An quick analysis of the Union Budget 2012-13 done by FICCI

1. UNION
BUDGET-
2012-13
E c o n o m i c A ffa i r s a n d R e se a r c h D i v i si o n

2. UNION BUDGET
HIGHLIGHTS
 Fiscal deficit projected at 5.1% of GDP in 2012-13: Based on a projected
buoyancy in non-tax revenue and indirect taxes
 The nominal growth rate of GDP is expected to be 14% for 2012-13: This
translates into a 6.5% inflation rate, assuming a 7.6% GDP projection in the next
fiscal
 Exemption limit for general category of individual taxpayers has been raised
from Rs1.8 lakh to Rs 2 lakh
 Growth impulse could be dampened by the 2% hike in excise duty and service
tax: These hikes are expected to add to inflationary pressures and would work
against budget expectations of lower inflation
 Over the medium term, the Government believes to bring down fiscal deficit
further and has targeted a reduction in fiscal deficit to 4.5% by FY2014 and
3.9% by FY2015: Fiscal consolidation will remain a challenge
 Budget targets to contain the central subsidies under 2% of GDP in 2012-13: It
will be a difficult task
 Gross market borrowings will finance 93% of the fiscal deficit in 2012-13:
Indication of government borrowing to finance non-plan expenditures
 The Government did not enunciate any actionable roadmap for implementation
of either the GST or the DTC
 No revival of investment allowance, no restoration of tax exemption on dividend
income or capital gains for infrastructure capital fund / company and no hike in
depreciation rate in budget
 Reduction in withholding tax on interest payable on External Commercial
Borrowings (ECBs) in certain sectors and extension of concessional tax
treatment on the repatriation of overseas dividends are welcome: The raising of
the ECB limit for infrastructure sector will also encourage investment in the
sector.
 The removal of cascading impact of DDT, which was recommend by FICCI is
most welcome. The extension of tax benefit period for companies engaged in
in-house R&D activities may also provide some relief to the companies.
 Provision of extension of 200% weighted deduction for R&D expenditure is
specially welcome as it has been announced for a period of 5 years
 150% weighted deduction for agricultural extension will hopefully encourage
private sector investment in agriculture and raise crop yields
 For the power sector besides access to low cost funds the Budget has also
extended the sunset date by one year until March 31, 2013 by claiming 100%
deduction of profits for 10 years along with an additional distribution of 20%.
This measure would encourage investment in power generation.
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3. UNION BUDGET
MACROVIEW
FICCI had ex pec ted and r ec om m ended that the budget would inc lude m eas ures f or
prom oting inves tm ent led gr owth. T his was s pec ially reques ted in the c ontex t of
ongoing s lowdown of ec onom ic gr owth whic h c ould be lower than 6.9% in 2011 - 12. T he
nom inal gr owth r ate of G DP is ex pec ted to be 14% f or 2012 - 13. T his trans lates into a
6.5% inf lation r ate, as s um ing a 7.6% G DP proj ec tion in the nex t f is c al. It is not c lear if
the higher gr owth r ate wo uld s ee a s trong revival of the m anuf ac turing s ec tor.
T he G over nm ent has budgeted a f is c al def ic it target of 5.1% of G DP in FY2013 as
agains t an es tim ated 5.9% of G DP (was budgeted at 4.6% of G DP) in FY2012.T his is
bas ed on a pr oj ec ted buoyanc y in non - tax revenue (32% budgeted growth in 2012 - 13
agains t a 5 year c om pounded annual growth rate/ CAG R at 6.1%) , bas is Rs 40,000
c rore s pec tr um pr oc eeds in nex t f is c al. Net tax revenue to Centre is proj ec ted to c lim b
by 20.1% ( 5 year CAG R at 9.9%). Net tax revenue in turn is bas ed on es tim ated
buoyanc y in indir ec t tax es ( ex c is e tax proj ec ted to grow by a s harp 29%, agains t a 5
year CAG R at 5% and s er vic e tax es at 30.5% agains t a 5 year CAG R at 16.7%).
T he G over nm ent has tak en s everal m eas ures to augm ent indirec t t ax es . O n the
s ervic es tax f r ont, the tax bas e has been inc reas ed through the introduc tion of the
negative lis t. T he lis t now c ontains 17 item s , whic h im plies that every other s ervic e
would be tax ed. Apar t f r om this , there is a propos al to rais e the s ervic e tax rate to
12% f rom 10% ear lier , br inging it to the pre - c ris is level.
O n the ex c is e duty f r ont, the s tandard rate on non - petroleum goods is propos ed to be
inc reas ed to 12%. It had been reduc ed to 8% during the peak of the las t global
f inanc ial c r is is an d s inc e then th e G overnm ent has been rolling it bac k in s tages . It
has been pr opos ed that c us tom s duty on gold bars , c oins and platinum would be
inc reas ed f r om 2% to 4%. Duty on nons tandard gold is to be doubled to 10% f rom 5%
earlier. Ex c is e duty on gold has als o been inc reas ed to 3% f rom 1.5% earlier.
T he G over nm ent did not enunc iate any ac tionable roadm ap f or im plem entation of
either the G ST or the DT C .
G rowth im puls e c ould be dam pened by the 2% hik e in ex c is e duty and s ervic e tax .
T hes e hik es ar e ex pec ted to add to inf lationary pres s ure and would work agains t
budget ex pec tations of lower inf lation.
As f ar as per s onal inc om e tax es are c onc erned, the ex em ption lim it f or general
c ategory of individual tax payer s has been rais ed f rom Rs 1.8 lak h to Rs 2 lak hs .
O ver the m edium ter m , the G overnm ent believes to bring down f is c al def ic it f urther
and has tar gete d a r educ tion in f is c al def ic it to 4.5% by FY2014 and 3.9% by FY2015.
FICCI believes f is c al c ons olidation would c ontinue to be one of the m aj or c hallenges .
T he dis inves tm ent tar get at Rs 30,000 c rores is an am bitious one. Additionally, as
m entioned ear lie r , the budgeted s pec trum proc eeds at Rs 40,000 c rores f or the nex t
f is c al as s um es will be dif f ic ult to ac hieve.
