a NBS of fertilisers not only bodes well for the industry but also
promotes balanced use of fertiliser and would further link transparently
the prices and subsidies to the composition of a product. Further, the
proposed system of direct transfer of subsidy for fertilisers is seen as a
good move as the domestic industry
has long suffered from under recovery of cost and delay in
disbursement of subsidy.

Social Sector:

The social sector expenditure is proposed to be increased to Rs

1,608.87 bn during FY12 an increase of 17% over the previous year. It
amounts to 36.40% of the total plan allocation.

Human Resource Development and Social Justice:

• An allocation of Rs 103.30 bn for Integrated Child Development

Services.
• An allocation made for Mahatma Gandhi National Rural
Employment Guarantee Scheme amounting to Rs 400 bn in FY12
as compared to Rs 401 bn in FY11.
• An allocation of Rs 29.14 bn under the ‘Swaranjayanti Gram
Swarozgar Yojana’ (SGSY) for establishing micro-enterprises in
rural areas. At least 50% of the Swarozgaries will be SCs/STs,
40% women and 3% disabled. It has been decided to restructure
SGSY into National Rural
Livelihood Mission (NRLM).
• To create in the course of the year “India Microfinance Equity
Fund” with a corpus of Rs 1 bn with SIDBI. Government
considering putting in place appropriate regulatory framework to
protect the interest of small borrowers.
• To empower women and promote their Self Help Groups (SHGs)
creation of a “Women’s SHG’s Development Fund” with a corpus
of Rs 5 bn.
 • Relaxation of exit norms under the pension scheme
“Swavalamban” whereby a subscriber under Swavalamban will
be allowed to exit at the age of 50 years instead of 60 years or a
minimum tenure of 20 years whichever is later. Moreover,
proposal to extend the benefit of
Government contribution from three to five years for all
subscribers of Swavalamban who enroll during FY11 and FY12.
• Under the on-going Indira Gandhi National Old Age Pension
Scheme for BPL beneficiaries, the eligibility for pension is
proposed to be reduced from 65 years at present to 60 years.
Further, for those who are 80 years and above, the pension
amount is being raised from Rs 200 at present to Rs 500 per
month.
• Existing scheme of interest subvention of 1% on housing loan
further liberalised.
• An allocation of Rs 5.20 bn for Indira Gandhi Matritva Sahyog
Yojana.
• The plan outlay for Women and Child Development is proposed
to be increased to Rs 126.50 bn in FY12 from Rs 110 bn in FY11.
• An allocation of Rs 7.50 bn for Rajiv Gandhi Scheme for
Empowerment of Adolescent Girls.
• The plan outlay of the Ministry of Social Justice and
Empowerment is proposed to be enhanced to Rs 53.75 bn in
FY12, marking an increase of 19.40% as compared to FY11.
• The plan allocation for the Ministry of Minority Affairs is proposed
to be increased to Rs 28.50 bn for FY12 from Rs 26 bn in FY11.
• Increase the budget allocation for primitive tribal groups to Rs
2.44 bn in FY12 from Rs 1.85 bn in FY11.
• For the first time, specific allocations are being earmarked
towards Scheduled Castes Subplan and Tribal Sub-plan.

Education:

• An allocation of Rs 520.57 bn in FY12 for education, which is an

increase of 24% over FY11.
• The proposal to increase the plan allocation for school education
to Rs 389.57 bn in FY12 from Rs 310.36 bn in FY11.
• An allocation of Rs 210 bn for Sarva Shiksha Abhiyan which is
40% higher than Rs 150 bn allocated in FY11. A revised Centrally
Sponsored Scheme “Vocationalisation of Secondary Education”
will be implemented from FY12 to improve the employability of
the youth.
• An allocation of Rs 103.80 bn for National Programme of Mid Day
Meals in schools.
• An allocation of Rs 52.54 bn for University Grants Commission;
Rs 56.60 bn for technical education and Rs 9.43 bn for National
 Mission in Education through information & communication
technology.
• Connectivity to all 1,500 institutions of Higher Learning and
Research through optical fiber backbone to be provided by
March, 2012.
• Additional Rs 5 bn proposed to be provided for National Skill
Development Fund during FY12.
• Introduce a scholarship scheme in FY12 for needy students
belonging to the Scheduled Castes and Scheduled Tribes
studying in classes ninth and tenth which would benefit about 40
lakh Scheduled Caste and Scheduled Tribe students.
• Rs 500 mn each to upcoming centres of Aligarh Muslim
University at Murshidabad in West Bengal and Malappuram in
Kerala.
• Rs 1 bn as one-time grant to the Kerala Veterinary and Animal
Sciences University at Pookode, Kerala.
• Rs 100 mn each for setting up Kolkata and Allahabad Centres of
Mahatma Gandhi Antarrashtriya Hindi Vishwavidyalaya, Wardha.
• Rs 2 bn as one time grant to IIT, Kharagpur.
• Rs 200 mn for Rajiv Gandhi National Institute of Youth
Development, Sriperumbudur, Tamil Nadu.
• Rs 200 mn for IIM, Kolkata, to set up its Financial Research and
Trading Laboratory.
• Rs 2 bn for Maulana Azad Education Foundation.
• Rs 100 mn for Centre for Development Economics and Ratan
Tata Library, Delhi School of Economics, Delhi and Rs 100 mn for
Madras School of Economics.

Health & Sanitation:

• The plan allocation for the Ministry of Health and Family Welfare
is proposed to be increased to Rs 267.60 bn in FY12 from Rs 223
bn for FY11.
• An allocation of Rs 178.40 bn for National Rural Health Mission.
• The Rashtriya Swasthya Bima Yojana extended to cover
unorganised sector workers in hazardous mining and associated
industries like slate and slate pencil, dolomite, mica and asbestos
etc.
• An allocation of Rs 93.50 bn for National Rural Drinking Water
Programme.
• An allocation of Rs 16.50 bn for rural sanitation

Regional Development:

• In order to boost development in the North Eastern Region and

Special Category States, the allocation for special assistance
 almost doubled to Rs 80 bn for FY12 as compared to FY11. Out of
this, Rs 54 bn allocated as untied Special Central Assistance.
• To give a boost to the development of backward regions, the
allocation under the Backward Regions Grant Fund increased to
Rs 98.90 bn in FY12 from Rs 73 bn in FY11, an increase of over
35%.
• The Government’s special support to Jammu & Kashmir is
anchored in Rs 280 bn Prime Minister’s Reconstruction Plan. In
addition, for the current year, about Rs 80 bn has been provided
for the State’s development needs.
• Allocation made in FY12 to meet the infrastructure needs for
Ladakh (Rs 1 bn) and Jammu region (Rs 1 bn).
• Funds allocated under Integrated Action Plan (IAP) for addressing
problems related to Left Wing extremism affected districts. 60
selected Tribal and backward districts provided with 100% block
grant of Rs 250 mn and Rs 300 mn per district during FY11 and
FY12 respectively.

Positive+:
By allocating 36.40% of the total plan outlay for the social sector
during FY12, the Government has reiterated its emphasis for the
upliftment of the weaker sections of the country. In order to enhance
financial inclusion, a dedicated fund with a corpus of Rs 1 bn have
been created for smaller MFIs besides, forming a Women’s Self Help
Group’s Development Fund which would enhance the empowerment of
women.