Highlights of the Budget 2012-13

The 2012 budget is a realistic budget .A budget that can best be described as a “Balancing Act in a democratic political economy”.In the backdrop of “real Economics” Vs. “Real politik”, the budget was definitely not the one that would grab the headlines for being a BIG-BANG budget but on a holistic basis , the budget did justice towards achieving a balanced,sustainable and inclusive growth.It was in fact an excellent piece to see how it tried to delineate a fine line in a “Mixed economy” and the changing role of Government /state as an indicative /prescriptive organ in post –reform Indian economy y. Simply put, this budget appeared as one which will not benefit any single individual significantly but will lay the foundation for strong political economy.

-Tweaked a bit with Direct income tax ..raising the exemption limit to 2 lakhs.
-Increased the indirect tax rate (EXCISE AND SERVICE TAX) to 12% ,increased tax net and shifted to negative list…a clear tranisition to GST
-Tried to meet the immediate needs of

    -Tried to improve the sentiments of the market by emphasizing on the capital market deepening , infrastructure and industrial sector needs
    -tried to be pragmatic on Fiscal figures especially of Fiscal deficit and disinvestment
    -In the backdrop of high aspirations from Economics (in the context of so called criticism of policy paralysis),Politics and world economy..what budget did was ensured that Indian state is for taking all along in development process ..and sort of balanced out demands of Economics(like small doses of sort of reforms in power sector,infrastructure sector,industry,agriculture) with the real political economics (emphasis on inclusive development,education,malnutrition etc).

-Senior citizens (they are not required to pay advance income tax if they are from non-business category etc)
-Agriculture sector-Huge allocation and incentives for smoothening out bottlenecks in supply chain like (tax exemption and other incentives )stress on cold chain,warehousing,research and development,RIDF allocation enhancement, mission mode schemes like nutri cereals etc given boost up
-Power Sector
-Aviation sector
-Citizens with income upto Rs.2,00,000/

-Industrial sector(increase in excise and service tax)
-Service sector(but now they are maturing as they are soon going to be 18 years old and with 59% contribution to Indian GDP..this is good economics)
-Some urban youths as branded garment price is hiked, phone bills will rise.
-Women in India as government ensured that the unproductive saving in the form of gold,platinum and precious stones needs to be discouraged…..(this was a need for good economics as savings locked in unproductive assets was wasteful)
-Citizens planning to buy a BIG car (literally)
-I had expected some more doses of reforms ..nevertheless , realistically this budget did a very fine walking between global economics,politics and domestic democractic aspirations!!!!
-I had expected much more for women and child development sector…the gender budgeting aspect was somehow lost in fine print
-I would have liked this budget to be much more GREEN leaned ..that is to say more for environment and sustainable development though tax exemptions for hybrid cars and for solar panels are positive steps.
-Govt was pragmatic when it gave a realistic target of 5.1% of FD …No doubt,this raises the concern that this high rate can potentially “Crowd-out” private investment and fuel inflation which in turn would make the cut of interest rate highly untenable thereby affecting the investment ….But having said this , we need to emphasise the fact that govt has significantly shown concern on this front and aims to stem it …by clearly stating that it intends to chop out unnecessary subsidies burden
-The most attracting statistic was that govt debt/gdp ratio is mere 45.4% this to herculean fig of arnd 160-170% in Europe….We need to give credit to government to keep balance on this front.
-Also the fact that govt intends to go in for a net market borrowing of around Rs. 5,21,980 present circumstance ..this calls for caution in relation to crowding out of private investment.
-Increase in excise duty and service tax to 12% and increase in the service tax net by shifting to a negative list are steps in the direction of GST
-Certain attempts have been made in this budget(though not explicitly pointed out )that hints that DTC roll out is on its way…increase in income exemption limit to 2 lakhs,General anti-avoidance rule and reduction in tax on dividend paid by a foreign subsidiary of an MNC in india to 15% are steps in this direction.
-Though not clear but it seems the govt aims to meet its revenue needs through reauction of 2G licenses
-Govt’s attempt to pragmatically fix the disinvestment target of Rs.30,000/ vis-à-vis last years experience is positive step as it will clearly signal the ambition of the government for the private sector and the market

Positive Highlighlights
àFocus on five basic objectives
Focus on domestic demand driven growth recovery;
• Create conditions for rapid revival of high growth in private investment;
• Address supply bottlenecks in agriculture, energy and transport sectors, particularly in coal, power, national highways, railways and civil aviation;
• Intervene decisively to address the problem of malnutrition especially in the 200 high-burden districts; and
• Expedite coordinated implementation of decisions being taken to improve delivery systems, governance, and transparency; and address the problem of black money and corruption in public life.