T he G over nm ent has als o pr opos ed rationalis ation of tax provis ions that ac c rues f rom
overs eas tr ans f er of s har es holding underlying as s ets in India. T he propos ed
rationalis ation will ef f ec t r etr os pec tively f rom April 1’1962. FICCI believes that any
polic y c hanges s hould always be f orward look ing and not with retros pec tive im pac t as
it hurts the inves tm ent c lim ate and the bus ines s s trategies f or the inves tors .
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4. UNION BUDGET
T able 1: Budget at a glance ( Rs crore and as a % of G DP)
Growth CAGR 10 CAGR 5
2008-09 2009-10 2010-11 2011-12-RE 2012-13-BE
Rate yrs yrs
1 Revenue Receipts 540,259 572,811 788,471 766,989 935,685 22.0 14.2% 9.1%
9.7% 8.9% 10.3% 8.6% 9.2%
a. Tax Revenue (net to centre) 443,319 456,536 569,869 642,252 771,071 20.1 16.7% 9.9%
7.9% 7.1% 7.4% 7.2% 7.6%
b. Non-Tax Revenue 96,940 116,275 218,602 124,737 164,614 32.0 6.2% 5.1%
1.7% 1.8% 2.8% 1.4% 1.6%
1 Capital Receipts (5+6+7)$ 343,697 451,676 408,857 551,730 555,241 0.6 13.1% 34.1%
6.2% 7.0% 5.3% 6.2% 5.5%
2.a. Recoveries of Loans 6,139 8,613 12,420 14,258 11,650 -18.3 -9.3% 29.3%
0.1% 0.1% 0.2% 0.2% 0.1%
2.b. Other Receipts 566 24,581 22,846 15,493 30,000 93.6 19.4% -20.5%
0.0% 0.4% 0.3% 0.2% 0.3%
2.c. Borrowings and other liabilities* 336,992 418,482 373,591 521,980 513,590 -1.6 15.3% 42.4%
6.0% 6.5% 4.9% 5.9% 5.1%
3 Total Receipts (1+4) 883,956 1,024,487 1,197,328 1,318,720 1,490,925 13.1 13.7% 16.6%
15.8% 15.9% 15.6% 14.8% 14.7%
4 Non-Plan Expenditure 608,721 721,096 818,299 892,116 969,900 8.7 12.8% 15.1%
10.9% 11.2% 10.7% 10.0% 9.5%
4.a On Revenue Account of which, 559,024 657,925 726,491 815,740 865,596 6.1 13.2% 18.0%
10.0% 10.2% 9.5% 9.2% 8.5%
4.a.1 Interest Payments 192,204 213,093 234,022 275,618 319,759 16.0 9.9% 12.7%
3.4% 3.3% 3.0% 3.1% 3.1%
4.b On Capital Account 49,697 63,171 91,808 76,376 104,304 36.6 25.9% 33.5%
0.9% 1.0% 3.0% 3.1% 3.1%
5 Plan Expenditure 275,235 303,391 379,029 426,604 521,025 22.1 -4.1% -21.9%
4.9% 4.7% 1.2% 0.9% 1.0%
5.a. On Revenue Account 234,774 253,884 314,232 346,201 420,513 21.5 21.9% 25.2%
4.2% 3.9% 4.9% 4.8% 5.1%
5.b. On Capital Account 40,461 49,507 64,797 80,404 100,512 25.0 27.1% 82.1%
0.7% 0.8% 4.1% 3.9% 4.1%
6 Total Expenditure (9+13) 883,956 1,024,487 1,197,328 1,318,720 1,490,925 13.1 13.7% 16.6%
15.8% 15.9% 0.8% 0.9% 1.0%
6.a Revenue Expenditure (10+14) 793,798 911,809 1,040,723 1,161,940 1,286,109 10.7 16.3% 22.0%
14.2% 14.1% 15.6% 14.8% 14.7%
Of Which, Grants for
87,487 137,505 164,672
6.a.1 creation of Capital Assets
6.b. Capital Expenditure (12+15) 90,158 112,678 156,605 156,780 204,816 19.8 7.0% 3.8%
1.6% 1.7% 1.1% 1.5% 1.6%
7 Revenue Deficit (17-1) 253,539 338,998 252,252 394,951 350,424 30.6 4.2% 31.4%
4.5 -5.2 -3.3 -4.4 -3.4
8 Effective Revenue
Deficit (17-18)# 164,765 257,446 185,752 -27.8
-2.1 -2.9 -1.8
9 Fiscal Deficit {16-(1+5+6)} 336,992 418,482 373,591 521,980 513,590 -1.6 15.3% 42.4%
6 -6.4 -4.9 -5.9 -5.1
10 Primary Deficit (20-11) 144,788 205,389 139,569 246,362 193,831 -21.3 27.7% na
2.6 -3.1 -1.8 -2.8 -1.9
Memoranda
Nominal GDP Growth rate 5,582,623 6,457,352 7,674,148 8,912,178 10,159,884
Growth 12.0 15.7 18.8 16.1 14.0
Source: Budget documents
N o t e : F i g u r e s b e l o w t h e e s t i m a t e s a r e e xp r e s s e d a s a % o f G D P
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5. UNION BUDGET
T able 2: Direct and Indirect t axes (Rs crore and as a % of G DP)
2012-13
vis-à-vis
2011-12
growth CAGR 10 CAGR 5
2008-09 2009-10 2010-11-RE 2011-12-BE 2012-13 rates yrs yrs
1 Gross Tax Revenue 605,299 624,528 786,888 901,664 1,077,611 19.5% 17.2% 11.0%
10.8% 9.7% 10.3% 10.1% 10.6%
2 Direct Tax
2.a. Corporation Tax 213,395 244,725 296,377 327,680 373,227 13.9% 24.3% 14.2%
3.8% 3.8% 3.9% 3.7% 3.7%
2.b. Taxes on Income Other than Corporation Tax 106,046 122,475 141,566 166,679 189,866 13.9% 18.3% 12.9%
1.9% 1.9% 1.8% 1.9% 1.9%
3 Indirect Taxes
3.a. Customs 99,879 83,324 131,800 153,000 186,694 22.0% 14.6% 10.1%
1.8% 1.3% 1.7% 1.7% 1.8%
3.b. Union Excise Duty 108,613 102,991 137,263 150,075 193,729 29.1% 6.9% 5.0%
1.9% 1.6% 1.8% 1.7% 1.9%
3.c. Service Tax 60,941 58,422 69,400 95,000 124,000 30.5% 41.7% 16.7%
1.1% 0.9% 0.9% 1.1% 1.2%
Source: Budget docum ents
N o t e : F i g u r e s b e l o w t h e e s t i m a t e s a r e e xp r e s s e d a s a % o f G D P
It m ight als o be noted that the c apital ex penditure is budgeted to go up by 31% in the
year 2012 - 13. But the gr owth in non - plan c apital ex penditure is es tim ated to be m uc h
higher than the gr owth in plan c apital ex penditure. Henc e an im petus to growth
through pum p pr im ing c apital ex penditure is dif f ic ult to envis age .
