We all hear about India's budget around this time of the year, every single year. The word 'Budget' actually evolved from the French word 'Bougette', which means purse. A financial plan that projects income, expenditure and revenues for a set period of time; every year, a budget is declared in India, typically by the end of February. In 2012, Pranab Mukherjee, the former Finance Minister and the current president of India, had introduced the Union Budget of India on the 16th of March 2012, which happened to be the seventh budget of his career. It was also the 81st budget in the history of India. This year, it will be presented by Finance Minister Palaniappan Chidambaram in the Parliament before it takes effect on the 1st of April. We all know that the previous year's budget has a significant impact on the planning and execution of the following year's budget. Let us have a sector wise look at last year's budget and the impact it had on our economy.
Nameet Shetty penetrates the underlying pattern of performance and impact and brings you last year's budget performance.
We all know that the Indian economy had a hard time recovering after the last recession. The expected economic growth, expected at
6.9 percent, was termed as disappointing by experts. However, things have
started looking up. A few sectors such as the agriculture and service sectors
are growing at a steady pace, but on the other hand, there are also sectors,
such as the industrial sector, which are dragging the growth of the economy
down. Here is an overview of the changes made in Budget 2012 from
- Rs 15,888 crore capital support proposed to public sector banks and
- Official amendment to The Pension Fund Regulatory and Development Authority Bill, 2011, The Banking Laws (Amendment) Bill, 2011 and The Insurance Law (Amendment) Bill, 2008 was moved.
- Various Bills were moved in the Budget session of the Parliament to take forward the process of financial sector legislative reforms.
Power and Coal:
- Coal India advised signed fuel supply agreements with power plants, having long-term power purchase agreements with DISCOMs and getting commissioned on or before March 31, 2015.
- Standard rate of excise duty raised from 10% to 12%, merit rate from 5% to 6% and the lower merit rate from 1% to 2% with few exemptions.
- Excise duty on large cars were enhanced.
- Indirect taxes were estimated to result in net revenue gain of Rs. 45,940 crore.
- Tax concessions proposed for parts of aircraft and testing equipment for third party maintenance, repair and overhaul of civilian aircraft.
- External Commercial Borrowing (ECB) was permitted for working capital requirement of airline industry for a period of one year, subject to a total ceiling of US $ 1 billion.
- ECB was permitted for working capital requirement of airline industry for a period of one year, subject to a total ceiling of US $ 1 billion.
- Proposal to allow foreign airlines to participate upto 49 per cent in the equity of an air transport undertaking under active consideration of the government.
- Direct import of Aviation Turbine Fuel permitted for Indian Carriers as actual users.
Growth & Inflation:
- Economy was expected to grow at 7.6% in 2012 – 13.
- Inflation was expected to be stable on a long term basis.
Fiscal Deficit & Spending:
- Fiscal Deficit was seen at 5.9% of GDP in 2011-12 and at 5.1% of GDP in 2012-13
- Total expenditure in 1012-13 was seen at 14.9 trillion rupees.
- Planned expenditure for 2012-13 increased by 18%, coming upto 521.25 billion rupees.
- 1.94 trillion rupees were allocated towards the defense sector in 1012-13.
- Gross tax receipts stood at 10.8 trillion rupees in 2012 – 13.
- Non tax revenue stood at 1.64 trillion rupees in 2012 -13.
- India was expected to become independent in urea production in the next 5 years. Basic customs duty on some water soluble fertilizers and liquid fertilizers, other than urea, reduced from 7.5% to 5% and from 5% to 2.5% respectively. Government took steps to finalize pricing and investment policies for urea to reduce India’s import dependence in urea.
- Agricultural credit target was raised to 5.75 trillion rupees in 2012 – 13. Rs. 5 billion provided to broaden scope of production of fish to coastal aquaculture.
- Outlay for Rashtriya Krishi Vikas Yojana (RKVY) was increased to Rs. 9,217 crore in 2012-13. Rs. 300 crore to Vidarbha Intensified Irrigation Development Programme under RKVY.
- Initiative of bringing Green Revolution to Eastern India (BGREI) resulted in increased production and productivity of paddy. Allocation for the scheme increased to Rs. 10 billion in FY13.
- A new centrally sponsored scheme titled “National Mission on Food Processing” to be started in FY13 in co-operation with state governments
- Irrigation and Water Resource Finance Company were operationalized to mobilize large resources to fund irrigation projects. Allocation for Accelerated Irrigation Benefit Programme (AIBP) in FY13 was stepped up by 13% to Rs.142.42 billion. Structural changes in Accelerated Irrigation Benefit Programme (AIBP) were made to maximize flow of benefit from investments in irrigation projects.
- A flood management project was approved by Ganga Flood Control Commission at a cost of Rs. 439 crore for Kandi sub-division of Murshidabad District.
- Interest subvention scheme for providing short term crop loans to farmers at 7% interest per annum to be continued in FY13. Additional subvention of 3% is available for prompt paying farmers.
- Short term Regional Rural Bank (RRB) credit refinance fund were set up to enhance the capacity of the RRBs to disburse short term crop loans to small and marginal farmers. The scheme of capitalization of weak RRBs extended by another 2 years to enable all the states to contribute their share.
