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Union Budget 2012-13

Sachin Tendulkar’s incredible achievement yesterday might not have been enough to save India in the match, but it certainly did save Pranab Mukherjee from a lot of public scrutiny over his budget. Yes, people! The Union Budget was presented yesterday, but don’t worry you didn’t miss much. 

With the government tottering, and Mamata Banjerjee bullying the Congress left, right and centre, not much was expected from the budget. And the budget doesn’t disappoint. For a neutral there isn’t much to criticize in the budget, except that it doesn’t do enough. 

The Fin Min started by stating that the last year was “a year of recovery interrupted”. It is an understatement beyond belief. The government fell incredibly short of almost all the targets. The GDP which supposed to grow at 8.5% in the fiscal grew only at 6.9%. Inflation, which was supposed to come down by August 2011, was still in double digits till December and stood rather high at 6.9% in February. Due to high volatility and uncertainty in the market, the govt. could not raise even 50% of its disinvestment targets. And worse, the fiscal deficit which was supposed to come down to 4.6% of GDP, currently stands at 5.9% of GDP. 
If the numbers tell a sorry state of affairs, the actual condition of the government is even worse. The comple­­te lack of decision making ability and the haphazard manner in which they’ve gone about their business, as demonstrated in the case of FDI in retail, has left industry and investors bewildered and uncertain. 

In his penultimate budget before the General Elections in 2014, the Finance Minister had his last chance at bringing about some of the reforms that he has been harping about since the beginning of his tenure. But he has decided to play it safe. His budget ensures that there is no repeat of the debacle that was the Railway Budget. 

Pranab Mukherjee also talked about “taking hard decisions” and “faster, sustainable and more inclusive growth” as India enters the first year of its Twelfth Five Year Plan.     

Some of the key highlights of the budget are as follows

  •  GDP is expected to grow at 7.6% in the coming fiscal.
  • Headline inflation expected to moderate further in next few months and remain stable thereafter.
  • Fiscal deficit to be reduced to 5.1% of GDP in the coming fiscal year.
  • Proposed amendments to the Fiscal Responsibility and Budgetary Management Act.
  • Subsidies to be kept under 2 per cent of GDP in 2012-13. Over next 3 year, to be further brought down to 1.75 per cent of GDP. Subsidies related to administering the Food Security Act will be fully provided for.
  • Direct Tax Code to be implemented at the earliest after discussions. Goods & Service Tax to be implemented retrospectively from August 2012
  • 30,000 crores to be raised through disinvestment. At least 51 per cent ownership and management control to remain with Government.
  • During Twelfth Plan period, investment in infrastructure to go up to 50 lakh crore with half of this, expected from private sector.
  • Tax free bonds of 60,000 crore to be allowed for financing infrastructure projects in 2012-13.
  • Income tax exemption limit raised to Rs.2 lakh to provide relief of Rs.2,000; 20 per cent tax on income over Rs.10 lakh, up from Rs.8 lakh.
  • Deduction of up to Rs.10,000 from interest from savings bank accounts.
  • Withholding tax on external commercial borrowings reduced from 20 per cent to five per cent for power, airlines, roads, bridges, affordable houses and fertiliser sectors.
  • External commercial borrowing of up to $1 billion permitted for airline sector. External commercial borrowings permitted to low-cost housing sector. 
  • Service tax and excise duty increased to 12% from 10%.
  • Introduction of white paper on Black Money soon.

As a common man, all these details might not interest you. So I’ll try and break it down for you. The tax limit has been raised, which mean you save some money. But the increase in service tax and excise duty means everything becomes more costly. Except for a few services, 107 services will be taxed. 

ACs, Gold jewellery, Refrigerator, Luxury cars, Air travel, Telephone bills, SUVs, Cigarettes, Branded retail garments, Eating out at restaurants, Hotel accommodation, toiletries, cosmetics, soft-drinks, steel, cement; all are more expensive now! 

Cinema and films, LCDs and LEDs, imported bicycles, housing society charges, LPG
mobile phones,  school education, iron ore equipment, medicines for treating cancer and HIV, processed food, iodised salt, solar power lamps, LED bulbs, natural gas, desktops/laptops are all cheaper now!

Final Word

The budget is not bad. I’ve read reactions from a whole lot of people about how there is nothing is this budget for the aam aadmi. None of those people are aam aadmis. The masses which make up this country are majorly people in the villages and lower sections of the society. The increase in agricultural credit and full food subsidies should help people. It is true, however, that the government’s focus is not the aam aadmi but the macroeconomic environment of the country. The move to curb subsidies at 2% is a commendable one. Tax free bonds for infrastructure are a necessity. Allowing external borrowing will bring much needed relief for the aviation industry. Reduction is price of mining equipment is certainly a good decision. India has vast reserves of coal and iron and yet these two goods constitute a large part of our import bill. It is time India started relying on its own reserves. The hike in service tax and excise duty will definitely cause prices to increase but considering the fiscal deficit facing India, there are hardly any options left.

Of course the budget does leave a few things unsaid. For example there is no definite roadmap for how we are going to achieve 7.6% growth. The estimates seem exaggerated with demand expected to slow. The target of 5.1% of GDP is itself a disappointing one, especially considering the populist budget to be expected next year with elections looming.
All in all, this budget is not aimed at making anyone happy but at ensuring that no one is outraged. The real question is whether it will be enough for the Indian economy? And for the Indian people. 


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