T able 3: Expendit ure t rends ( Rs crore and as a % of G DP)
Growth CAGR 10 CAGR 5
2008-09 2009-10 2010-11 2011-12-RE 2012-13 BE Rate yrs yrs
1 Non Plan Expenditure 608,721 721,096 818,299 892,116 969,900 8.7% 12.8% 15.1%
10.9% 11.2% 10.7% 10.0% 9.5%
1.a. Interest payments 192,204 213,093 234,022 275,618 319,759 16.0% 9.9% 12.7%
3.4% 3.3% 3.0% 3.1% 3.1%
1.b. Defence Expenditure 114,223 141,781 154,117 170,937 193,407 13.1% 13.3% 16.9%
2.0% 2.2% 2.0% 1.9% 1.9%
1.c. Subsidies 129,708 141,351 173,420 216,297 190,015 -12.2% 19.5% 32.1%
2.3% 2.2% 2.3% 2.4% 1.9%
1.d. Other Non Plan Expenditure 172,586 224,871 256,740 229,264 266,719 16.3% 11.7% 7.1%
3.1% 3.5% 3.3% 2.6% 2.6%
2 Plan expenditure 275,235 303,391 379,029 426,604 521,025 22.1% 16.1% 20.1%
4.9% 4.7% 4.9% 4.8% 5.1%
2.a. on Revenue Account 234,774 253,884 314,232 346,200 420,513 21.5% 19.1% 18.8%
4.2% 3.9% 4.1% 3.9% 4.1%
2.b. on Capital Account 40,461 49,507 64,797 80,404 100,512 25.0% 8.1% 26.4%
0.7% 0.8% 0.8% 0.9% 1.0%
3 Total Expenditure 883,956 1,024,487 1,197,328 1,318,720 1,490,925 13.1% 13.8% 16.6%
15.8% 15.9% 15.6% 14.8% 14.7%
3.a. on Revenue Account 793,798 911,809 1,040,723 1,161,940 1,286,109 10.7% 14.7% 18.2%
14.2% 14.1% 13.6% 13.0% 12.7%
3.b. on Capital Account 90,158 112,678 156,605 156,780 204,816 30.6% 8.6% 7.3%
1.6% 1.7% 2.0% 1.8% 2.0%
Source: Budget documents
N o t e : F i g u r e s b e l o w t h e e s t i m a t e s a r e e xp r e s s e d a s a % o f G D P
T hough the budget tar gets to c ontain the c entral s ubs idies under 2 % of G DP in 2012 -
13, and br inging them down f r om the c urrent 2.4% will not be eas y. T his is bec aus e
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6. UNION BUDGET
im plem entation of f ood s ec ur ity bill will alone am ount to a m inim um of 0.7% of G DP
and c ould be as high as 1.5% of G DP. W e believe that the es tim ates of f ood s ubs idy
m ay have a downwar d bias , as it does not inc lude s ubs idy s torage and trans port,
leak age c os ts etc ( f ood s ubs idy is proj ec ted to inc reas e by only 3% in 2012 - 13,
agains t a 5 year CAG R at 22.1%) Als o, the budgeted f igures f or oil s ubs idy indic ate a
dec line by about 12% or Rs 24,901 c rores . H owever there has been no word on the
propos ed der egulation of the s ec tor or an inc reas e in dies el pric es . W e hope that the
m uc h requir ed der egulation of the petroleum s ec tor is tak en f orward in the right
earnes t.
T able 4: Subsidy t rends ( Rs crore and as a % of G DP)
2012-13
vis-à-vis
2011-12
growth CAGR 10 CAGR 5
2008-09 2009-10 2010-11 2011-12 RE 2012-13 BE rates Years Years
1 Total Subsidies 129,708 141,351 173,420 216,297 190,015 -12.2% 19.2% 31.9%
2.3% 2.2% 2.3% 2.4% 1.9%
1.a. Fertiliser Subsidy 76,602 61,264 62,301 67,199 60,974 -9.3% 22.3% 21.4%
1.4% 0.9% 0.8% 0.8% 0.6%
1.b. Food Subsidy 43,751 58,443 63,844 72,823 75,000 3.0% 13.0% 22.2%
0.8% 0.9% 0.8% 0.8% 0.7%
1.c. Petroleum Subsidy 2,852 14,951 38,371 68,481 43,580 -36.4% 30.4% 120.7%
0.1% 0.2% 0.5% 0.8% 0.4%
1.d. Interest Subsidies 3,493 2,686 4,680 5,791 7,968 37.6% 25.2% 19.6%
0.1% 0.0% 0.1% 0.1% 0.1%
1.e. Other Subsidies 3,009 4,006 4,223 2,002 2,493 24.5% -1.9% -0.8%
0.1% 0.1% 0.1% 0.02% 0.02%
Source: Budget documents
N o t e : F i g u r e s b e l o w t h e e s t i m a t e s a r e e xp r e s s e d a s a % o f G D P
T he gros s m ar k et bor r o wings f or the year 2011 - 12 have been revis ed upwards by 22%
f rom Rs 41 71 billion ( BE) to Rs 5100 billion (RE). T his f igure is f urthe r ex pec ted to go
up to Rs 5696 billion in 2012- 13. Suc h a high level of borrowing will c ontinue to ex ert
pres s ure on inter es t r ates . Apart f rom dated s ec urities , the G overnm ent is als o
s c heduled to bor r ow Rs 900 billion through t reas ury bills . However the dec reas e in
interes t rates on EPFs is an enc ouraging m ove .