- Investment-linked deduction of capital expenditure incurred in cold chain facility and warehouses for storage of food grains provided at the enhanced rate of 150% as against the current rate of 100%.
- 6,000 schools were proposed to be set up at block level as model schools in Twelfth Plan.
- Rs. 3,124 crore provided for Rashtriya Madhyamik Shiksha Abhiyan (RMSA) representing an increase of 29 per cent over BE 2011-12.
- For FY13, Rs. 255.55 billion provided for Right to Education - Sarva Shiksha Abhiyan (RTE-SSA), representing an increase of 21.7% over FY12.
- To ensure better flow of credit to students, a Credit Guarantee Fund was set up.
- 119.37 billion rupees allocated for National Programme of Mid-Day Meals in schools.
- Special grant provided to various universities and academic institutions.
- More sectors added as eligible sectors for Viability Gap Funding under the scheme “Support to PPP in infrastructure”.Government has approved guidelines for establishing joint venture companies by defense PSUs in PPP mode.Creation of a consortium for direct lending and grant of in-principle approval to developers before the submission of bids for PPP projects.
- IIFCL has put in place a structure for credit enhancement and take-out finance for easing access of credit to infrastructure projects.
- Tax free bonds of Rs 60,000 crore was allowed for financing infrastructure projects in 2012-13. It was Rs 30,000 crore in 2011-12.
- National Manufacturing Policy announced with the objective of raising the share of manufacturing in GDP to 25 per cent and creating 10 crore jobs within a decade.
- Government had announced a financial package of Rs. 3,884 crore for waiver of loans of handloom weavers and their cooperative societies. Two more mega handloom clusters, one to cover Prakasam and Guntur districts in Andhra Pradesh and another for Godda and neighboring districts in Jharkhand were set up. Three Weaver’s Service Centers one each in Mizoram, Nagaland and Jharkhand were set up for providing technical support to poor handloom weavers.
- A power loom mega cluster was set up in Ichalkaranji in Maharashtra with a budget allocation of Rs.70 crore.
- Rs. 500 crore pilot scheme was announced for promotion and application of Geo-textiles in the North Eastern Region.
- Rs. 5,000 crore India Opportunities Venture Fund was set up with SIDBI.
- To enable greater access to finance by Small and Medium Enterprises (SME), two SME exchanges were launched in Mumbai.
- Policy requiring Ministries and CPSEs made a minimum of 20 per cent of their annual purchases from MSEs approved. Of this, 4 per cent earmarked for procurement from MSEs owned by SC/ST entrepreneurs.
- Low cost funds to stressed infrastructure sectors such as power, airlines, roads and bridges, port and shipyards, affordable housing, fertilizer and dams, rate of withholding tax on interest payment on External Commercial Borrowings (ECB) was reduced from 20% to 5% for 3 years. Various proposals to address the shortage of housing for low income groups in major cities and towns including allowing ECB for low cost housing projects and setting up of a credit guarantee trust fund etc.
- Target of covering a length of 8,800 kms under National Highway Development Programme (NHDP) during FY13. Allocation of the Road Transport and Highways Ministry enhanced by 14% to Rs. 253.6 billion.
- Allocation for Pradhan Mantri Gram Sadak Yojna (PMGSY) increased by 20% to Rs. 240 billion to accelerate connectivity in the states.
- Pradhan Mantri Swasthya Suraksha Yojana expanded to cover up gradation of 7 more Government medical colleges.
- Budgetary allocation for rural drinking water and sanitation was increased from Rs. 110 billion to Rs. 140 billion, representing an increase of over 27%.
- No new case of polio reported in last one year.
- Existing vaccine units were modernized and new integrated vaccine unit was set up in Chennai.
- Scope of ‘Accredited Social Health Activist’ – ‘ASHA’ was enlarged. This also enhanced their remuneration.
- Allocation for NRHM increased from Rs. 18,115 crore in 2011-12 to Rs. 20,822 crore in 2012-13.
- National Urban Health Mission was launched.
- Proposal to allow deduction of up to Rs. 5,000 for preventive health checkup.
- Allocation of Rs. 39.15 billion was made for National Rural Livelihood Mission, representing an increase of 34%. Allocation for Prime Minister’s Employment Generation Programme increased by 23 per cent to Rs. 1,276 crore in 2012-13. Allocation of Rs. 3915 crore made for National Rural Livelihood Mission representing an increase of 34 per cent.
- To ease access to bank credit, corpus for ‘Women’s SHG’s Development Fund’ was enlarged.
- To improve the flow of institutional credit for skill development, a separate Credit Guarantee Fund was set up.
- “Himayat” scheme introduced in J&K to provide skill training to 100,000 youth in the next 5 years.
- Weighted deduction at the rate of 150% was provided on expenditure incurred on skill development in manufacturing.
- MGNREGA had a positive impact on livelihood security. Greater synergy between MGNREGA and agriculture and allied rural livelihoods was brought about.
- Proposal to establish Bharat Livelihoods Foundation of India through Aajeevika scheme.