With the slowdown in the Indian economy there was a consequent decline In direct tax collection coupled with the increase in subsidy burden ..there was always the worry on the front of fiscal consolidation and in fact we did slipped on that path as our Fiscal deficit stands at 5.9% vs.4.6%(estimated in last budget) .The FM’s statement stressing on amendments in FRBM act tries in some part to sort out this issue.
àSUBSIDY-The strongest intent of the government to improve its finances was definitely the emphasis laid by the FM to curtail the subsidy burden restricting it to 2% of GDP and in long term to 1.7% of GDP.The emphasis was also laid to the fact that apart from the intended food subsidy, government would ensure that all other sectors enjoying the subsidy namely fuel and fertilizers would face the axe at some point .The worry was however that the government was not very clear as to how will it goforward with it.It is to be noted that statement made by the FM where he emphasized that various pilot projects using technology and AADHAR for linking it to the actual service delivery or targeting like the AADHAR based MNREGA payment in Jharkhand or direct cash transfer for kerosene in rajasthan etc and the intent to further diversify and apply it in 50 districts to be further tested is a great piece of news. This sufficiently hints at the seriousness with which the government is taking up the challenge of the proper targeting and avoiding leakages in the distribution of subsidies.
àCAPITAL MARKET DEEPENING-In the present situation of gloomy global scenario, there was a loss of investor confidence and the “Animal spirits” were not that good in recent past. Moreover, the economists were asking the Indian government to create a conducive environment for deepening the financial market or the capital market but at the same time in the current flimsy environment was also expecting it to play a safe game in terms of adequate checks and balances. In a mature economy capital market needs to be bostered but with adequate safeguards.In this backdrop, a new scheme called “Rajiv Gandhi Equity Scheme” whereby 50% tax exemption is provided on investments worth Rs.50,000/ for individuals with below 10 lakh income with a minimum lock in period of 3 years ( to essentially give a boost to retail investors participation in the market as well to check the volatility in the same) is welcome step.
Some other schemes like using the electronic platform for IPO listing of minimum Rs.10crore size for facilitating greater participation say from small towns and better price discovery are steps aimed at capital market deepening.
àThe FM also expressed the intent on getting a whole lot of policies and acts like PFRDA Act,IRDA act, MFI development and regulation act etc being presented and passed in the parliament…atleast shows that the government has pinpointed the arenas that need doses of reforms.
àIn the current economic situation where the last year M3 and Scheduled commercial bank credit was less vis-à-vis 2010 fiscal ,the efforts aimed at pumping in Around Rs.16,000/ crore in Public sector banks and paying special attention to RRB’s economic health are good steps.The intention to have a centralized KYC system for them to avoid the multiplicity of customers and payment smoothening are welcome steps.Another very important step in the direction of INCLUSION which also entails “FINANCIAL INCLUSION” ,the extension of SWABHIMAN scheme for habitations with a population size of 1000 down from 2000 earlier is a welcome step especially for NE states.It is to be noted that in NE states due to topographical or geographical reasons the average size of habitation is small much less than minimum 2000 ( a benchmark set up under the scheme) and hence large areas were excluded financially.
Infrastructure is a core sector to foster growth .Union budget 2012-13 spelt out various measures aimed at boosting this extremely important sector.Extension of viability gap funding in various PPP efforts in the realm of irrigation,soil testing,oil and gas are excellent initiatives towards “CROWDING IN” private investment .
Extension of the provisions of Infrastructure debt fund ,Extension of Tax free bonds of Rs.60,000 crore for encouraging investment in the sector are some MAJOR steps taken.
The FM reiterated the intention to move on with the NMP policy to increase the share of manufacturing to 25% in GDP and create 10 crore employment..NMIZ will definitely be a game changer when it is implemented. This would at one stroke help to meet two divergent needs of the Indian economy …first meeting the challenge of increasing the share of manufacturing in country’s GDP and secondly helping to meet the challenge of huge Employment demands that is sure to accompany a burgeoning demographic dividend.
POWER SECTOR-In last few months, the power sector has been facing trouble in Indian Economy.Fuel shortage (insufficient coal availability) being the major problem. Budget in this regard has very cleary stated the intention to help the power sector.In fact few months back CIL was forced to sign the fuel supply agreements with power plants to ensure smooth and adequate supply of coal .What was another important point was the fact that there will now be periodic review of coal mining and in case of any lapse in the same there will be attempts to deallocate it.Allowing ECB’s in Power sector is another important step to infuse liquidity into the sector.
There are further provisions of allowing liquidity in road sector by allowing ECB’s in same.
AVIATION-It is said crisis always gives an opportunity !!!This was so true for the aviation sector.Though the government did not come out with a clear aviation policy as was demanded by the aviation sector but many initiatives were taken which will definitely help the country to change its Aviation fortune(literally)
1)-First, direct ATF import has been allowed to meet the cost constraints
2)-ECB’s (upto 1 billion$ for 1 year)allowed for meeting the working capital requirements of Airlines
3)-There are talks to allow 49% FDI in airlines by foreign players
4)-Some tax concessions have been given especially in the context of import duty exemption on tyres and allowing India to be a hub for maintenance of the airlines..It was indeed paradoxical that earlier (say)Indian aircrafts had to been taken to other countries like Dubai for repair and maintenance though the person who did the repair was INDIAN!
àIt was heartening to see Jharkhand along with AP gifted with Handloom mega clusters.Emphasis on geo-textile was innovative step .
àMSME’s –Govt tried to step up its efforts for this sector. With the second largest employment source and around 45% of the manufacturing capacity+40% of total export share..its an important segment of Indian economy.Allocation of Rs.500 crore twards India opportunity fund (along with SIDBI) for meeting the needs of the sector is impressive.Announcements like 2 SME exchanges + mandatory procurement from SME’s hint at the importance that the government gives to this sector.
With just 3.9% growth(estimated for 2011 fiscal) industry sector is one sector that is definitely hindering the growth story and steps enunciated in the budget can help to revitalize the same.