T able 5: G ov ernment Borrow ings (Rs crore and as a % of G DP)
2012-13
vis-à-vis
2011-12
growth CAGR 10 CAGR 5
2008-09 2009-10 2010-11 2011-12 RE 2012-13 BE rates yrs yrs
Gross Market Borrowings 273,000 451,000 437,000 510,000 569,616 11.7% 16.9% 32.0%
4.9% 7.0% 5.7% 5.7% 5.6%
Less repayments 39,370 52,576 111,586 73,586 90,616 23.1% 11.6% 19.3%
0.7% 0.8% 1.5% 0.8% 0.9%
Net Market Borrowings 233,630 398,424 325,414 436,414 479,000 9.8% 18.1% 34.9%
4.2% 6.2% 4.2% 4.9% 4.7%
Source: Budget documents
N o t e : F i g u r e s b e l o w t h e e s t i m a t e s a r e e xp r e s s e d a s a % o f G D P
Interes tingly, as table 6 s hows , the huge inc reas e in gros s borrowings f or the
governm ent in 2012 - 13 m ay c r owd out c redit to private s ec tor. For ex am ple, the ratio
of gros s bor r owings to non - f ood c r edit in 2011 - 12 was 1. 14 indic ating that f or every
rupee of non- f ood c r edit , ther e is a c onc om itant borrowing of Rs 1.14 by the
G overnm ent. Inter es tingly, the r atio of redem ption to gros s borrowings (indic ating f or
every rupee o f G over nm ent borrowing, the am ount that is going purely to repay
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7. UNION BUDGET
previous gover nm ent debt ) was 43 pais e in 2004 - 05, that had dec lined to 16 pais e in
2012- 13. By this logic , the governm ent borrowings s hould have dec lined in 2012 - 13.
However, in c ontr as t, in the nex t f is c al, the m ark et borrowings will f inanc e 93% of the
f is c al def ic it as c om par ed to 84% las t year. T his c learly indic ates that the G overnm ent
is now bor r owing pur ely to f inanc e non - plan ex penditure, as revenue growth has
dec elerated in the las t c ouple of years .
T able 6: G ross borrow ings, crow ding out
and redempt ion
Gross Redemption
Borrowing/ / Gross
Non Food Market
Credit Borrowings
2002-03 0.88 0.22
2003-04 1.03 0.35
2004-05 0.29 0.43
2005-06 0.37 0.27
2006-07 0.35 0.24
2007-08 0.39 0.22
2008-09 0.66 0.14
2009-10 0.97 0.12
2010-11 0.64 0.26
2011-12 1.14 0.14
2012-13 0.16
Source: Budget documents
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8. UNION BUDGET
SECTOR ANALYSIS
T able 7 gives us an im pac t of budget on the dif f erent s ec tors . As c an be s een f rom the
table, m os t of the i s s ues whic h were in the wis h lis t have not been f ulf illed. Sec tors
lik e ins uranc e, r etail, war ehous ing, environm ent & c lim ate c hange and c hem ic al are
the ones wher e is s ues have not been addres s ed ex tens ively . A m ore detailed im pac t of
the budget has been pr ovided below bas ed on dif f erent s ec tors .
T able 7: FICCI’s Scorecard of W ish list & Budget Impact
Wish-list Budget Impact
Sector Not
No of wishes Addressed +ve -ve
Addressed
Chemical 15 2 13 7 1
FMCG 6 1 5 3 1
Energy, Defense &
3 3 2
Aerospace
Oil & Gas 3 3
Retail 8 8 7
Medical Devices 3 1 2 1
Technical Textiles 7 4 3 4 2
Warehousing 21 5 16 5 1
MSME 4 1 3 7
Power 8 4 4 2
Infrastructure 1 1
Homeland Security 1
ICT 3 2
Agriculture 5 5
Environment &
10 10
Climate change
Textiles 8 2 6 10
Gems & Jewellery 2 2 1 3
Wellness 4 4
Health 11 3 8 5
Human Resource 7 3 4 4 2
Banking 3 3
Insurance & Pensions 4 1 3
Health Insurance 4 2 2
Microfinance 1 1
Capital Markets 7 7
Total 145 45 100 53 21
Source: FICCI Research
F o o t n o t e : c o u n t s o f ‘ A d d r e s s e d ’ a n d ‘ N o t A d d r e s s e d ’ wi s h - l i s t a d d s u p t o t h e n u m b e r o f wi s h e s m a d e
i n e v e r y s e c t o r . H o we v e r , c o u n t s f o r B u d g e t I m p a c t wi l l n o t a d d u p t o t h e n u m b e r s o f wi s h e s a s r e s t o f
the impact are neutral
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9. UNION BUDGET
Agriculture
 The budget has plac ed a m aj or em phas is on agric ulture by way of announc ing
right polic ies that would ens ure m ore inves tm ents in agric ulture ex tens ion,
developm ent of agr i m ar k eting inf ras truc tur e, inc reas ing agri c redit availability
to the f ar m er s , etc . FICCI welc om es thes e initiatives , as they will give a big
pus h to agr ic ultur e gr owth
 T he long s tanding dem and of FICCI that 150 per c ent weighted deduc tion of
ex penditur e be ex tended to inves tm e nts m ade in the ex tens ion s ervic es has
been c ons ider ed. T his is a very pos itive m ove as it will lead to m ore
inves tm ents by the pr ivate s ec tor in agric ulture ex tens ion, whic h will res ult in
inc r eas ing yields .
 T he gover nm ent has c ons idered FICCI’s s ugges tion to ex tend interes t
s ubvention f or pos t har ves t loans agains t warehous e rec eipts . T his will reduc e
the dis tr es s s elling by the f arm ers .
 FICCI als o welc om es the dec is ion to enhanc e the inves tm ent link ed deduc tion
f or war ehous es and c old s torages to 150 per c ent. T his would attrac t large
private inves tm ents in the c old c hain ac ros s the c ountry whos e dem and f ar
outs tr ips the pr es ent handling c apac ity. T he enhanc ed c old c hain and
war ehous ing f ac ilities would im m ens ely c ontribute to the governm ent c of f ers as
thes e would r educ e hor tic ultural produc e was tages to an ex tent of 30 %. Apart,
s ignif ic ant alloc ation was m ade f or inc reas ing the warehous ing c apac ity in the
c ountr y.
