OVERVIEW OF THE UNION BUDGET 2012

The Union Budget 2012-13 was presented by the Finance Minister Mr. Pranab Mukherjee in the wake of a challenging business environment and weak global economic conditions. 2011-12 was described as the year of recovery, interrupted. With a global outlook, sustained slowdown in Indian GDP growth, high inflation, deficits and low investor confidence, the current year has been testing for the Indian economy. The good news is that, while the GDP achieved of 6.9% was low as compared to that of previous years, comparatively it still put India in the top five economies of the world. The government had twin objectives of managing growth and containing inflation in 2011-12.The decreasing foreign investments, stagnating manufacturing sector and lack of harmonization of monetary and fiscal policies defeated the achievement of these objectives. Finance Minister in his speech acknowledged the need for fiscal consolidation; he made a strong statement of intent to keep subsidies below 2% of GDP. It is however worrying that the net market borrowing required still stands substantially high at 4.79 lakh crore. The size of the CAD also continues to be of concern as fluctuating exchange rates and volatility in flows may make achievement of the CAD target difficult. The Finance Minister indicated that efforts need to be made to arrive at a broad-based consensus with State Governments on allowing FDI in multi-brand retail up to 51%. Continuing focus on infrastructure development, a debt fund with an initial size of 8,000 crore has been launched. Further, it is expected that investment in infrastructure will go up to 50 lakh crore with 50% of funding expected from the private sector. Tax free bonds of 60,000 crore have also been allowed for financing infrastructure projects in 2012-13. A new simplified scheme for exporters to claim the refund of input credit has also been announced together with measures to remove the cascading effect introduced.It is expected that revenue gain from indirect taxes will partly address the fiscal deficit concerns. Maintaining a CST rate at 2% is also expected to provide stimulus to supply chain restructurings.