Agriculture still is an important sector of the Indian economy and the importance was reiterated in various policy statements made .Increase in the allocation for RKVY,massive increase in allocation for Bringing Green revolution to East India and reiteration of its intent to focus on agri-mission mode schemes like nuticereals,protein supplement,NHM is noteworthy.Agricultural credit would be enhanced by Rs.1 lakh crore to rs.5,75,000 crore .This is significant as it would help to meet the needs of the agriculture sector,farmers and in strict economics would help to increase the agri sector purchasing power(which will boost demand and hence growth)….apart from this agri sector credit also has strong linkages in terms of backward linkage (like boost to agri input and machine sector)-----agri-industry interdependence and forward linkage in terms of propelling consumer demand and hence growth.Further Extension of Interest rate subvention of 3% on agri loans +emphasis on post harvest warehousing for availing the same would encourage farmers to store their harvest in warehouses.
Emphasis given to Scientific research in the arena of Agriculture (plant/seed varieties )etc is important step in the realm of enhancing the agri productivity vis-à-vis the constraint of agri land and production.
Initiative of setting up the Government owned finance company to finance the micro irrigation and other water needs is a positive step.
Increase in allocation for health (NRHM) by 10%,Education especially RTE/SSA by 21.7%,25% increase in allocation for sanitation and nutrition hints at the fact that the government is serious aboutmaking each one a part of the process of economic development.Special emphasis has been given on meeting the nutrition standard and hence more attention towards ICDS and SABLA scheme.
Inclusiveness is a vague concept if people are not empowered in terms of being provided with minimum employment opportunities.Streamlining of MNREGA and enhancing the allocation for NRLM especially increasing the allocation for women SHG are important steps.
Setting up of a Credit guarantee fund for skill development and further increasing the corpus of NSDF is important step.This aims to convert “the” demography into demographic dividend.
GOVERANACE-Govt did chalk out the steps taken to rein in black money and emphasized the importance of AADHAR as a tool of service delivery.

The FM has therefore done justice with the budget in the present politico-economic scenario.