 Sever al announc em ents m ade on indirec t tax es f ront by way of reduc tion in
im por t duty on f ar m equipm ent, green hous es , water s oluble f ertilizers would
als o r es ult in lower input c os ts f or f arm ers .
 G over nm ent’s dec is ion to s et up a c om pany to f inanc ing m inor irrigation work s
and inc luding ir r igation pr oj ec ts under v iability gap f unding is an innovative as it
would enc our age s ever al private c om panies to enter into the bus ines s of
developing ir r igation f ac ilities .
 Rs 200 c r or e f or Res earc h Rewards f or agric ultural res earc hers f or
break thr oughs is yet another innovativ e polic y approac h adopted by the
gover nm ent
Chemicals
 An es tim ated 40 % of the f r uit and vegetable produc tion in India goes was te due
to lac k of s tor age, c old c hain and trans port inf ras truc ture. T o addres s thes e
is s ues , dur ing 2011 - 12, approval is being given to s et up 15 m ore Mega Food
Par k s . Spec ialty c hem ic als will be part of this f ac ilitation.
 T o attr ac t inves tm ent in this s ec tor, henc ef orth, c apital inves tm ent in the
c reation of m oder n s tor age c apac ity will be eligible f or viability gap f unding
s c hem e of the Financ e Minis try. It is als o p ropos ed to rec ognize c old c hains
and pos t - har ves t s tor age as an inf ras truc ture s ub - s ec tor.
 In or der to give a boos t to inf ras truc ture developm ent in railways , ports , hous ing
and highways developm ent, tax f ree bonds of Rs 30,000 c rores to be is s ued by
var ious G over nm ent undertak ings in the year 2011 - 12. T his inc ludes Indian
8

10. UNION BUDGET
Railway Financ e Cor por ation Rs 10,000 c rores , National Highway Author ity of
India Rs 10,000 c r or es , HUDCO Rs 5,000 c rores and Ports Rs 5,000 c rores .
 Polic y ex pec ts to tak e the s hare of m anuf ac turing in G DP f rom about 16 % to
25% over a per iod of ten years . A G roup of Minis ters has been s et up to
c ons ider all is s ues r elating to rec onc iliation of environm ental c onc erns
em anating f r om var ious departm ental ac tivities inc luding thos e relat ed to
inf r as tr uc tur e and m ining. T his G roup will als o s ugges t c hanges in the ex is ting
s tatutes , r ules , r egulations and guidelines and m ak e its rec om m endations in a
tim e bound m anner . T his will benef it the c hem ic al indus try als o.
 W eighted deduc tion on paym ents m ade to National Laboratories , univer s ities
and Ins titutes of tec hnology, f or s c ienti f ic res earc h, enhanc ed f rom 175 % to
200%.
 Mic r o- ir r igation is an environm ent - f riendly and ef f ic ient m eans of irrigation
es pec ially f or dr y land f ar m ing. I t is propos ed to reduc e the bas ic c us tom s duty
on m ic r o- ir r igation equipm ent f rom 7.5 % to 5%. T his is an opportunity f or the
Plas tic s indus tr y.
 Full ex em ption f r om bas ic c us tom s duty and a c onc es s ional CVD of 1% to
s team c oal f or a per iod of two years till Marc h 31, 2014
FM CG
 Direc t tax : Ex em ption lim it of pers onal inc om e tax inc reas ed, will be leading to
augm entation in the dis pos able inc om e: Should give s tim ulus to the dem and of
FMCG pr oduc ts .
 Cas c ading ef f ec t of dividend dis tribution tax rem oved: T o benef it Ind ian MNCs
 G ST networ k ex pec ted to roll out by Augus t 2012: No c larity on the
im plem entation tim eline.
 Standar d r ate of ex c is e inc reas ed f rom 10 % to 12%, the m erit rate f rom 5 % to
6%, and the lower m er it rate f rom 1 % to 2%: c ould lead to inc reas e in the
produc t pr ic e and would have inf lationary im pac t
 Inc r eas e in bas ic ex c is e duty on c igarettes of m ore than 65m m length by adding
an ad valor em c om ponent of 10 % to the ex is ting s pec if ic rates . T he ad valorem
duty would b e c har geable on 50% of the Retail Sal e Pric e dec lared on the pac k :
Pric es will inc r eas e of c igarettes m anuf ac tured dom es tic ally.
 Inc r eas e in bas ic ex c is e duty on hand - rolled bidis f rom 8 to 10 per thous and
and m ac hine - r olled bidis f rom 19 to 21 per thous and, however ex is ting
ex em ption avail able to hand - rolled bidis f or c learanc es up to 20 lak h bidis per
annum is being r etained: It is an ef f ort to gain revenue and s truc ture the
unor ganis ed s ec tor .
9

11. UNION BUDGET
Energy, Def ense and Aerospace
 T he budget has not addr es s ed any of the is s ues whic h are plaguing the growth
of the pr ivate s ec tor in def enc e. No s tep is being tak en in the direc tion of
c reating a level playing f ield f or the private s ec tor. Private s ec tor c ontinues to
be on an uneven f ooting unable to c om petitively bid agains t the DPSUs and the
O EMs owing to the is s ues s uc h as FERV, and uneven tax es and duties .
 Although the gover nm ent has approved the guidelines f or es tablis hing the j oint
ventur e c om panies by def enc e PSUs in PPP m ode, it c an’t be c laim ed that
s etting of guidelines alone will boos t s e lf relianc e and indigenization. T he
guidelines will ens ur e tr ans parenc y in s etting up of J VCs and not direc tives to
DPSUs to f or m s J Vs with private s ec tor. As DPSUs ’ order book s are f ull with
order s and over f lowing in s om e c as es , the intent to f orm J V in D PSUs is not
ther e.