- Projects approved by National Skill Development Corporation to train 6.2 crore persons at the end of 10 years. Rs. 1,000 crore allocated for National Skill Development Fund in 2012-13.
- Allocation of Rs. 158.50 billion for Integrated Child Development Service (ICDS) scheme, representing an increase of 58% over BE FY12. Allocation for Scheduled Castes Sub Plan at Rs. 371.13 billion, representing an increase of 18% over BE FY12. Allocation for Tribal Sub Plan at Rs. 217.10 billion, representing an increase of 17.6%.
- Allocation of Rs. 7.50 billion proposed for Rajiv Gandhi Scheme for Empowerment of Adolescent Girls, SABLA. Allocation under National Social Assistance Programme (NSAP) raised by 37% to Rs. 84.47 billion in FY13.
- In the ongoing Indira Gandhi National Widow Pension Scheme and Indira Gandhi National Disability Pension Scheme for BPL beneficiaries, pension amount was raised from Rs. 200 to 300 per month.
- Lumpsum grant on the death of primary breadwinner of a BPL family, in the age group of 18-64 years, doubled to Rs.20,000.
- To enhance access under Swavalamban scheme, LIC was appointed as an aggregator and all public sector banks were appointed as Points of Presence (PoP) and Aggregators.
- Special grant was provided to various universities and academic institutions.
- Rajiv Gandhi Equity Saving Scheme allowed income tax deduction of 50% to new retail investors, who invest up to Rs. 50,000 directly in equities and whose annual income is below Rs. 1 million to be introduced. The scheme has a lock-in period of three years.
- The Government made it mandatory for companies to issue IPOs of Rs. 100 million and above in electronic form through nationwide broker network of stock exchanges. The Government provided opportunities for wider shareholder participation through electronic voting facilities.
- Removal of the cascading effect of Dividend Distribution Tax (DDT) in a multi-tier corporate structure. Continuation to allow repatriation of dividends from foreign subsidiaries of Indian companies at a lower tax rate of 15% up to March 31, 2013.
- Reduction in securities transaction tax by 20% from 0.125% to 0.1% on cash delivery transactions.
- Efforts arrived at a broadbased consensus in consultation with the State Governments in respect of decision to allow FDI in multi-brand retail upto 51 per cent.
- Provision regarding implementation of Advance Pricing Agreement was introduced in Finance Bill, 2012.
- Various steps were taken for deepening the reforms in the Capital markets, including simplifying process of IPOs, allowing QFIs to access Indian Bond Market etc.
- To protect the financial health of Public Sector Banks and Financial Institutions, Rs. 15,888 crore proposed was provided for capitalization.
- A central “Know Your Customer” depository was developed in 2012-13 to avoid multiplicity of registration and data upkeep..
- Out of 82 RRBs in India, 81 successfully migrated to Core Banking Solutions and have also joined the National Electronic Fund Transfer system. Proposal to extend the scheme of capitalization of weak RRBs by another 2 years to enabled States to contribute their share.
- Tax proposals for 2012-13 marked progress in the direction of movement towards DTC and GST. DTC rates were proposed to be introduced for personal income tax.
- New sectors were added for the purposes of investment linked deduction.
- Extension of weighted deduction of 200 per cent for R&D expenditure in an in house facility for a further period of 5 years beyond March 31, 2012 was done. Proposal to provide weighted deduction of 150 per cent on expenditure was incurred for agri-extension services.
- Proposal to extend the sunset date for setting up power sector undertakings by one year for claiming 100 per cent deduction of profits for 10 years.
- Turnover limit for compulsory tax audit of account and presumptive taxation of SMEs was raised from Rs. 60 lakh to Rs. 1 crore.
- Exemption from Capital Gains tax on sale of residential property, if sale consideration is used for subscription in equity of a manufacturing SME for purchase of new plant and machinery. Restriction on Venture Capital Funds to invest only in 9 specified sectors proposed to be removed.
- Proposal to continue to allow repatriation of dividends from foreign subsidiaries of Indian companies at a lower tax rate of 15 per cent up to 31.3.2013.
- Reduction in securities transaction tax by 20 per cent on cash delivery transactions.
- A net revenue loss of Rs. 4,500 crore was estimated as a result of Direct Tax proposals.
- Exemption limit for the general category of individual taxpayers increased from Rs. 180,000 to Rs. 200,000 giving tax relief of Rs. 2,000
- Proposal to allow individual tax payers a deduction of up to Rs. 10,000 for interest from savings bank accounts. Proposals from service tax were expected to yield additional revenue of Rs. 18,660 crore.
- Senior citizens not having income from business proposed were exempted from payment of advance tax.
- Investment-linked deduction of capital expenditure for certain businesses proposed was provided at the enhanced rate of 150%.
- Service tax confronted challenges of its share being below its potential, complexity in tax law, and the need to bring it closer to Central Excise Law for eventual transition to GST. Service tax law was shortened by nearly 40%.
- Basic customs duty reduced for certain agricultural equipment and their parts. Full exemption from basic customs duty for import of equipment for expansion or setting up of fertilizer projects upto March 31, 2015.