Retail
 Direc t tax : Ex em ption lim it inc reas ed, although a tok en inc reas e yet will be
leading to augm entation in the dis pos able inc om e : Should give s tim ulus to the
retail s ales
 Indir ec t tax : Ser vic e tax inc reas ed f rom 10% to 12%: Foo d s ervic es retailing to
have an im pac t; eating out would be ex pens ive. In addition inc reas e in s ervic e
tax on r entals of c om m er c ial prem is es would lead to inc reas e in c os t f or the
retailer s .
 DT C def er r ed no c lar ity on G ST tim elines
 Ef f or ts to c ontinue to build a c ons ens us in c ons ultation with the State
gover nm ents . : No f r es h air f or m ulti - brand retailing in this res pec t
 Inves tm ent link ed deduc tion of c apital ex penditure inc urred in the c old c hain
bus ines s is pr opos ed to be provi ded at the enhanc ed rate of 150% , as agains t
the c ur r ent r ate of 100% : W ill attrac t inves tm ent in c old c hain inf ras truc ture and
im pr ovis e the s upply c hain
 W eighted deduc tion of 150% on ex penditure inc urred f or agri - ex tens ion s ervic es
whic h will tr ic k le down to give boos t to f ood retailing s ec tor as well
 Conc es s ional im por t duty to be available f or ins tallation of Mec hanis ed Handling
Sys tem s and Pallet Rac k ing Sys tem s in m andis or warehous es f or hortic ultural
produc e: Mec hanis ation would lead to reduc tion in was tage
M edical Dev i ces
 T he im pac t of c us tom d uty reduc tion will be f ar reac hing in c utting down the
c os ts of m edic al devic es and equipm ents where titanium diox ide is us ed as an
input.
T echnical T ext iles
 T he us e of r ight m ix of f ibr e as is the trend worldwide
10

12. UNION BUDGET
 Lik ely to enc o ur age m anuf ac turing of tec hnic al tex tiles item s lik e bullet proof
helm ets in the c ountr y and m ak ing them c om petitive
 G eo- tex tiles m anuf ac tur ing will get a boos t in the c ountry if the dom es tic ally
produc ed item s ar e enc our aged under the Rs 500 c rores s c hem e announc ed f or
Nor th- Eas t f or applic ation of geo - tex tiles
 R&D is m us t f or tec hnic al tex tiles , henc e the budget will have s alutary im pac t
on the s ec tor
 G reen hous e c over s c an be im ported at bas ic im port duty of 5% now as agains t
10%. May dis inc entive lo c al m anuf ac turing here
 W eaving is weak link in the tex tiles value c hain and needs to be m odernis ed.
Henc e, c us tom duty ex em ption on s huttles loom s will help the s ec tor in
upgr ading the tec hnology
W arehousing
 T he pr opos al f or s etting up the national f ood Proc es s ing Mis s ion is a welc om e
m ove whic h will def initely c ontribute to enhanc ed growth of the s ec tor on
ac c ount of im pr oved c entr e s tate c oordination and ex ec ution of polic ies .
 T he inc r eas e in ex c is e duty ac r os s c ategories ranging f rom 1 - 2% will c ontrib ute
to inf lationar y pr es s ur es and we s eek a roll bac k . Sinc e the indus try is low
m ar gin and high volum e the roll bac k bec om es even m ore pertinent.
 Enhanc em ent in inves tm ent link ed deduc tion of c apital ex penditure towards c old
c hain f ac ility, war ehous es i s a pos itive m ove towards inc entivizing f low of
m oney in thes e ar eas .
 Creation of 2 m illion tonnes of s torage c apac ity in the f orm of m odern s ilos has
already been appr oved. Nearly 15 m illion tonnes c apac ity is being c reated under
the Pr ivate Entr epr eneu r ’s G uarantee Sc hem e, of whic h 3 m illion tonnes of
s tor age c apac ity will be added by the end of 2011 - 12 and 5 m i llion would be
added nex t year
 T he r educ tion in c us tom s duty on probiotic s and Soya protein c onc entrate and
is olated s oya pr otein as well as re duc tion in ex c is e duty on all proc es s ed s oya
f ood pr oduc ts , as als o the reduc tion in c onc es s ional bas ic c us tom s duty along
with r educ ed ex c is e duty of 6 % on iodine, is a s tep in the right direc tion
towar ds ac hieving nutr ition and health goals
M SM E
 Inc r eas e in Com puls or y audit lim it of s m all bus ines s will help c urtail c os t of
hiring auditor s / legal ex per ts
 In or der to enhanc e availability of equity to MSME s ec tor, s etting up of Rs .
5,000 c r or es India O ppor tunities Venture Fund with SIDBI is a welc om e s te p.
T his will help MSMEs f unding requirem ent during their s tart- up as well as
growth s tage
11

13. UNION BUDGET
 For the year 2012 - 13, tax - f ree bonds f or Rs . 5000 c rores were announc ed f or
f inanc ing in f r as tr uc tur e pr oj ec ts f or SIDBI
 In addition to 4 m ega handloom c lus ters alre ady operationalis ed, the
announc em ent of two m or e m ega c lus ters , one to c over Prak as am and G untur
dis tr ic ts in Andhr a Pr ades h and the other f or G odda and neighbouring dis tric ts
in J har k hand is a welc om e m ove f or prom oting c lus ter developm ent f or MSMEs .
Als o pr oviding as s is tanc e in s etting up of dorm itories f or wom en work ers in the
5 m ega c lus ter s r elating to handloom , power loom and leather s ec tors would
inc r eas e em ploym ent opportunities f or wom en.
 T he alloc ation f or Pr im e Minis ter’s Em ploym ent G eneration Program m e
( PMEG P) has been inc r eas ed by 23% f rom Rs . 1,037 c rore in 2011 - 12 to Rs .
1,276 c r or e in 2012 - 13. T his would eventually help in broadening
entr epr eneur s hip bas e and thereby inc reas ing the em ploym ent opportunity in
the MSME s ec tor .
 In or der to pr o vide im petus to the MSME engaged in produc tion of low - c os t
m edic al devic es , a r educ ti on on bas ic c us tom s duty to 2.5% with c onc es s ional
CVD of 6% on s pec if ied parts , c om ponents and raw m aterials f or the
m anuf ac tur e of s om e dis pos ables and ins trum ents was a nnounc ed. Als o, f ull
ex em ption f r om bas ic c us tom s duty and CVD is als o being ex tended to s pec if ied
raw m ater ials f or the m anuf ac ture of c oronary s tents and heart valves . T hes e
c onc es s ions would be s ubj ec t to ac tual us er c ondition. T his announc em ent will
help Indian m anuf ac tur er s to bring out indigenis ed produc ts at low c os t.
Pow er
 Fuel r ef or m s : G over nm ent’s apprec iation f or the c onc erns of power s ec tor
s tak eholder s par tic ular ly pertaining to the f uel is s ues is welc om e. T he ef f orts
s tar ted by PMO by m anda ting Coal India Lim ited to s ign Fuel Supply
Agr eem ents ( with under tak ings having s igned the PPAs and lik ely to
c om m is s ion bef or e or by Marc h 31, 2015). T hes e have been f urther enhanc ed
by f ull ex em ption of bas ic c us tom s duty and a c onc es s ional CVD of 1% on
s team c oal f or a per iod of 2 years till Marc h 2014. O ther f uels us ed f or power
gener ation s uc h as natural gas and LNG , uranium have als o been f ully
ex em pted f r om bas ic c us tom s duty. T he propos ed c ons titution of an inter -
m inis ter ial gr oup to under tak e peri odic review of the alloc ated c oal m ines and
m ak e r ec om m endations on de - alloc ations , if s o required is als o welc om e. T hes e
m eas ur es c oupled with f ull ex em ption f rom bas ic c us tom s duty f or c oal m ining
proj ec ts will c er tainly m ak e the proc es s m ore ac c ountable and hopef ully lead to
greater dom es tic ex plor ation of c oal.
 Financ ing Im per atives : ECBs have been allowed to part - f inanc e Rupee Debt of
ex is ting power pr oj ec ts and tax - f ree bonds am ounting INR 10,000 c rores have
been pr opos ed f or the power s ec tor. For t he power s ec tor, bes ides ac c es s to
low c os t f unds , the Budget has als o propos ed ex tens ion of the s uns et date by
one year f or power s ec tor undertak ings s o that they c an be s et up on or bef ore
Mar c h 31, 2013 f or c laim ing 100% deduc tion of prof its f or 10 year s . Additional
depr ec iation of 20% in the initial year is propos ed to be ex tended to new as s ets
ac quir ed by power gener ation c om panies . T he dec is ion to rem ove the c as c ading
ef f ec t of Dividend Dis tr ibution T ax is als o welc om e.
12

14. UNION BUDGET
Homeland Securit y
 Ef f or ts to i nc r eas e the availability of res idential quarters to f orc es . In 2012 - 13,
it is envis aged to c ons tr uc t nearly 4,000 res idential quarters f or Central Arm ed
Polic e For c es f or whic h 1,185 c rore s are propos ed to be alloc ated
 A pr ovis ion of 3,280 c r or es f or 2012 - 13 has als o been m ade f or c ons truc tion of
of f ic e buildings inc luding land ac quis ition and barrac k s to ac c om m odate 27,000
per s onnel. T his will pr ovide better work ing environm ent and inc entive f or people
to s er ve in var ious f or c es .
ICT
 Need to get f ur ther elabor ation on the viability gap f unding announc ed f or phone
tower s .
 Som e m obile phone par ts have been ex em pted f rom bas ic c us tom s duty whic h
is good news
 Inc r eas e in s er vic e tax will hit the end c us tom ers in telec om s ec tor, m ore s o
when the indus tr y is f ac ing lots of unc ertainty
 Foc us on e - enablem ent by s tres s ing on enabling e - f iling, e - paym ent of tax es ,
c om puter ization of c om m er c ial tax es , Creation of online platf orm s etc .
 All thr ee public s ec tor O il Mark eting Com panies have launc hed LPG
trans par en c y por tals to im prove c us t om er s ervic e and reduc e leak age
 Mobile- bas ed s ys tem that gives all inf orm ation on f ertilizer and s ubs idies
m ovem ents to be r olled out nation - wide is pos itive s tep
 Us e of Aadhaar as power f ul ef f ec tive tool in ac hieving good gover nanc e and
m aintaining tr ans par enc y
 Endeavour to s c ale up and roll out Aadhaar enabled paym ents f or various
gover nm ent s c hem es in at leas t 50 dis tric ts within nex t 6 m onths
Env ironment , Climat e Change & R enew able Energy
 No c hange in the ex is ting c ondition
T extiles
 Ex c is e duty on r eadym ade G arm ents f urther reduc ed: Ex c is e duty of 10% is
applic able to br anded r eady- m ade garm ents with abatem ent of 55% f rom the
Retail Sale Pr ic e. Along with inc reas e in duty to 12%, FM propos es to enhanc e
the abatem ent to 70%. As res ult, the inc idenc e of duty as a perc entage of the
Retail Sale Pr ic e would c om e down f rom 4.5% to 3.6%.In term s of im pac t, there
would be m ar ginal benef it to tex tile c om panies in the higher end of the value
c hain
 Autom ated s huttle loom s ex em pted f ro m c us tom s duty: Fully ex em pt autom atic
s huttle - les s loom s f r om bas ic c us tom s duty of 5% would have the pos itive
im pac t on weaving indus tr y and s pec ially Denim s ec tor
13

15. UNION BUDGET
 Mor e Handloom c lus ter s : Setting up of two m ore handloom m ega c lus ters , one
to c over Pr ak a s am and G untur dis tric ts in Andhra Prades h and other f or G odda
and neighbor ing dis tr ic ts in J hark hand in addition to 4 m ega handloom c lus ters
already oper ating.
 T hr ee W eaver 's Ser vic e Centers one eac h in Mizoram , Nagaland and J hark hand
to be s et up f or pr oviding tec hnic al s upport to poor handloom weavers
 Setting up of dor m itor ies f or wom en work ers in the 5 m ega c lus ters relating to
handloom , power loom and leather s ec tors
 Rs 500 c r or es pilot s c hem e in twelf th plan f or prom otion and applic ation of G eo -
tex tiles in the Nor th Eas t Region
 Reduc tion of bas ic c us tom s duty on raw m aterials
 Mega Power loom Clus ter: A Power loom Mega Clus ter will be s et up in
Ic halk ar anj i in Mahar as htr a with budget alloc ation of Rs 70 c rores
 Relief to Silk indus tr y: Full ex em pt ion f rom bas ic duty is being ac c orded to
autom atic s ilk r eeling and proc es s ing m ac hinery as well as its parts . It is als o
propos ed to r es tr ic t thes e ex em ptions and the ex is ting c onc es s ional rateof
bas ic c us tom s duty of 5 % only to new tex tile m ac hinery
 Sec ond- hand m ac hiner y would now attrac t bas ic duty of 7.5%
 T o r educ e bas ic c us tom s duty on wool was te and wool tops f rom 15% to 5%
 T o r educ e bas ic c us tom s duty on T itanium diox ide f rom 10% to 7.5%
G ems & Jew ellery
 Ex c is e duty s tays at 1%
 Cus tom duty on G o ld and Platinum duty has been inc reas ed f rom 2% to 4%.
T his will af f ec t the end us er, s inc e the duty hik e will be pas s ed on to them
 Branded Silver J eweller y is ex em pted f rom ex c is e duty; as s uc h there is no
branded s ilve r j eweller y available in m ark et
 Cut and Polis hed c olor ed gem s s tone to attrac t bas ic c us tom duty of 2% at par
with Diam onds . T his will have m arginal im pac t.
Health
 Inves tm ent link deduc tion of c apital ex penditure f or c ertain bus ines s es
inc luding hos pitals pr opos ed to be provi ded at the enhanc ed rate of 150% whic h
will inc lude hos pitals . T he m eas ure will inc rem entally inc entivize hos pital
penetr ation into tier - II and tier - III c ities . However, the dem and f or
‘Inf r as tr uc tur e Status ’ has not been m et whic h would have a f ar greater im pac t
on the ex pans ion of num bers of beds in T ier II - T ier III c ities .
14

16. UNION BUDGET
 W ithin the ex is ting lim it f or deduc tion allowed f or health ins uranc e, a deduc tion
of up to Rs .5000 is being allowed f or preventive health c hec k ups .
o T his would benef it the end c ons um er in a big way; the propos al would
lead to m ove towar ds prevention and m anagem ent of dis eas es as als o
health c ouns eling ins tead of j us t c urative healthc ar e whic h is the need of
the hour
o Hos pitals and s tandalone diagnos tic s c enters would benef it through
s ubs tant ial additional bus ines s .
o Health ins ur anc e indus try c an als o benef it indirec tly through better ris k
pr of iling of c ons um ers and m ore s c ientif ic pric ing in the long run.
 Alloc ation f or NRHM pr opos ed to be inc reas ed f rom Rs .18,115 c rores in 2011 -
12 to Rs .20 ,822 c r or es in 2012 - 13.
o Additional f unding will pos itively im pac t various public health initiatives
of the G over nm ent at the rural level.
 National Ur ban Health Mis s ion is being launc hed.
o T his will have a pos itive im pac t on inc luding the urban poor in the public
health initiatives of the G overnm ent whic h was neglec ted until now
Human Resource
 G over nm ent has lar gely m is s ed out on the FICCI rec om m endations f or higher
educ ation. Ex c ept f or the routine inc reas e in the f und alloc ation f or the s ec tor,
ther e has not been any m aj or announc em ent m ade. In f ac t, the budget s peec h
f inds no m ention of higher educ ation anywhere, thereby not giving a c lear
pic tur e of the am ount alloc ated f or higher educ ation this year. Als o the m uc h
awaited im pending Bills on higher educ a tion f ound no plac e in his s peec h whic h
would f ur ther aggr avate the anx iety of s tak eholders , m ore s o f rom the f oreign
higher educ ation pr ovider s .
Higher Educat ion
 G over nm ent’s pr opos al to c reate a Credit G uarantee Sc hem e f or educ ation
loans thr ough bank s to ens ure better f low of c redit to des erving and m eritorious
s tudents will def initely enhanc e the af f ordability of higher educ ation am ongs t
the m iddle and low inc om e groups there by inc reas ing the G ER.
 T o pr om ote inves tm ent in res earc h and developm ent, t he governm ent has
ex tended the weighted deduc ti on of 200% f or R&D ex penditure in an in - hous e
f ac ility beyond Mar c h 31, 2012 f or a period of f ive years whic h c ertainly im pac t
the R&D gr owth in univer s ities and res earc h c entres .
 G over nm ent’s announc em ent o f weighted deduc tion of 150% of ex penditure
inc ur r ed on s k ill developm ent in m anuf ac turing s ec tor would partially help in
addr es s ing s hor tage of s k illed m anpower in the m anuf ac turing s ec tor and would
gener ate em ploym ent. FICCI’s initiative of s etting up Na tional Knowledge
Func tional Hubs ( NKFH) f or c reating a s us tained m ec hanis m f or indus try -
ac adem ia link age f oc us ing on c apital goods /m anuf ac turing will gain by
15

17. UNION BUDGET
attr ac ting c or por ate inves tm ent in the hub. Planning Com m is s ion is als o
propos ing to integr ate thi s m odel in the 12th Plan.
School Educat ion
 21.7% inc r eas e in budget alloc ation ( Rs 25,555 c rores f or 2012 - 13) f or Sarva
Shik s ha Abhiyan ( SSA) whic h is being c urrently im plem ented through Right to
Educ ation ( RT E) would c ertainly help in m eeting the res our c e c runc h and help
in inc r eas ing liter a c y level in the c ountry
 T he m ention of s etting up 6000 m odel s c hools is one of the elem ents f rom las t
year ’s budget. 2500 m odel s c hools to be built in PPP a f ram ework has not tak en
of f due lac k of c ons ens us between t he governm ent and the private s ec tor.
Henc e, ther e is an ur gent need by the governm ent to ex pedite the proc es s s o
that it f r uc tif ies in the 12th Plan period
 29% hik e in f und alloc ation (Rs 3124 c rores ) f or Ras htriya Madhyam ik Shik s ha
Abhiyan ( RMSA) whic h was launc hed in 2009 to enhanc e ac c es s to quality
s ec ondar y educ ation is a good m ove f orward to arres t s c hool dropout rate at the
m iddle s c hool level.
16